Merger synergies and high prices not discounted; Upgrading to Buy

Transcription

1 June 14, 2007 ACTION Buy Return Potential: 16% Merger synergies and high prices not discounted; Upgrading to Buy Source of opportunity Despite the share price rise over the past year, we believe AEM offers further upside potential if we factor in synergies available from its pending merger with ASM Brescia and higher electricity prices for longer. We upgrade the stock from Neutral and add it to our Buy List and increase our target price to 3.35 (from 3.00) to take into account both the higher than expected merger synergies with ASM and higher long-term commodity prices. Investment Profile: AEM SpA Low Growth Returns * Multiple Volatility Percentile 20th 40th 60th 80th 100th AEMI.MI Europe Utilities Peer Group Average High Growth Returns * Multiple Volatility * Returns = Return on Capital For a complete description of the investment profile measures please refer to the disclosure section of this document. Catalyst AEM is due to present its new business plan in September and will report its progress on the merger with ASM Brescia. With management already having indicated that it expects to improve on the synergies and growth targets announced so far, we would expect this event to potentially act as a catalyst. Further mergers or acquisitions of local municipalities could be announced in the coming quarters, potentially releasing further synergies. Valuation While we still expect Italian electricity prices to decline, we now assume a US$60 per bbl long-term oil price from 2009 (vs. US$40 per bbl previously) and 20 per tonne CO2 prices, leading to a 66 per MWh long-term weighted average (pool) wholesale price vs. 53 previously. This leads us to increase our valuation for AEM s hydro (0.93GW) by 0.2 per share. Higher than expected merger synergies with ASM ( 90 mn announced vs. our estimate of 50 mn) have an additional 0.14 per share positive impact on our valuation. We base our 12-month target price on a SOTP, which gives a value of Our estimates do not yet reflect the ASM merger. Key risks Key risks for AEM are a fall in wholesale prices or not achieving synergies. INVESTMENT LIST MEMBERSHIP Pan-Europe Buy List Coverage View: Cautious Italy: Power Key data Current Price ( ) month price target ( ) 3.35 Upside/(downside) (%) 16 Market cap ( mn) 5,179.6 Enterprise value ( mn) 13, /06 12/07E 12/08E 12/09E Revenue ( mn) New 6, , , ,652.5 Revenue revision (%) EBIT ( mn) New EBIT revision (%) 0.0 (1.0) EPS ( ) New EPS ( ) Old EV/EBITDA (X) P/E (X) Dividend yield (%) FCF yield (%) 25.9 (8.9) CROCI (%) Price performance chart Jun-06 Sep-06 Dec-06 Mar-07 AEM SpA (L) FTSE World Europe (R) Share price performance (%) 3 month 6 month 12 month Absolute Rel. to FTSE World Europe Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 6/13/2007 close Matija Gergolet +44(20) matija.gergolet@gs.com Goldman Sachs International Jose del Alcazar +44(20) jose.delalcazar@gs.com Goldman Sachs International Graeme Moyse +44(20) graeme.moyse@gs.com Goldman Sachs International Deborah Wilkens +44(20) deborah.wilkens@gs.com Goldman Sachs International The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the text preceding the disclosures. For other important disclosures go to Analysts employed by non-us affiliates are not required to take the NASD/NYSE analyst exam. The Goldman Sachs Group, Inc. Global Investment Research Goldman Sachs Global Investment Research 1

2 AEM SpA: Summary financials Profit model ( mn) 12/06 12/07E 12/08E 12/09E Balance sheet ( mn) 12/06 12/07E 12/08E 12/09E Total revenue 6, , , ,652.5 Cash & equivalents Operating costs (5,589.9) (5,517.2) (5,928.7) (6,182.0) Accounts receivable 1, , , ,372.0 R&D Stocks Lease payments Other current assets Other operating profit/(expense) Current assets 2, , , ,841.4 EBITDA 1, , , ,470.5 Depreciation & amortisation (677.4) (617.4) (650.7) (647.4) Accounts payable (1,768.0) (2,078.0) (2,217.7) (2,286.7) EBIT Other current liabilities (238.2) (238.2) (238.2) (238.2) Net interest income/(expense) (175.0) (231.7) (237.2) (208.0) Current liabilities (2,006.2) (2,316.2) (2,455.9) (2,524.9) Associates Profit/(loss) on disposals Gross PP&E and intangibles 11, , , ,645.9 Others (recurring) Net PP&E 7, , , ,161.8 Pretax profits Net intangibles (20.9) (45.5) (72.5) (100.6) Income tax (142.0) (177.7) (183.9) (186.4) Total investments Tax rate (%) Other long-term assets 2, , , ,166.9 Minorities (160.0) (164.3) (152.3) (151.2) Long-term assets 10, , , ,151.6 Preferred dividends Net income (pre-exceptionals) Total assets 12, , , ,993.0 Other non-recurring items post tax Net income Unfunded pensions & other provs (829.0) (856.7) (886.3) (916.8) EPS (underlying) ( ) Deferred taxes & other liabilities (769.0) (769.0) (769.0) (769.0) EPS (basic, reported) ( ) Long-term liabilities (1,598.0) (1,625.7) (1,655.3) (1,685.8) Weighted shares outstanding (mn) 1, , , ,784.0 Total shareholders' equity 1, , , ,823.2 Common dividends declared Minority interest 2, , , ,715.8 DPS ( ) Short-term debt 2, , , ,161.0 Dividend payout ratio (%) Long-term debt 3, , , ,082.3 Dividend cover (X) Capitalised leases Capital employed 8, , , ,782.3 Growth & margins (%) 12/06 12/07E 12/08E 12/09E Adj for unfunded pensions & GW (2,342.8) (2,356.7) (2,371.5) (2,386.7) Revenue growth (0.5) Adj capital employed 7, , , ,395.5 EBITDA growth (1.6) Gross cash invested 11, , , ,632.8 EBIT growth (2.4) Net income growth 24.7 (17.4) Ratios 12/06 12/07E 12/08E 12/09E EPS growth (9.5) DPS growth CROCI (%) EBITDA margin CROCI/WACC (X) EBIT margin ROIC (%) ROIC/WACC (X) Cash flow statement ( mn) 12/06 12/07E 12/08E 12/09E ROA (%) WACC (%) Net income Inventory days D&A Asset turnover (X) Minority interest Net debt/equity (%) Other recurring items EBITDA interest cover (X) Post tax cash flow from operations 1, , , ,107.6 Net inc/(dec) working capital (96.5) (17.2) (8.5) Valuation 12/06 12/07E 12/08E 12/09E Capital expenditures (617.0) (632.5) (398.5) (223.5) EV/sales (X) Acquisitions (90.0) (380.0) EV/EBITDAR (X) Divestitures EV/EBITDA (X) Dividends paid (common & pref) (108.0) (144.0) (162.0) (180.0) EV/EBIT (X) Other non-recurring items (109.0) P/E (X) Surplus/(deficit) (191.3) Dividend yield (%) FCF yield (%) 25.9 (8.9) Capex/D&A (%) EV/GCI (X) Reinvestment rate (%) EV/adj. capital employed (X) Cash flow cover of dividends (X) Price/book (X) Free cash flow cover of dividends (X) 7.2 (3.2) Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates. Analyst Contributors Matija Gergolet matija.gergolet@gs.com Deborah Wilkens deborah.wilkens@gs.com Jose del Alcazar jose.delalcazar@gs.com Graeme Moyse graeme.moyse@gs.com Goldman Sachs Global Investment Research 2

3 Valuation: SOTP 3.35 per share, Upgrading to Buy Exhibit 1: AEM Milano SOTP valuation: 3.35 per share AEM Milano Spa mn per share Basis for valuation Gas distribution RAB Net RAB end 2007E Gas supply RAB c.0.9mn 150 per customer District heating Several projects PV of import contract (Plurigas) DFC Cost outperformance, return spread % premium to RAB Total GAS 1, Electricity distribution (RAB estimate) & supply End 2007E, inclding regulatory upward revision of c. 100mn Electricity supply mn 150 each Cost outperformance, return spread % premium to RAB Electricity networks 1, Hydro power plants (788 MW) 1, Good hydro availability (3,000h pa), 2.0 mn per MW Thermal plants (780 MW) Repowered CCGTs: 0.5 mn per MW 20% of Edipower % of Edipower (EV 4.8bn); proportionally consolidated; equates to 0.62mn per MW Electricity generation & supply 2, Total ELECTRICITY 3, Participations in affiliates and other fixed assets ACSM Como, residual stake Metroweb, affiliates etc Real estate transaction value + 30% Stake in Atel (5.76%) % discount to market value, low liquidity Ecodeco (100%) x 2007E EBITDA; 280mn of capex outflow already reflected in net debt Total PARTICIPATIONS 1, ENTERPRISE VALUE 6, Net debt ex Edison/Delmi (old AEM) 1, End 2007E net debt excluding Delmi/Edison debt Minorities ex Edison AEM MILANO EQUITY VALUE 4, % of Delmi, which owns 50% of TDE, which owns 63% of Market value of economic stake in Edison (16%) 1, ordinary capital of Edison + c. 600mn of debt at TDE Effective estimated cash outlay by AEM for Edison Adding 25.5% of EUR1.2bn of debt at TDE adds to 1.4bn of 1, stake debt consolidated for the acquisition of control od Edison NPV from Edison stake, net of debt AEM acquired 16% of Edison at 1.57 per share NPV of synergies from merger with ASM Assuming 90mn pa pre-tax, of which 60% go to AEM shareholders AEM Milano fair equity value 5, Shares outstanding 1,784 mn AEM has bought back 0.9% of shares at the end of 2006 Edison share price used in SOTP 2.40 ps Source: Company data, Goldman Sachs Research estimates. For more detail on our underlying sector assumptions and estimate changes, please refer to our sector piece published today, Moving Forward. The key change vs. our previous assumptions for AEM is a higher valuation for its hydro plants (we are increasing the valuation for AEM s 0.93GW of hydro from 1.5 mn to 2.0 mn per MW), leading to a 0.2 per share increase in our valuation. We also factor in higher synergies from the pending merger with ASM Brescia. On June 6, AEM and ASM announced that they expect at least 90 mn of synergies p.a. from the merger to be achieved by 2011 vs. our previous expectation of 50 mn. Factoring this in has a 0.14 per share positive impact on our SOTP for AEM, bringing it to 3.35 per share. The company expects the merger close in 4Q this year. On our new estimates, AEM offers one of the highest potential valuation upsides to our new price target, at16%, relative to our coverage universe. As a result, we add it to our to Buy List from Neutral. Goldman Sachs Global Investment Research 3

4 Exhibit 2: Upside/downside charts: one of the highest upsides in the sector for AEM 30% 20% 10% 0% -10% UNF Biffa Shanks AEM E.ON CNA EDF IBE Fortum BGY Drax Terna Enagas VE CEZ Verbund SRG RWE REE NWG SVT Gas Nat KEL PNN SSE UU NG IPR -20% -30% -40% -50% Buy rating Neutral rating Sell rating Source: Goldman Sachs Research estimates. Share price performance: Rerating already started but not yet complete We believe that the strong share price performance over the last 12 months is linked with the gradual realisation that Italian wholesale prices are likely to stay higher for longer (evident also in the appreciation of the market value of its stake in Edison) and that potential M&A with local municipalities could offer significant synergies to AEM. However, this followed three years of underperformance of AEM s shares relative to the European Utilities universe. We believe that the rerating is not yet complete and that the market is either assuming conservative long-term electricity prices for Italy or the lack of achievement of any synergies with ASM. Goldman Sachs Global Investment Research 4

5 Exhibit 3: Pan-European Utilities price target methodologies and risks Company Price Currency Price Target [12 months]* Rating Risks to Price Target AEM 2.88 EUR 3.35 Buy Downside risk: Falling power price and failure to deliver synergies Biffa GBP 361 Buy Downside risk: Inability to capture significant growth and a lack of consolidation British Energy GBP 564 Neutral Risks: Higher power prices; lower power prices Centrica GBP 409 Buy Downside risk: Lower supply margins and further customer losses CEZ 1, CZK 1,030 Neutral Risks: Fall/rise in power prices, inability to execute regearing and CO2 allowances allocation Drax GBP 796 Neutral Risks: Higher power prices; lower power prices E.ON EUR 130 Buy** Downside risk: Lower commodity prices, greater political risk and/or value destruction through M&A. EDF EUR 75 Buy Downside risk: Downside: Lack of tariff increases in France; lower market prices for European power. EDP 4.08 EUR NR - - Enagas EUR 18 Neutral Risks: Slower demand growth and higher interest rates; faster demand growth and lower interest rates Endesa EUR NR - - Enel 8.32 EUR NR - - Fortum EUR 24.5 Buy Downside risk: Lower than expected Nordic power prices, Russian re-investment risk Gas Natural EUR 36 Neutral Risks: Regulatory changes in gas distribution; M&A developments Iberdrola EUR 47 Buy Downside risk: Failure to deliver growth in renewables, tougher regulation, fall in wholesale prices International Power GBP 242 Neutral Risks: Recovery in US power prices and growth in project development is quicker than anticipated Kelda GBP 774 Neutral Risks: Duration of return spread (premium to RAV) and a bid from private equity / infrastructure fund National Grid GBP 504 Neutral Risks: Weaker regulation in the UK Northumbrian Water GBP 261 Neutral Risks: Duration of return spread (premium to RAV) and a bid from private equity / infrastructure fund Pennon GBP 509 Neutral Risks: Duration of return spread (premium to RAV) and a bid from private equity / infrastructure fund REE EUR 29 Neutral Risks: Falling interest rates RWE EUR 70 Sell Upside risk: A bid, value from gearing up, higher power prices/lower carbon Scottish & Southern 1, GBP 1,144 Sell** Upside risk: Higher power prices for longer; greater returns from growth capex Severn Trent 1, GBP 1,211 Neutral Risks: Duration of return spread (premium to RAV) and a bid from private equity / infrastructure fund Shanks GBP 323 Buy** Downside risk: Operational factors and a lack of sector consolidation Snam RG 4.37 EUR 3.95 Sell Upside risk: Faster demand growth and lower interest rates Terna 2.66 EUR 2.68 Neutral Risks: Slower demand growth and higher interest rates; faster demand growth and lower interest rates Union Fenosa EUR 53 Buy** Downside risk: Regulatory changes, fall in wholesale prices United Utilities GBP 554 Sell Upside risk: Duration of return spread (premium to RAV) and a bid from private equity / infrastructure fund Veolia Environnement EUR 57.4 Neutral Risk: Continuation of strong growth momentum into the longer term; use of balance sheet Verbund EUR 35 Neutral Risk: Energy commodities; balance sheet efficiency and M&A * Price targets are based on SOTP methodology except for CEZ, British Energy and Drax which are based on DCF. Price targets are for a 12-month period, except for British Energy and Drax (3-months). ** Denotes Conviction List membership. Source: Goldman Sachs Research estimates. Source: Datastream, Goldman Sachs Research estimates. Financial Advisory Disclosures Goldman Sachs is acting as financial advisor to Enel S.P.A. in an announced strategic transaction. Goldman Sachs is acting as financial advisor to another party in an announced strategic transaction which may be material to EDP - Energias De Portugal, S.A. Goldman Sachs Global Investment Research 5

6 Reg AC I, Matija Gergolet, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Investment profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends. Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. Disclosures Coverage group(s) of stocks by primary analyst(s) Matija Gergolet: Europe-Utilities. Deborah Wilkens: Europe-Utilities. Europe-Utilities: AEM SpA, Biffa Plc, British Energy, Centrica, CEZ, Drax Group Plc, E.ON, EDF, Enagas, Endesa SA, Enel SpA, Energias de Portugal, Fortum, Gas Natural, Iberdrola SA, International Power, Kelda, National Grid, Northumbrian Water Group, Pennon, Red Electrica de Espana, RWE, Scottish and Southern Energy, Severn Trent, Shanks Group, Snam Rete Gas SpA, Terna, Union Fenosa SA, United Utilities, Veolia Environnement, Verbund. Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs is acting as a manager or co-manager of a pending underwriting: RWE ( 79.71) Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the month end preceding this report: British Energy (536.50p), Enel SpA ( 8.32), International Power (428.50p), Red Electrica de Espana ( 33.71), RWE ( 79.71) and Veolia Environnement ( 58.50) Goldman Sachs has received compensation for investment banking services in the past 12 months: E.ON ( ), EDF ( 69.31), Enel SpA ( 8.32), Gas Natural ( 43.96), Iberdrola SA ( 43.94), International Power (428.50p), National Grid (725.00p), RWE ( 79.71), Terna ( 2.66) and Verbund ( 37.11) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: AEM SpA ( 2.88), British Energy (536.50p), Centrica (364.50p), CEZ (Kc1,074.00), Drax Group Plc (755.00p), E.ON ( ), EDF ( 69.31), Enagas ( 18.33), Endesa SA ( 40.01), Enel SpA ( 8.32), Energias de Portugal ( 4.08), Fortum ( 23.00), Gas Natural ( 43.96), Iberdrola SA ( 43.94), International Power (428.50p), Kelda (948.50p), National Grid (725.00p), Pennon (625.00p), Red Electrica de Espana ( 33.71), RWE ( 79.71), Scottish and Southern Energy (1,451.00p), Severn Trent (1,478.00p), Snam Rete Gas SpA ( 4.37), Terna ( 2.66), Union Fenosa SA ( 41.40), United Utilities (752.50p), Veolia Environnement ( 58.50) and Verbund ( 37.11) Goldman Sachs has received compensation for non-investment banking services during the past 12 months: AEM SpA ( 2.88), British Energy (536.50p), Centrica (364.50p), CEZ (Kc1,074.00), E.ON ( ), EDF ( 69.31), Endesa SA ( 40.01), Enel SpA ( 8.32), Energias de Portugal ( 4.08), Gas Natural ( 43.96), International Power (428.50p), National Grid (725.00p), RWE ( 79.71) and Verbund ( 37.11) Goldman Sachs had an investment banking services client relationship during the past 12 months with: British Energy (536.50p), Centrica (364.50p), Drax Group Plc (755.00p), E.ON ( ), EDF ( 69.31), Enel SpA ( 8.32), Fortum ( 23.00), Gas Natural ( 43.96), Iberdrola SA ( 43.94), International Power (428.50p), National Grid (725.00p), Pennon (625.00p), RWE ( 79.71), Severn Trent (1,478.00p), Terna ( 2.66), Union Fenosa SA ( 41.40), United Utilities (752.50p) and Verbund ( 37.11) Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: AEM SpA ( 2.88), British Energy (536.50p), Centrica (364.50p), CEZ (Kc1,074.00), E.ON ( ), EDF ( 69.31), Enagas ( 18.33), Endesa SA ( 40.01), Enel SpA ( 8.32), Goldman Sachs Global Investment Research 6

7 Energias de Portugal ( 4.08), Gas Natural ( 43.96), Iberdrola SA ( 43.94), International Power (428.50p), National Grid (725.00p), RWE ( 79.71), Scottish and Southern Energy (1,451.00p), Severn Trent (1,478.00p), Union Fenosa SA ( 41.40) and Verbund ( 37.11) Goldman Sachs had a non-securities services client relationship during the past 12 months with: AEM SpA ( 2.88), British Energy (536.50p), Centrica (364.50p), CEZ (Kc1,074.00), E.ON ( ), EDF ( 69.31), Enagas ( 18.33), Endesa SA ( 40.01), Enel SpA ( 8.32), Energias de Portugal ( 4.08), Gas Natural ( 43.96), Iberdrola SA ( 43.94), International Power (428.50p), National Grid (725.00p), RWE ( 79.71), Scottish and Southern Energy (1,451.00p), Severn Trent (1,478.00p), Terna ( 2.66), Union Fenosa SA ( 41.40), United Utilities (752.50p) and Verbund ( 37.11) Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: Terna ( 2.66) Goldman Sachs makes a market in the securities: National Grid (725.00p) Goldman Sachs International acts as corporate broker to: Centrica (364.50p) There are no company-specific disclosures for: Biffa Plc (286.00p), Northumbrian Water Group (312.00p) and Shanks Group (265.00p) Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 28% 59% 13% 41% 34% 31% As of April 1, 2007, Goldman Sachs Global Investment Research had investment ratings on 2,590 equity securities. Prior to June 26, 2006, Goldman Sachs utilized a relative rating system of Outperform, In-Line and Underperform, which, for the purposes of the above disclosure required by NASD/NYSE rules, equated to Buy, Hold and Sell. As of June 26, 2006, Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure. See 'Ratings, Coverage groups and views and related definitions' below. Price target and rating history chart(s) Goldman Sachs rating and stock price target history 1.88 Currency: Euro Stock Price Jun 26 IL N M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M Source: Goldman Sachs Investment Research for ratings and price targets; Reuters for daily closing prices as of 04/01/ Index Price Rating Price target Price target at removal Covered by Matija Gergolet Not covered by current analyst New rating system as of 6/26/06 FTSE World Europe; pricing by FactSet The price targets shown should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as well as developments relating to the company, its industry and financial markets. Regulatory disclosures Disclosures required by United States laws and regulations See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods; directorships; market making and/or specialist role. The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at Additional disclosures required under the laws and regulations of jurisdictions other than the United States The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Canada: Goldman Sachs Canada Inc. has approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance Company. 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8 information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian Law on Appraisal. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number: W). United Kingdom: Persons who would be categorized as private customers in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request. European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at Ratings, coverage groups and views and related definitions Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price, if any, have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded. Ratings, coverage views and related definitions prior to June 26, 2006 Our rating system requires that analysts rank order the stocks in their coverage groups and assign one of three investment ratings (see definitions below) within a ratings distribution guideline of no more than 25% of the stocks should be rated Outperform and no fewer than 10% rated Underperform. The analyst assigns one of three coverage views (see definitions below), which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and valuation. Each coverage group, listing all stocks covered in that group, is available by primary analyst, stock and coverage group at Definitions Outperform (OP). We expect this stock to outperform the median total return for the analyst's coverage universe over the next 12 months. In-Line (IL). We expect this stock to perform in line with the median total return for the analyst's coverage universe over the next 12 months. Underperform (U). We expect this stock to underperform the median total return for the analyst's coverage universe over the next 12 months. Coverage views: Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Current Investment List (CIL). We expect stocks on this list to provide an absolute total return of approximately 15%-20% over the next 12 months. We only assign this designation to stocks rated Outperform. We require a 12-month price target for stocks with this designation. Each stock on the CIL will automatically come off the list after 90 days unless renewed by the covering analyst and the relevant Regional Investment Review Committee. Global product; distributing entities The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN ) on behalf of Goldman Sachs; in Canada by Goldman Sachs Canada Inc. regarding Canadian equities and by Goldman Sachs & Co. (all other research); in Germany by Goldman Sachs & Co. ohg; in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBWere (NZ) Limited on behalf of Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: W); and in the United States of America by Goldman, Sachs & Co. 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9 European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and United Kingdom; Goldman, Sachs & Co. ohg, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also be distributing research in Germany. General disclosures in addition to specific disclosures required by certain jurisdictions This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than some industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. We and our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of the investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Current options disclosure documents are available from Goldman Sachs sales representatives or at Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Our research is disseminated primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients. Disclosure information is also available at or from Research Compliance, One New York Plaza, New York, NY Copyright 2007 The Goldman Sachs Group, Inc. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc. Goldman Sachs Global Investment Research 9