Stock Price June 03 June /06/ /09/ /12/ /03/ /06/2004 DPS ( ) EPS chg EPS ( )

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1 Initiation of Coverage Mytilineos Group 4.82 Basic Materials Well placed, well diversified 23 June, 2004 Stella Dimaraki OPINION Initiate as Outperform TARGET PRICE 6.50 Key Data Reuters Code MYTr.AT Bloomberg Code MYTIL GA Market Cap ( m) Shares outstanding 40,520,340 Free Float 57% ASE General Index 2, ( ) High Low 52 weeks price range (1m) (3m) (12m) Mytilineos Holdings owns a well-diversified portfolio of companies, active in the metals, defence, construction and energy sectors. Diversified activities secure the group s uninterrupted earnings flow, even during periods of adverse business conditions. Mytilineos group is also well placed to benefit from: a) The upturn cycle in the commodities market, b) The opportunities arising from the Greek energy market s deregulation and c) Increasing co-production share of Greek producers in public defence projects. Under Greek GAAP, we forecast group revenues to rise by 13% on the back of improved business conditions. Reported EPS is reckoned 10% lower while adjusted for goodwill amortization EPS is reckoned 46% higher. Our group valuation combines the results of the peer group valuation comparison deployed for the parent company and the DCF derived fair values of METKA and ELVO. We set an Outperform rating for Mytilineos Holdings and METKA with respective target prices of 6.50 and 5.40 per share. Stock Price June 03 June 04 Relative Performance June 03 June 04 Daily Avg 1,000, % Volume 61,172 73, , % Absolute 30.0% perf. (%) -1.6% 18.1% 30.3% Rel. perf. to GI (%) -1.7% 15.2% 7.3% 500, % 10.0% 0.0% /06/ /09/ /12/ /03/ /06/ % 17/06/ /09/ /12/ /03/ /06/2004 Price ( ) Relative Year Sales ( m) EBITDA ( m) EBITDA margin EBT ( m) EAT ( m) EPS ( ) EPS chg DPS ( ) DY P/E EV/ EBITDA EV/ Sales P/BV P/CF Net Debt /Equity ROE % % % % % % % % 2004e % % % % 2005f % % % % 2006f % % % % 2007f % % % % 2008f % % % %

2 Mytilineos Group 23 June, 2004 Table of contents Table of contents...2 Investment Summary...3 Group profile...4 Core metal business...7 METKA: Great opportunities ahead...11 ELVO...16 Group financials...18 Group valuation MARFIN ANALYSIS

3 23 June, 2004 Mytilineos Group Investment Summary Mytilineos Holdings owns a well-diversified portfolio of companies, active in the metals, defence, construction and energy sectors. Diversified activities secure the group s uninterrupted earnings flow, even during periods of adverse business conditions prevailing in specific sectors. Mytilineos group is also well placed to benefit from: a) The upturn cycle in the commodities market, b) The opportunities arising from the Greek energy market s deregulation and c) Increasing coproduction share of Greek producers in public defence projects. In addition, the business outlook looks more favourable should one consider the intragroup synergies. We set an Outperform rating for Mytilineos Holdings and METKA subsidiary with respective target prices of 6.50 and 5.40 per share. Core metal business The core metal business, mostly represented by the Mytilineos parent company, is considered the group s less predictable segment due to the cyclical nature and the volatility of the commodities market. Peer group comparison in terms of profitability, efficiency and leverage ratios do not favour the company and consequently require the assignment of a hefty discount on any valuation exercise. Nevertheless, at least in the short-term, the group is well placed to benefit from rising metal prices, mainly driven by strong demand and tight supply. In the long-term however, the group will need to address the low efficiency levels of this segment and on the other hand bear the possible consequences in the advent of a slowdown in China - which was the primary recovery trigger in the sector - or rising interest rates. We derive a total value of 60.5m for Mytilineos parent company (core metal business only), based on a peer group valuation comparison (DJ Stoxx Basic Materials index used as benchmark). Metka s promising outlook Metka is due to exploit great opportunities in the defence and energy sector. We are positive given the significant existing backlog, healthy balance sheet, high earnings visibility and attractive valuation. Main prospects arise from increased investment activity expected in the energy sector as a result of replacements of generation capacity in order to meet future environmental requirements and the entry of IPPs. We derive a 280.5m DCF fair value for METKA or 5.40 per share and assign an Outperform rating. ELVO also adds value The company s backlog amounted to 293m as of the end of 2003 while holds the potential to secure a similar amount of contracts flow every year. Note that only the finalization of the Armoured Infantry Fighting Vehicles project agreement could add 400m in the company s backlog. Note that Civil projects worth 127m are included in its backlog, providing further sales visibility. The government s defence budget is considered the major growth determinant for the company and consequently high dependence on state decisions is considered the major risk factor. We have derived a DCF fair value of 129m for ELVO. Further opportunities not factored in yet Last, further opportunities could arise in the case of a successful outcome of the imminent availability capacity tenders of HTSO for a total amount of 900MW. The group will aim to secure availability agreements with HTSO for its planned 400MW CCGT unit in Volos, which however is not included in our forecasts. Among the companies competing are Hellenic Petroleum, Gek-Terna and HED-Sidenor. MARFIN ANALYSIS 3

4 Mytilineos Group 23 June, 2004 Group profile Mytilineos Holdings is a holding company operating in the metals, mining, energy, defence, vehicle manufacturing and construction sectors. The group is active internationally, as the local market represents slightly higher than 50% of group revenues and has created strategic alliances throughout the greater Southeast European region. The group gained exposure in the energy, defence, infrastructure and specialised industrial metal construction sectors in 1999 through the acquisition of METKA, in which it currently holds a 65.78% stake. Further exposure in the defence and manufacturing areas was gained in 2000, through the acquisition of ELVO (the state-owned Hellenic Vehicle Industry). The state owns a 51% stake, Mytilineos SA %, METKA 12.94% while General Industry of Defence Materials owns a 7.53% stake. In a grip to further diversify its activities towards the most promising energy field, the group set up two subsidiaries in 2000: Mytilineos Power Generation and Supplies and Mytilineos Hellenic Wind Power. Table 1: Mytilineos Holdings: Main subsidiaries Company Stake Mytilineos Finance 100.0% ELEMKA 70.0% Geniki Sidirometalliki 50.0% METKA 65.8% SOMETRA 88.0% ELVO 22.5% Defence Industry joint venture 52.4% Mytilineos Hellenic Wind Power 56.0% Mytilineos Power Generation and Supplies 67.0% BEAT 35.0% EBETAM 8.6% Hellenic Copper Mines 39.2% Source: The Company Table 2: METKA: Main subsidiaries Company Stake Servisteel 100.0% ELVO 12.9% T.C.B % EKME 40.0% 3KP 40.0% Rodax 100.0% Mytilineos Power Generation and Supplies 33.0% Mytilineos Hellenic Wind Power 24.0% Source: The Company 4 MARFIN ANALYSIS

5 23 June, 2004 Mytilineos Group Figure 1: Mytilineos Group Mytilineos Group of Companies Metals and international trading Energy Defence Sometra smelter, Romania METKA & Subsidiaries ELVO Hellenic Copper Mines, Cyprus Mytilineos Power Generation and Supplies METKA Mytilineos Hellenic Wind Power Source: The Company Figure 2: Mytilineos Holdings shareholders structure Institutional investors 19% Mytilineos family 43% Retail investors 38% Source: The Company Figure 3: METKA shareholders structure Retail investors 23% Institutional investors 10% Mytilineos SA. 67% Source: The Company MARFIN ANALYSIS 5

6 Mytilineos Group 23 June, 2004 Figure 4: ELVO shareholders structure General Industry of Defence Materials 8% METKA 13% Lainopoulos 6% Greek State 50% Mytilineos SA. 23% Source: The Company 6 MARFIN ANALYSIS

7 23 June, 2004 Mytilineos Group Core metal business The group is one of Greece s largest metal traders, while following partnership agreements and takeovers the group has turned into a manager of some of Europe s most commercially important mineral deposits. Main trading activities focus on: 1. Non-ferrous base metals: copper, lead, zinc, aluminium and their alloys. Apart from aluminium and copper, which are sold mainly locally, the remaining products are provided for international markets. 2. Ores and minerals: raw materials processed to obtain base metals. The group supplies copper, lead and zinc to a series of plants in Greece. 3. Steel products: materials used in construction projects and metal manufacturing industries. 4. Wires: raw materials in the manufacturing of wire ropes, wire netting and construction grids. Metal prices Metal prices recovered in 2003 and continue their upward trend in 2004 as well, driven mainly by rising demand (+6% in 2003) which outpaced the growth of global economies, inventory declines, opportunistic buying in the second half of 2003 as well as increasing expectations for overall production deficits in Copper prices increased by 14% on average in 2003 on fundamental grounds as worldwide demand rose by 2.3% on the back of China s rapid growth, while supply fell marginally which resulted to a balance deficit of 312,000 tonnes. Copper prices continued to rise in Q1:04 (+65% y-o-y and +33% q-o-q). Aluminium prices rose by 6% on average in 2003 driven mainly by the overall market s rise rather than the underlying metal s fundamentals. Global demand rose by c7% in 2003 driven by China while supply grew 7.4%. The rise continued in Q1:04, although at a slower pace than the overall market. Zinc prices also rose by 6% in Nevertheless, global final consumption grew modestly by 2.3% while it declined by 6% in US and remained flat in Europe. Speculative funds as well as inventory declines contributed to the sharp rise of lead prices in the last quarter of Demand was again modest while supply cuts was the main reason for the prices recovery. Table 3: Metal Prices US $/Tonne Aluminium Copper Lead Zinc ,444 1, ,349 1, y-o-y -7% -1% -5% -12% ,432 1, y-o-y 6% 14% 14% 6% Q1:03 1,396 1, Q4:03 1,512 2, Q1:04 1,649 2, ,071 y-o-y 18% 65% 84% 36% q-o-q 9% 33% 34% 15% Source: LME MARFIN ANALYSIS 7

8 Mytilineos Group 23 June, 2004 Figure 5: Mytilineos parent sales breakdown (2003) Lead 13% Aluminium 3% Other 10% Zinc 48% Steel products 13% Copper 13% Source: The Company Prospects / risks We expect underlying fundamentals in the commodities market to improve as a result of limited production growth and steady demand growth, which suggests further gains in commodity prices. Demand should be supported by the overall improving global economic conditions and continuous strong growth stemming from China. Chinese industrial production continues to rise with double-digit rates (+19% in April and +18% over the Jan-April 2004 period) with other leading economies showing improved industrial activity. In addition, the closure of several production units combined with limited investments in new capacity point to moderate production growth and inventory declines. The fact that there is clear inverse correlation between metal prices and the strength of the US dollar (witnessed also recently with the weakness in commodity prices during May and April), suggests that US dollar s downward trend against other currencies should provide a further impetus to metal prices. Mytilineos should benefit from rising metal prices as well as implemented investments, which aim at increasing capacity as well as improving efficiency of existing units. The company aims at increasing capacity in Romanian zinc and lead smelter SOMETRA by 9.6% in 2004 and 6.3% in 2005 while Hellenic Copper Mines plans 9.4% and 28.6% capacity increases in the respective years. Main risk for Mytilineos is an environment of declining metal prices. Volatility in the commodities market could arise in the advent of rising US interest rates, possible slowdown of Chinese growth and upon speculative activity. Forecasts Our forecasts are derived assuming a 5% production CAGR over the period. Metal prices are conservatively forecast lower than current prices as well as at a 5% discount to the average y-t-d price levels. In addition, we have included Mytilineos fee for the management of ELVO, which corresponds to 50% of the annual rise in ELVO s pre-tax earnings only in the case that earnings growth exceeds 40%. As a result of rising metal prices we forecast a rise in Mytilineos gross margin by 1.0ppts and 0.40ppts in 2004 and 2005 as well as a rise in SG&A expenses in 8 MARFIN ANALYSIS

9 23 June, 2004 Mytilineos Group accordance with revenues growth. Note that our forecasts for the parent company include our estimated dividends to be distributed by METKA and ELVO subsidiaries, ie. investment income of 5.5 in 2004 stems from the company s 65.8% stake in METKA s distributed total dividend of 8.3m for FY03. Includes ELVO management fee of 3.2m in 2003 and 6.6m in 2004 Includes dividend distributed by METKA and potentially ELVO. FY04 investment income includes its share from METKA s FY03 distributed dividends Table 4: Mytilineos parent P&L estimates e 2005f 2006f Turnover % % % Cost of Goods Sold (129.0) (142.9) (150.5) (158.7) Gross Profit % % % Gross margin 11.4% 12.4% 12.8% 12.5% Operating Expenses (7.8) (9.0) 15% (9.5) 6% (10.0) 5% Other Income EBITDA % % % EBITDA margin 6.0% 6.9% 7.3% 7.0% Depreciation (1.7) (1.8) 10% (2.0) 8% (2.1) 7% EBIT % % % Net Investment Inc. (Exp.) % % % Net Interest Inc. (Exp.) (4.3) (4.3) -1% (4.5) 4% (4.4) -2% Exceptionals (Net) EBT % % % Taxes (1.9) (2.7) (2.2) (2.2) EAT % % % Dividends % 5.0 5% 5.4 8% Source: MARFIN ANALYSIS, The Company Valuation We use a peer group comparison to value the core metal business of Mytilineos parent company using as benchmark the European DJ Stoxx Basic Materials index. Our valuation exercise excludes any possible value stemming from METKA or ELVO as we contact separate valuation exercises, presented in following sections. We use the weighted average multiples of our selective peer group for 2004 which leads to a fair value of 60.5m for Mytilineos metal division. Note, that we have applied a hefty 50% discount to the weighted average sector multiples given the fact that Mytilineos ROE stands considerable lower that the sector average, EBITDA margins are also below average while net debt/ebitda far exceeds the sector average. Table 5: Valuation of the core metal division of Mytilineos parent company Weighted average Method Year multiple of peer group Applied discount Mytilineos value ( m) Applied weight Final value ( m) P/E % % 19.6 P/BV % % 18.2 P/CF % % 4.9 Mcap/Sales % % 17.8 Total value of the metals division 60.5 Source: MARFIN ANALYSIS, JCF MARFIN ANALYSIS 9

10 Mytilineos Group 23 June, 2004 Table 6: Peer group comparison (2004e) ROE EBITDA margin Net debt/ebitda Sector weighted average 13.5% 25.7% 1.3 Mytilineos SA 4.9% 6.9% 8.8 Source: MARFIN ANALYSIS, JCF Table 7: DJ Stoxx Basic Materials valuation Price/Book P/E 04 P/E Price/Book 05 Price/Cash Flow 04 Price/Cash Flow 05 Mcap/Sales 04 Mcap/Sales 05 Anglo American Plc Rio Tinto Bhp Billiton Group Upm Kymmene Norsk Hydro Arcelor (Ex Usinor) Stora Enso ThyssenKrupp AG Xstrata Plc Corus Group Lonmin Acerinox Norske Skogindustrier Umicore Holmen Ab Antofagasta Kinnevik Outokumpu Voestalpine AG Ssab Svenskt Stal Average Median Weighted average Source: JCF 10 MARFIN ANALYSIS

11 23 June, 2004 Mytilineos Group METKA: Great opportunities ahead Metka holds great potential for delivering sustainable profitable growth, as a result of the opportunities arising in all three-market segments operating, ie. the traditional metal constructions, the energy market and the defence sector. We forecast 3-y sales and EPS CAGR of 12% and 14%, which is comfortably supported by its significant backlog of 450m and also its ability to sustain a similar contracts flow in the future given its leading position and know-how. Main opportunities stem from the Greek government s armament program and its potential to capture a share of the investments stemming from the energy market s deregulation. We assign a target price of 5.4 for METKA shares and an Outperform rating. Prospects / risks Metka acts as the major supplier/subcontractor for the procurement projects of the Greek army, PPC, Public Gas Corporation, port authorities and oil refineries. The company has secured strong relationships with leading international electronics/defence companies such as GE, Alstom, ABB, Siemens, Raytheon, Lockheed Martin and HDW through partnerships in major projects. The company undertakes the manufacturing of heavy/compound steel constructions and integrated electromechanical equipment as well as large-scale construction electromechanical, industrial, energy and defence projects, including assembly, erection and commissioning. The company owns two industrial sites in Volos and one in Thessaloniki. Table 8: METKA revenues breakdown m Energy Other metal construction Refinery Shipbuilding Metals trading Defence Gas turbines Mining Vehicle related construction Total Source: The Company METKA s main growth drivers are considered the government s defence spending as well as the liberalization of the energy market. In the defence front, Mytilineos Group aims at capturing a share of the government s 10-y procurement programme of 11bn. The group estimates that an amount of 8bn falls into ELVO and METKA s field of activities, which includes army-related projects of 5.5bn, navy-related projects of 2bn and air force-related projects of 0.5bn. Mytilineos group participation in the aforementioned projects could range between 20% to 40%. METKA could potentially secure contracts worth 450m stemming from the procurement programme. The fact that the company has gained significant know-how through the implementation of defence projects in the past as well as synergies stemming from the cooperation with ELVO could MARFIN ANALYSIS 11

12 Mytilineos Group 23 June, 2004 further promote its position in the defence sector. In the energy sector, key drivers are considered Greece s healthy growth in electricity demand, which supports generation capacity additions and need to replace generation capacity in order to meet environmental requirements. Electricity demand is expected to continue growing faster than the eurozone average while convergence trends are expect in consumption per capita (which stands 40% below the EU average). The Regulatory Authority for Energy projects that electricity consumption growth would exceed 4% in the next 10 years and stresses the need for capacity additions in the system to avoid running an electricity deficit. According to the amended liberalization law, which came into effect on August 29, 2003, the HTSO (Hellenic Transmission System Operator) is entitled to enter into capacity-availability agreements following the launch of tender procedures. During the first implementation phase, the HTSO may enter into agreements for up to 900 MW of new generation capacity that must be commissioned by July 1, Additional tenders for up to 400MW capacity may be conducted during that time period. PPC may participate in up to 200 MW in the case that this additional tender takes place. In addition, the new law grants PPC an electricity generation license to build new capacity or refurbish existing capacity of up to 1,600 MW, provided that the old capacity of an equivalent amount is put in cold reserve. We consider that METKA is well positioned to benefit from increased investments in the sector given its expertise as well as its long-standing relationship with PPC. The group has established two subsidiaries in order to fully exploit opportunities in the energy sector. Mytilineos Power Generation and Supplies was established with a primary objective being the production and trading of energy. The primary project assigned is the construction of a natural gas-fired power plant in Volos of 400MW. The company has obtained the necessary licenses and is in anticipation of further regulatory clarifications. Mytilineos Hellenic Wind Power was established with the objective of construction and operation of wind parks and has obtained generation licenses for 7 wind parks of total capacity of 84.15MW. Table 9: Energy investments Volos Sidirokastro Platanos Evia/Andros Total investment m Financed by: Equity 30% 30% 30% 30% Subsidy 0% 30% 30% 30% Borrowing 70% 40% 40% 40% Source: The Company Main risks could stem from a possible cut in the government s defence budget or reduced co-production share for Greek companies. On the other hand, although the Greek energy sector holds great potential, delays in the enforcement of a clear regulatory framework hinder growth and increase the sector s risk profile. 12 MARFIN ANALYSIS

13 23 June, 2004 Mytilineos Group Forecasts Metka s current backlog covers 73% and 74% of our next two year s parent revenues estimates. Main project is considered the construction of PPC s CCGT plant in Lavrio budgeted for 194m which should provide a boost in FY05 revenues. Current backlog amounts to 450m and spreads over a 6-year period. The backlog breaks down as follows: 61.3% energy, 5.3% metal construction and 33.4% defence. From 2006 onwards, defence projects, further investments by energy players - primarily PPC - as well as the construction of the group s wind parks should support revenues. Table 10: Metka revenues estimates ( m) Revenues secured by backlog Client Frame agreement, after sales, florina lignite power station, filters, Kardias project, wind power unit Chania, other PPC, Alstom, Other Lavrio CCGT unit PPC Submarine parts HDV Rio-Antirio Bridge joint venture/cleveland Train equipment OSE Olympic Projects, Calatrava Aktor/Attiko metro Leopard KMW/RHEINMETALL Real estate Volos Materials supply Subtotal % total revenues 73% 74% 38% Revenues based on new contract estimates Leopard KMW/RHEINMETALL Neptune submarine HDV Lavrio unit maintenance PPC Kentavros ELVO - SSF Patriot Raytheon - Lockheed Bridges Eurobridge Energy provision G.E Mechanical works Various Subtotal % total revenues 6% 8% 5% Revenues based on further contract estimates by market segment PPC additional capacity and maintenance PPC Energy other Other Defence Greek state Metal construction Other Wind Parks Group Subtotal % total revenues 20% 19% 57% Total (Subtotal 1+2+3) Source: MARFIN ANALYSIS, The Company MARFIN ANALYSIS 13

14 Mytilineos Group 23 June, 2004 Figure 6: 2004 revenues estimates ( m) Parent sales secured by backlog New contracts - management assumption 29.9 New contracts - MA assumption 19.6 Subsidiaries contribution 0.0 Source: MARFIN ANALYSIS, The Company Table 11: METKA group revenues forecasts m e Ch% 2005f Ch% 2006f Ch% Consolidated sales % % % Parent sales % % % Servisteel % 2.1 5% 2.2 5% EKME % % % 3KP % 5.8 5% 6.1 5% Rodax % % % TCB % % % Subsidiaries total % % % Source: MARFIN ANALYSIS, The Company Table 12: METKA P&L estimates m e 2005f 2006f Turnover % % % Cost of Goods Sold (109.1) (129.4) (165.6) (155.0) Gross Profit % % % Operating Expenses (8.5) (10.4) 22% (13.4) 29% (12.6) -6% Other Income EBITDA % % % Depreciation (2.5) (2.6) 2% (2.8) 8% (2.9) 3% EBIT % % % Net Investment Inc. (Exp.) Net Interest Inc. (Exp.) Exceptionals (Net) (3.9) EBT % % % Taxes (6.8) (9.4) (11.5) (10.8) Net Profit After Tax % % % Minorities (0.1) (0.2) (0.2) (0.2) EAT % % % Source: MARFIN ANALYSIS, The Company 14 MARFIN ANALYSIS

15 23 June, 2004 Mytilineos Group Valuation and rating We use a DCF exercise to value METKA, using the following key assumptions. Our DCF exercise returns a fair value of 5.4 per share for METKA shares, including also its 12.94% stake in ELVO which is valued on a DCF basis as well. Table 13: Basic DCF assumptions Terminal Revenues CAGR 4.8% 0.5% EBIT CAGR 4.1% 0.5% EBIT margin (average) 15.0% 15.0% Capex/sales (average) 2.6% 2.5% WC/sales (average) 40.4% 40.0% WACC 8.7% Implied EBITDA multiple at terminal value 3.05 Source: MARFIN ANALYSIS Table 14: DCF exercise m 2004f 2005f 2006f 2007f 2008f 2009f 2010f 2011f 2012f 2013f Sales EBIT EBIT margin 15.5% 15.0% 15.0% 14.9% 14.9% 15.0% 15.0% 15.0% 15.0% 15.0% Depreciation Other (1.8) (0.7) Gross cashflow Change in working capital (11.3) (19.1) (1.6) (2.9) (1.9) (2.6) (2.2) (0.5) Net operating cashflow Income tax (5.4) (9.4) (11.5) (10.8) (10.5) (10.9) (11.3) (11.6) (11.9) (12.0) Investments (5.0) (6.0) (5.0) (5.0) (5.0) (5.2) (5.4) (5.5) (5.7) (5.7) FCFF Discounted FCFF Sum of PV 99.2 Terminal value Net debt 47.9 ELVO stake 16.7 Shareholder value Value per share 5.4 Source: MARFIN ANALYSIS Implied upside indicated by our fair valued combined with its significant backlog, healthy balance sheet, high earnings visibility and great opportunities stemming from the deregulation of the energy sector point to our Outperform rating for the stock. MARFIN ANALYSIS 15

16 Mytilineos Group 23 June, 2004 ELVO Mytilineos Group acquired a 43% stake in ELVO in August 2000 for 19m, assuming also the company s management. The parent company holds a 22.5% stake, METKA owns a 12.94% stake and General Industry of Defence Materials holds a 7.5% stake. The Greek state remains the majority shareholder, controlling a 51% stake. Mytilineos holds an option to increase its stake in ELVO by 17% while it reserves the first refusal right for any share disposal by the Greek state. Forecasts / Prospects The company has the industrial infrastructure to produce all types of heavy vehicles for military and civil use such as light military cross-country jeeps, civil and military trucks of various types, armoured personnel carriers, busses and trucks for various uses, armoured infantry fighting vehicle, fire fighting trucks and spare parts. ELVO has the capacity to contact final assembly and system integration while synergies through its cooperation with METKA reinforce the overall technical knowhow of the group. Table 15: ELVO P&L estimates e 2005f 2006f Turnover % % % Cost of Goods Sold (128.1) (142.5) (148.4) (141.2) Gross Profit Gross margin 27% 27% 27% 27% Operating Expenses (19.9) (22.0) (22.9) (21.5) Other Income EBITDA % % % EBITDA margin 16% 16% 15% 15% Depreciation (5.3) (5.6) (5.9) (6.2) EBIT % % % Net Investment Inc. (Exp.) Net Interest Inc. (Exp.) (1.7) (2.2) (2.0) (1.5) Exceptionals (Net) EBT % % % Taxes (4.0) (4.5) (5.9) (6.6) EAT % % % Dividends % Source: MARFIN ANALYSIS, The Company We reckon sales at 194.7m in 2004 up 11% vs Revenues are seen broadly flat in the next three years. The company s backlog amounted to 293m as of the end 2003, though the finalization of the Kentavros project agreement which involves the delivery of Armoured Infantry Fighting Vehicles could potentially add 400m in the company s backlog. Other important projects include the agreement signed between the Ministry of Defence and KMW for the delivery of 170 Leopard A2 Main Battle Tanks. ELVO was selected to carry out the final assembly of the tanks. The company s backlog also includes civil projects worth 127m, which involve mainly the supply of busses, trolleys and fire vehicles, providing further sales visibility. In addition, ELVO is currently networking with potential suppliers in order to secure 16 MARFIN ANALYSIS

17 23 June, 2004 Mytilineos Group co-production projects of the Hellenic Armed Forces' procurement programme, like new amphibious armoured vehicles, mobile hospitals, bridges and other vehicles. Note that the company continues to cater the majority of needs of the Hellenic Forces concerning supply materials. Any risks could arise through the potential cut in the government s defence spending budget, with direct implication to the company s operations. Valuation We use a DCF exercise to value ELVO, setting below our key assumptions. Our DCF exercise returns a fair value of 129m which accounts for 16% of our sum-ofthe-parts target price for Mytilineos Holdings. Table 16: Basic DCF assumptions Terminal Revenues CAGR 0.8% 0.0% EBIT CAGR -0.1% 0.0% EBIT margin (average) 11.9% 11.6% Capex/sales (average) 2.5% 2.5% WC/sales (average) 49.0% 50.0% WACC 9.0% Implied EBITDA multiple at terminal value 2.88 Source: MARFIN ANALYSIS Table 17: DCF exercise m 2004f 2005f 2006f 2007f 2008f 2009f 2010f 2011f 2012f 2013f Sales EBIT EBIT margin 12.6% 12.5% 12.2% 12.0% 11.9% 11.6% 11.6% 11.6% 11.6% 11.6% Depreciation Other (0.1) (0.1) Gross cashflow Change in working capital (9.3) (8.2) 0.2 (0.9) 0.3 (0.1) Net operating cashflow Income tax (16.8) (4.5) (5.9) (6.6) (6.6) (6.6) (6.6) (6.6) (6.6) (6.6) Investments (5.0) (5.0) (5.0) (5.0) (5.0) (4.7) (4.7) (4.7) (4.7) (4.7) FCFF (1.0) Discounted FCFF (0.9) Sum of PV 93.3 Terminal value 84.0 Net debt (48.4) Shareholder value Source: MARFIN ANALYSIS MARFIN ANALYSIS 17

18 Mytilineos Group 23 June, 2004 Group financials Q1:04 results Group sales increased by 9% to 80.1m mainly on the back of a very good sales performance by METKA subsidiary as Mytilineos parent sales were off 5%. Group EBIT rose by 10% on improved gross margins (+0.34ppts) as a result of the metal prices recovery and a 13% increase in SG&As. EBT jumped 59% due to increased net extraordinary gains of 1.9m vs. net losses of 0.5m in Q1:03. Note that the group recorded extraordinary gains of 3m stemming from FX hedging. In other issues, in an effort to converge with IAS accounting requirements, the group booked consolidation differences as goodwill in intangible assets account while amortization charges amounted to 2m. Table 18: Mytilineos Group Q1:04 results m Q1:03 Q1:04 ch% Sales % COGS (59.9) (65.1) 9% Gross profit % Gross margin 18% 19% Other income % Administrative expenses (4.5) (5.2) 15% Selling and distribution expenses (2.8) (3.0) 8% SG&A (7.3) (8.2) 13% EBIT % Net financial income / (Expenses) (0.5) (0.3) -32% Exceptionals (net) (0.5) 1.9 EBT % Minorities (1.5) (2.2) 50% EBT after minorities % Source: The Company Table 19: Mytilineos parent Q1:04 results Mytilineos parent Q1:03 Q1:04 ch% Sales % COGS (36.7) (34.2) -7% Gross profit % Gross margin 9% 11% Other income % Administrative expenses (0.7) (0.8) 6% Selling and distribution expenses (1.2) (1.2) 5% SG&A (1.9) (2.0) 6% EBIT % Net financial income / (Expenses) (0.1) (0.7) 508% Exceptionals (net) % EBT % Source: The Company 18 MARFIN ANALYSIS

19 23 June, 2004 Mytilineos Group Table 20: METKA (Cons) Q1:04 results METKA cons Q1:03 Q1:04 ch% Sales % COGS (26.8) (32.0) 19% Gross profit % Gross margin 21% 20% Other income % Administrative expenses (1.7) (1.9) 10% Selling and distribution expenses (0.4) (0.4) 21% SG&A (2.1) (2.3) 12% EBIT % Net financial income / (Expenses) % Exceptionals (net) (0.9) (0.5) -40% EBT % Minorities 0.1 (0.2) EBT after minorities % Source: The Company Forecasts Our group estimates are based on the Greek GAAP, according to which Mytilineos and METKA s combined stake in ELVO (35.5%) is accounted under the equity method. The group has also published FY03 headline results under IAS, according to which ELVO is fully consolidated (group stake of 43%). Under Greek GAAP we forecast group revenues to rise by 13% driven by the improved outlook expected for both the parent company and METKA subsidiary. Net earnings are seen 10% lower in FY04, despite solid organic growth due to the amortization of goodwill (full year forecast of 8m). The group would probably restate its FY03 results as was the case with Q1:03 results. Excluding amortization charges, net earnings are forecast 46% higher. Table 21: Group Forecasts e 2005f 2006f Turnover % % % Cost of Goods Sold (219.3) (247.5) (290.2) (287.6) Gross Profit % % % Operating Expenses (22.2) (26.3) 19% (31.1) 18% (30.6) -2% Other Income % % 0.4-1% EBITDA % % % Depreciation (5.6) (13.9) 150% (14.3) 2% (14.5) 2% EBIT % % % Net Investment Inc. (Exp.) % 8.2-2% 7.5-9% Net Interest Inc. (Exp.) (6.2) (5.8) -7% (6.4) 10% (6.4) 0% Exceptionals (Net) (6.8) EBT % % % Taxes (8.9) (12.6) 41% (14.1) 12% (13.4) -5% Net Profit After Tax % % % Minorities (4.5) (6.2) 38% (7.7) 23% (7.3) -5% EAT % % % Source: MARFIN ANALYSIS, The Company MARFIN ANALYSIS 19

20 Mytilineos Group 23 June, 2004 Below we present our headline group estimates under IAS, including the full consolidation of ELVO, in a grip to compare our forecasts with management s guidance. Table 22: Our estimates vs. management guidance Ch% 2004MA Marfin vs. Management Mytilineos Group (IAS) Revenues % % EBT % % METKA (Cons.) Revenues % % EBT % % ELVO Revenues % % EBT % % Source: MARFIN ANALYSIS, The Company 20 MARFIN ANALYSIS

21 23 June, 2004 Mytilineos Group Group valuation Our sum of the parts valuation methodology returns a fair value of 6.50 for Mytilineos Group, implying a 35% upside to current share price. Our group sum-ofthe-parts valuation combines the results of the peer group valuation comparison deployed for the parent company, the DCF derived fair values of METKA and ELVO and a value assigned to other participations of Mytilineos Group valued on the basis of a P/BV multiples. In addition, we have applied a 10% holding company discount. Table 23: Group sum-of-the-parts valuation m Total value Stake Final Value % total Mytilineos parent (core) % % Metka (core) % % ELVO % % Other % Total % No shares 40.5 Fair value per share 7.24 Holding company discount -10% Target price per share 6.51 Current price 4.82 Upside 35% Source: MARFIN ANALYSIS Should we value METKA at current market price, though assume that the market assigns our fair value for its stake in ELVO, our group valuation drops to 5.9 per share. Other things equal, should we value Mytilineos Group s 35.5% stake in ELVO at book values (ie. 15.9m), our fair value drops to 5.8 per share. Should we combine both (ie. METKA valued at current price levels and ELVO at book values) then our fair value drops to 5.4 per share. Table 24: Different sum-of-the-parts valuation scenarios m Final Value Metka at market price ELVO at book values Metka at market price & ELVO at book values Mytilineos parent (core) Metka (core) ELVO Other Total No shares Fair value per share Holding company discount -10% -10% -10% -10% Target price per share Current price Upside 35% 23% 21% 13% Source: MARFIN ANALYSIS MARFIN ANALYSIS 21

22 Mytilineos Group 23 June, 2004 We assign an Outperform rating on Mytilineos shares, as we consider that the group is well placed to benefit from opportunities arising in all of the sectors operating while its companies portfolio provide necessary synergies to maximize those benefits. Moreover, the group s diversified operations provide a shelter in periods of adverse business conditions, especially given the highly volatile metals division. 22 MARFIN ANALYSIS

23 23 June, 2004 Mytilineos Group Summary Financial Data METKA consolidated (Under Greek GAAP) Profit & Loss (in m) e 2005f 2006f 2007f 2008f Balance Sheet (in m) e 2005f 2006f 2007f 2008f Turnover Net Fixed Assets Cost of Goods Sold (77.2) (109.1) (129.4) (165.6) (155.0) (151.2) (154.2) Investments Gross Profit Other LT Assets & Accruals Operating Expenses Other Income Total Fixed Assets EBITDA Depreciation Inventories EBIT Debtors Net Investment Inc. (Exp.) Cash & Equivalents Net Interest Inc. (Exp.) Marketable Securities Exceptionals (Net) (2.2) (3.9) Other Current Assets EBT Taxes (6.2) (6.8) (9.4) (11.5) (10.8) (10.5) (10.7) Total Current Assets Net Profit After Tax Minorities (1.2) (0.1) (0.2) (0.2) (0.2) (0.2) (0.2) Total Assets EAT Dividends Creditors Short Term Debt Per Share Data (in ) CP of Long Term Debt Other EPS CEPS Total Current Liabilities DPS BVPS Long Term Debt No Of Shares (Yr-end, m) Minorities Adj. No Of Shares (m) Other LT Liabil. & Prov Valuation Data Total Liabilities P/E (x) P/CF (x) Total Equity P/BV (x) Div. Yield (%) 3.6% 3.6% 4.7% 6.0% 5.9% 5.9% 6.2% EV / Sales (x) EV / EBITDA (x) Cash Flow Statement (in m) Growth Rates Turnover (11.9%) 34.2% 17.8% 26.9% (6.3%) (2.5%) 2.0% EBITDA EBITDA (6.4%) 21.6% 12.3% 21.7% (5.7%) (2.5%) 2.0% Taxes Paid EBIT (8.0%) 27.9% 13.5% 23.1% (6.5%) (3.0%) 1.6% Cash Tax rate (%) 47.8% 41.6% 20.1% 28.6% 37.3% 35.9% 34.4% EBT (17.6%) 24.3% 31.9% 22.3% (6.2%) (2.4%) 1.8% Trade Wkg Capital needs (14.0) (5.5) (2.0) 1.6 EAT (22.6%) 50.0% 28.3% 22.4% (6.4%) (2.6%) 1.7% Capex and Participations 1.9 (1.1) EPS (22.6%) 50.0% 28.3% 22.4% (6.4%) (2.6%) 1.7% Other non-opg Items (9.7) (1.8) (0.7) 0.5 Ratios Free Cash Flow bef. Finc Gross Margin 27.4% 23.6% 23.0% 22.4% 22.5% 22.5% 22.5% EBITDA Margin 19.7% 17.9% 17.1% 16.4% 16.5% 16.5% 16.5% Dividends Paid EBT Margin 15.5% 14.3% 16.0% 15.4% 15.4% 15.5% 15.4% Net Interest Payments (0.2) (0.1) (0.7) (0.6) (0.7) (0.8) (0.9) Net Margin 8.5% 9.5% 10.3% 10.0% 9.9% 9.9% 9.9% Change in Debt (4.0) 0.0 (0.0) 3.5 (3.5) Source: MARFIN ANALYSIS, Company MARFIN ANALYSIS 23

24 Summary Financial Data Mytilineos Holdings consolidated (Under Greek GAAP) Profit & Loss (in m) e 2005f 2006f 2007f 2008f Balance Sheet (in m) e 2005f 2006f 2007f 2008f Turnover Net Fixed Assets Cost of Goods Sold (204.7) (219.3) (247.5) (290.2) (287.6) (289.0) (295.9) Investments Gross Profit Other LT Assets & Accruals Operating Expenses Other Income Total Fixed Assets EBITDA Depreciation Inventories EBIT Debtors Net Investment Inc. (Exp.) Cash & Equivalents Net Interest Inc. (Exp.) (5.5) (6.2) (5.8) (6.4) (6.4) (5.6) (4.8) Marketable Securities Exceptionals (Net) (1.3) (6.8) Other Current Assets EBT Taxes (7.4) (8.9) (12.6) (14.1) (13.4) (13.3) (13.7) Total Current Assets Net Profit After Tax Minorities (5.1) (4.5) (6.2) (7.7) (7.3) (7.1) (7.2) Total Assets EAT Dividends Creditors Short Term Debt Per Share Data (in ) CP of Long Term Debt Other EPS CEPS Total Current Liabilities DPS BVPS Long Term Debt No Of Shares (Yr-end, m) Minorities Adj. No Of Shares (m) Other LT Liabil. & Prov Valuation Data Total Liabilities P/E (x) P/CF (x) Total Equity P/BV (x) Div. Yield (%) 1.0% 2.1% 2.4% 2.6% 2.8% 3.3% 3.4% EV / Sales (x) EV / EBITDA (x) Cash Flow Statement (in m) Growth Rates Turnover (32.3%) 7.1% 13.2% 17.8% (1.2%) 0.3% 2.4% EBITDA EBITDA (15.9%) 22.3% 11.4% 20.7% (2.8%) (0.9%) 2.2% Taxes Paid EBIT (19.3%) 32.9% (13.2%) 30.0% (4.7%) (2.1%) 2.4% Cash Tax rate (%) 61.4% 35.7% 27.4% 33.7% 40.5% 38.5% 36.6% EBT (40.7%) 58.1% 14.2% 17.4% (6.5%) 0.0% 4.5% Trade Wkg Capital needs (23.2) (32.6) EAT (64.4%) 181.3% (9.7%) 19.6% (8.7%) 1.9% 7.6% Capex and Participations 7.9 (1.2) EPS (64.4%) 181.3% (9.7%) 19.6% (8.7%) 1.9% 7.6% Other non-opg Items (7.4) (2.2) Ratios Free Cash Flow bef. Finc (2.9) Gross Margin 21.1% 21.1% 21.3% 21.7% 21.4% 21.3% 21.2% EBITDA Margin 11.6% 13.3% 13.1% 13.4% 13.2% 13.0% 13.0% Dividends Paid EBT Margin 6.8% 10.0% 10.1% 10.1% 9.5% 9.5% 9.7% Net Interest Payments Net Margin 2.0% 5.2% 4.1% 4.2% 3.9% 3.9% 4.1% Change in Debt (28.5) (8.0) (11.5) (16.8) (14.9) Tax Rate 42.1% 32.1% 39.6% 37.9% 38.5% 38.2% 37.6% Capital Gains ROE (avg) 4.8% 18.1% 10.8% 8.4% 7.5% 7.5% 7.8% New Equity 0.0 (37.2) Net Debt / Equity Interest Coverage Change in Mkt Securities (21.9) 13.9 (0.0) (0.0) Source: MARFIN ANALYSIS, Company MARFIN ANALYSIS, 32 Aegialias str., , Maroussi, Greece, Tel: , Fax , Research@ibg.gr This report is for informative purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy, any security. While the information contained herein has been obtained from sources believed to be reliable, we do not represent that it is accurate or complete and it should not be relied upon as such. The firm or one of its affiliates may from time to time buy and sell securities referred herein. This firm may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any company mentioned in this report. Report INVESTMENT BANK OF GREECE, All rights reserved. Research Vassilis Kararizos Stamatis Diavatidis Stella Dimaraki Spyros Karamassis Panos Panagiotou Sophia Skourti Sales Iraklis Kounadis Constantinos Maratos Elias Calfoglou Thodoris Edipidis Nick Katsanos George Kounadis Petros Mylonas Zoi Tsoukali