ENN Europe Italy Real Estate 11 Nov 2004 Deutsche Bank Pirelli & C Real Estate Real Estate, Reloaded Recommendation Hold Price at 10 Nov 2004 EUR 35.00 Target Price EUR 39.20 Ticker/Code PCRE.MI Year End PBT EPS DB EPS P/E EV / 31-Dec Revenue DB Stated DB Stated growth (DB EPS) EBIT DPS EURm EURm EURm EUR EUR % x x EUR 2003 479 61 123 2.51 2.51 17.30 8.57 16.38 1.41 2004E 474 64 151 3.12 3.05 21.51 12.56 17.92 1.68 2005E 547 80 180 3.59 3.56 16.72 10.92 16.39 1.96 2006E 626 95 199 3.72 3.93 10.39 10.54 15.08 2.16 Source: Deutsche Bank Estimates and Company Data : "DB" means pre goodwill, non-recurring items Shares Outstanding (Million): 41 Market Cap (million): EUR 1,419.0 Local Index (.BCII): 1,390.00 52-week High/Low: EUR 35-24 Pirelli Real Estate reported 9M-2004 results today. Figures are above our expectations thanks to a very strong Q3-2004. Price Performance (%) 40 35 30 25 20 15 2003 2004 BCI GENERALINDEX PIRELLI & C REAL (R.H.SCALE) ESTATE SPA Relative Performance 1m -1.7% 3m 7.1% 12m 28.9% 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 In the wake of the company s strong performance over the first 9 months of 2004 and the development the new funds management, Non- Performing-Loans and franchising activities, we have reviewed our sumof-the-parts valuation to include the impact of these businesses on the company s value. We raise our target price from Euro 31.6/share to Euro 39.2. A boosting Q3-2004. Figures are above our expectations: Income from Equity Participations at Euro 12.4m (+111.6% YoY, +7.7% vs. our estimate) lead the way for Euro 15.4 Net Profit (+30.5% YoY, +10% vs. our estimate). 9M Net Profit reached Euro 65.9m (+26.5% YoY), accelerating compared to H1-2004 (Euro 50.5m, +25% YoY). New value from new businesses. Fund management, NPLs and Franchising were not previously included in our valuation. While we are still cautious in valuing NPLs and Franchising is in advanced startup phase, the Fund Management unit has already delivered early results. Just after few months from the launch of Tecla, its first fund, 9M EBIT is a positive Euro 1.8m. We value the Fund Management business at Euro 153.6m, Euro 3.7/share. Alberto Checchinato +39 02 8637 9706 alberto.checchinato@db.com Deutsche Bank AG Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Q3 Results Review 9M results are slightly above our forecasts due to a stronger Q3 than expected (figure 1). While recurring EBIT at Euro 36m (-14.5% YoY, slightly better than our estimate of Euro 35.2) was no surprise, the real boost came from the Income from Equity Participations: 9M figure reached Euro 52.4m (+77% YoY, 1.7% above our estimate). Being already taxed at SPVs level, Income from Equity Participations contributes straightforward to bottom line, representing 79.5% of Euro 65.9m Net Profit (+26.5% YoY, 2.2% above our estimate). Net Debt improved to Euro 40.9m from last year s Euro 48.7m (2.9% better than estimated). Q3-2004 was even better (figure 2), given that it is usually the weakest period of the year due slowdown in trading activity (particularly in the residential sector). Income from Equity Participations more than doubled, at Euro 12.4m (+111.6% YoY), helping a 30.5% YoY improvement in Net Profit, that reached Euro 15.4m, 10% above our estimate. Figure 1: Pirelli Real Estate: 9M 2004 results forecasts (Euro m) 9M-03 9M-04 YoY 9M-04 Actual vs. Actual Actual Change (%) Estimates Estimates EBIT 42.1 36.0-14.5% 35.2 2.3% Income from equity participations 29.6 52.4 77.0% 51.5 1.7% EBIT incl. Income from equity participations 71.7 88.4 23.3% 86.7 1.9% Net profit 52.1 65.9 26.5% 64.5 2.2% Net debt 48.7 40.9-16.0% 42.1-2.9% Source: Company data, DB estimates Figure 2: Pirelli Real Estate: Q3 2004 results forecasts (Euro m) Q3-03 Q3-04 YoY Q3-04 Actual vs. Actual Actual Change (%) Estimates Estimates EBIT 12.6 9.8-22.1% 9.0 8.9% Income from equity participations 5.9 12.4 111.6% 11.5 7.7% EBIT incl. Income from equity participations 18.4 22.2 20.4% 20.5 8.2% Net profit 11.8 15.4 30.5% 14.0 10.0% Source: Company data, DB estimates
Estimates Changes We have reviewed our estimates to take account of the impact of the funds management, NPLs (Non-Performing-Loans) and franchising businesses. Changes in our estimates are shown in figure 3 below. Figure 3: Estimates Changes (Euro m) Year end 31 December 2003 2004E 2005E 2006E Production Value Net of Acquisitions 478.8 473.8 546.8 625.5 Change vs. Previous -21% -16% -13% Recurring EBIT 61.1 64.0 79.5 94.6 Change vs. Previous -7% 2% 3% Net Income/(Loss) from Equity Participations 67.0 93.5 102.4 111.6 Change vs. Previous 13% 8% 21% EBIT including Income from Equity Participations 128.1 157.5 181.8 206.1 Change vs. Previous 4% 5% 12% Pre-tax Profit 122.7 150.9 179.5 199.0 Change vs. Previous 4% 9% 16% Net Profit 102.1 125.4 146.5 161.5 Change vs. Previous 5% 9% 19% Source: Company data and DB estimates The decrease in Recurring Revenues and EBIT is the net result of opposing effects of the continuing de-consolidation process of PRE s investments to equity-participated SPVs (Special Purpose Vehicles) and the impact of fund management, franchising and NPLs (only for the related asset management fees). Higher estimates for the Income from Equity Participations are due to the above-mentioned de-consolidated investments and the impact of the equity stakes in the NPL business. Income from Equity Participations, being taxed at SPVs level, contributes straightforward to the bottom line boosting Net Profit, now expected at Euro 125.4m at the end of 2004.
Valuation review In the wake of PRE s good performance over the first 9 months of 2004 and the impact of the funds management, NPLs and franchising businesses, we believe that the current price does not fully reflect the company s prospective evolution. We have raised our sum-of-the-parts valuation to include the effects of these businesses on the company s value. We value PRE on a sum-of-the-parts valuation applied to three main components: the real estate business, represented by the real estate and Non- Performing-Loans portfolios in which PRE holds a stake; the asset management and services business, that comprises the asset management activity performed by PRE on participated portfolios and the services activity for both proprietary holdings and third parties. Services include: agency, property management, facility management, project management and credit servicing for NPLs; the fund management business, performed by the 90%-owned management company Pirelli RE SGR, active in the placement and management of Italian real estate funds offered to both institutional and retail investors. We value the real estate business at discount to NNAV (after-tax NAV) of the real estate assets (NPLs stated market value already incorporates a discount to facial value). The asset management and services and the fund management businesses are valued by applying a discounted cash flow methodology (see figure 4 below for valuation methodologies). Figure 4: Valuation Methodology Business Real Estate Business Asset Management, Services and Franchising Businesses Fund Management Business Source: Deutsche Bank Valuation Methodology Discount to NNAV (after-tax NAV) DCF DCF We have performed our valuation taking into account three different scenarios: Base, High and Low. Differences among scenarios are the discount to NNAV of the real estate assets (15% Base, 10% High, 20% Low) and the perpetuity growth rate for the asset management and services business (2% Base, 3% High, 1% Low). We have valued the fund management business assuming no growth in the assets under management after 2006 (Euro 5.1bn target as per 2004-06 business plan presented in June). Given the quite constant and predictable cash flows envisioned for this business, based on the management fees for Pirelli RE SGR, we keep the valuation constant across the three scenarios.
Our SOP valuation now points to Euro 39.2 per share, with a Low scenario at Euro 35.2 per share and a High scenario at Euro 44.1 per share (see figure 5 below). Figure 5: Sum-of-the-Parts Valuation (Euro m) Base High Low Real Estate Business Applied market discount 15% 10% 20% Value of Real Estate Business based on NNAV 654.3 736.1 572.5 Value per share 15.9 17.9 13.9 Asset Management, Services and Franchising Businesses Perpetuity Growth Rate 2% 3% 1% WACC 8.0% 8.0% 8.0% Value based on DCF 805.3 923.2 721.2 Value per share 19.6 22.5 17.5 Fund Management Business WACC 8.0% 8.0% 8.0% Value based on DCF 153.6 153.6 153.6 Value per share 3.7 3.7 3.7 Overall PRE Valuation 1,613.2 1,812.9 1,447.3 Value per share 39.2 44.1 35.2 Source: DB estimates As mentioned above, the fund management, NPLs and franchising businesses, previously not included in our model (old target price: Euro 31.6 per share), are now taken into account in our valuation. Real estate valuation In the H1-2004 report, PRE provided an update on the valuation of its real estate portfolio, which has been valued by CB Richard Ellis. In our valuation, NPLs have been accounted at the same conservative market value reported by PRE and based just on a theoretical model (source: companys s H1-2004 report). While we think that this methodology could underestimate the NPLs fair value, we prefer to stick with this conservative assumption given the lack of a clear track record of such a business. PRE is due to close its first big NPLs transaction by entering a joint venture with Morgan Stanley for assets worth Euro 2.5bn of gross book value (around Euro 1.2-1.3bn of net book value). The company expects to have assets under management in this business of around Euro 2.5bn of net book value by 2006. Based on PRE stated NAV calculation, NAV reaches Euro 26.3 per share. Our NAV calculation has been performed by deducting from the assets market value PRE s stakes of debt at SPV level, net working capital and PRE net debt on balance sheet. After accounting for a reasonable 30% tax rate (residential assets are usually sold at lower tax rates than other asset categories) we are left with an estimated NNAV of Euro 18.7 per share and a discounted NNAV of Euro 15.9 per share (see figure 6 below).
Figure 6: Real Estate Business NAV per share* as of 30 June 2004 (Euro m) Book Value Market Value Capital Gain Portfolio 100% PRE Stake 100% PRE Stake 100% PRE Stake Residential 1681.1 620 2432.8 902.4 751.7 282.4 Portfolio 1,547.4 572.2 2,266.4 842.8 719.0 270.6 Development 133.7 47.8 166.4 59.6 32.7 11.8 Commercial 5261.9 958.4 6967.2 1311.3 1705.3 352.9 Portfolio 3,303.9 741.6 4,630.0 1,045.8 1326.1 304.2 Development 427.4 159.0 529.1 197.3 101.7 38.3 Fund 1,530.6 57.8 1,808.1 68.2 277.5 10.4 Land 270.8 106.2 337.1 123.1 66.3 16.9 NPLs Net Book Value 192.0 71.6 227.6 83.9 35.6 12.3 Total Assets Under Management 7405.8 1756.2 9964.7 2420.7 2558.9 664.5 Shareholder's Equity as of 30 June 2004 417.9 Total Reported NAV 1082.4 Reported NAV per share 26.3 Estimated NNAV 769.7 Estimated NNAV per share 18.7 Market discount 15% Discounted Estimated NNAV per share 15.9 *: Pirelli Real Estate shares are 41.1 millions as of 4-11-2004 (source: CONSOB) Source: Company data and DB estimates Asset Management, Services and Franchising Valuation These businesses represent, together with the fund management activity, the revenues and recurring EBIT that PRE posts on its P&L. Income from equity participations (already taxed at SPV level) then contributes to full EBIT (see figures 7 and 8 below). Figure 7: PRE - Production Value net of Acquisitions Breakdown (Euro m) 2003 2004E 2005E 2006E Services Business Agency 80.9 95.6 100.4 105.5 Property 79.8 79.8 86.3 93.3 Project 25.6 41.2 44.1 47.2 Facility 130.9 146.6 169.1 195.1 Credit Servicing 4.8 8.4 15.2 27.2 Services Revenues 322.0 371.6 415.1 468.4 Franchising 1.7 11.6 25.2 36.8 Services and Frachising Prod. Value net of Acq. 323.7 383.2 440.3 505.2 Asset Management 172.3 106.4 106.4 112.8 AM, Services and Franchising Prod. Value net of Acq. 496.0 489.6 546.7 618.0 Fund Management 0 9.1 28.8 40.4 Eliminations 17.2 24.9 28.8 32.9 Production Value Net of Acquisitons 478.8 473.8 546.8 625.5 Source: Company data and DB estimates
Figure 8: PRE - Recurring EBIT Breakdown (Euro m) 2003 2004E 2005E 2006E Services Business Agency 33.7 38.2 40.2 42.2 EBIT Margin (%) 41.7% 40.0% 40.0% 40.0% Property 6.0 7.6 8.2 8.9 EBIT Margin (%) 7.5% 9.5% 9.5% 9.5% Project 4.0 5.8 6.2 6.6 EBIT Margin (%) 15.6% 14.0% 14.0% 14.0% Facility 6.5 8.8 10.1 11.7 EBIT Margin (%) 5.0% 6.0% 6.0% 6.0% Credit Servicing 0.3 0.8 1.5 2.7 EBIT Margin (%) 6.3% 10.0% 10.0% 10.0% Services EBIT 50.5 61.2 66.2 72.1 EBIT Margin (%) 15.7% 16.5% 15.9% 15.4% Franchising -5.2-4.5 0.5 7.4 EBIT Margin (%) -305.9% -38.8% 2.0% 20.0% Services and Frachising EBIT 45.3 56.7 66.7 79.5 EBIT Margin (%) 14.0% 14.8% 15.2% 15.7% Asset Management EBIT 31.5 17.7 17.6 18.4 EBIT Margin (%) 18.3% 15.3% 13.0% 12.0% Fund Management EBIT 0 4.6 14.5 20.3 EBIT Margin (%) 49.8% 50.2% 50.4% Holding Costs at EBIT level 15.7 15.0 19.3 23.6 Recurring EBIT 61.1 64.0 79.5 94.6 Source: Company data and DB estimates Asset management, Services and Franchising businesses have been valued with a discounted cash flow (8% WACC, 2% perpetuity growth rate), resulting in a value of Euro 19.6 per share. Fund Management valuation Fund management should reach its steady state in 2006 according to our estimates when it should report Euro 40.4m sales and Euro 20.3m EBIT (see figure 9 below). Figure 9: PRE - Funds Management Company pro-forma P&L (Euro m) 2004E 2005E 2006E Management fees 7.4 22.8 31.3 Agency fees 1.7 6.1 9.1 Net Sales 9.1 28.8 40.4 EBIT 4.6 14.5 20.3 EBIT Margin (%) 49.8% 50.2% 50.4% Net Profit 2.8 9.0 12.6 PRE stake (90%) 2.5 8.1 11.4 Source: DB estimates We have valued the fund management business with discounted cash flow (8% WACC) running through to year 2013 (i.e. yearend of the funds expected to be launched in 2006), conservatively assuming no growth in the assets under fund management beyond 2006. Moreover, we did not account for any yearly performance fee (foreseen by the funds bylaws and based on excess return vs. an IRR target), forecasting only the performance fees envisioned for the funds expiry date. In our model the fund management business is valued at Euro 3.7 per share.
Assuming a 55% pay-out ratio, the changes in our estimates and SOP valuation led to an expected 4.3% dividend yield calculated on our target price for 2004 (4.8% at current price), growing to 5% (5.6% at current price) and 5.5% (6.2% at current price) in 2005 and 2006 (figure 10). Figure 10: PRE - Consolidated P&L (Euro m) Year end 31 December 2003 2004E 2005E 2006E Production Value Net of Acquisitions 478.8 473.8 546.8 625.5 Recurring EBIT 61.1 64.0 79.5 94.6 YoY Growth 4.7% 24.2% 19.0% Net Income/(Loss) from Equity Investments 67.0 93.5 102.4 111.6 EBIT including Income from Equity Investments 128.1 157.5 181.8 206.1 YoY Growth Financial Income 12.6 15.0 17.7 21.8 Financial Expenses 11.8 14.7 20.0 28.9 Extraordinaries -6.2-6.9 0.0 0.0 Pre-tax Profit 122.7 150.9 179.5 199.0 Taxes 21.2 26.1 33.6 38.1 Effective Tax Rate 17.3% 17.3% 18.7% 19.1% Minorities 0.6 0.6 0.6 0.6 Net Profit 102.1 125.4 146.5 161.5 Per Share* Data EPS 2.51 3.05 3.56 3.93 Payout Ratio 56% 55% 55% 55% DPS 1.41 1.68 1.96 2.16 Dividend Yield at Current Price 4.0% 4.8% 5.6% 6.2% Divident Yield at Target 3.6% 4.3% 5.0% 5.5% *: Pirelli Real Estate shares are 41.1 millions as of 4-11-2004 (source: CONSOB) Source: Company data and DB estimates Risks Downside risks to our target price would be deterioration in fundamentals of the Italian property market, slowdown in PRE s transaction activity and a loss of a major co-investment partner. Upside risk would include further successful placement and management of both proprietary and third parties real estate funds, a boost in real estate services demand and higher than expected returns from the up-started NPLs business.
Update on strategy and business performance Pirelli Real Estate (market cap Euro 1.4bn) is the main Italian real estate player. PRE is active in asset management, fund management, real estate services and franchising businesses (see figure 11 below). Figure 11: PRE group structure Pirelli & C. S.p.A. Public 52,8% +7,2% (1) 40% 90% 100% 100% 70% Fund Management Asset Management (2) Service Provider Distribution Network (Franchising formula)! Seeded Funds in commercial sector specialized by product (Core, Core +, Value Added)! Euro 1.8 bn fund management asset in which PRE coinvests 2-5%. Additional funds to be launched before year end! Appointed as co-manager for the first treasury RE Funds (for a total of around Euro 4 bn) (Opportunistic investments)! Residential! Commercial! NPL! Euro 10 bn (2) Asset Under Management in which PRE coinvests 20-25%! Project! Property! Facility! Agency! Credit Servicing! Euro 29.5 bn of asset under (2) (3) services! 450 signed contracts as of september 2004! Target of 500 agencies by the end of 2004! Target of 1,500 franchisee by 2006 Source: company data In the asset management business (figure12), PRE usually operates with established partners (the main of which is Morgan Stanley Real Estate Funds), either by way of on-balance sheet investments (but this investment strategy is likely to fade in the next years) or setting up SPVs (Special Purpose Vehicles) in which it holds minority equity investments (average size around 25%). PRE also provides the full range of asset management and real estate services to the joint venture.
Figure 12: Assets under Management Breakdown per asset class 2% 3% 25% 70% Residential Commercial NPL Land Source: company data PRE acts as service provider not only for its proprietary investments but also for external clients (usually institutional investors that do not have an established platform in Italy). Assets under services (including both equity-participated portfolios and third parties portfolios) are worth Euro 29.5bn as of June 2004. PRE recently started up three new businesses: fund management, Non- Performing-Loans and franchising network. In the fund management business, during 2004 PRE launched the Tecla fund (office assets, Euro 787m), the Cloe fund (office assets, Euro 746m, reserved to institutional investors) and is set to place the Olinda fund (contribution value of Euro 472m, to be placed between November 10 and December 6). According to the 2004-06 business plan, PRE expects to have Euro 5.1bn of assets under management in funds by 2006. The NPLs business and the related credit servicing unit has just started and PRE is due to close its first big transaction by entering a joint-venture with Morgan Stanley for assets worth Euro 2.5bn of gross book value (around Euro 1.2-1.3bn of net book value). PRE expects to have assets under management of around Euro 2.5bn of net book value by 2006. The franchising network is in its building phase and should reach 500 affiliated agencies by 2004 and 1,500 by 2006. The franchising business is supposed to sell both agency services as well as real estate-related financial products: Mediobanca (10%), Generali (10%) and Unicredito (10%) are the other shareholders of the 70%-controlled PRE subsidiary that manages the network.
PRE should further enhance in next years its strategy made of minority interests retained in various real estate portfolios, also de-consolidating interests now held at company level to SPVs. This process should boost the income from equity investments that has contributed to 52% of EBIT reported by the company in 2003. In the service provider business the company targets a 15% CAGR over the next three years. This business should benefit from the asset and fund management activities (all the services on these portfolios are performed by PRE subsidiaries), the increasing contribution from the credit servicing unit (boosted by the NPLs business) and the increasing demand of professional real estate services from institutional clients. PRE business plan targets a 2004-06 CAGR for EBIT including income from equity investments of 20%.
Appendix 1 Important Disclosures Additional information available upon request Disclosure Checklist Company Ticker Price Disclosure Pirelli & C. Real Estate PCRE.MI EUR 34.95 1, 6, 7, 8, 9, 13 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public offering for this company, for which it received fees. 2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company. 3. Deutsche Bank and/or its affiliate(s) acts as a corporate broker or sponsor to this company. 4. The research analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company or derivatives thereof. 5. The research analyst (or, in the US, a member of his/her household) is an officer, director, or advisory board member of this company. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive or intends to seek compensation for investment banking services from this company in the next three months. 9. Deutsche Bank and/or its affiliate(s) was a member of a syndicate which has underwritten, within the last five years, the last offering of this company. 10. Deutsche Bank and/or its affiliate(s) holds one percent or more of the share capital of the company whose securities are subject of the research, calculated under computational methods required by German law (data as of the last trading day of the past month). 11. See footnote headed Special Disclosures for any other relevant disclosures. 12. Deutsche Bank and/or its affiliate(s) holds a net short position of 1% or more of the share capital of the company whose securities are subject of the research, calculated by methods required by German law as of the last trading day of the past month. 13. Deutsche Bank and/or its affiliate(s) holds a trading position, as that term is defined by German law, in shares of the company whose securities are subject of the research. 14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. 15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://equities.research.db.com.
Special Disclosures None Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Alberto Checchinato Deutsche Bank Research Ratings Key Buy: Hold: Sell: Total return expected to appreciate 10% or more over a 12 month period. Total return expected to be between 10% to -10% over a 12 month period. Total return expected to depreciate 10% or more over a 12 month period. The target prices of shares mentioned in the accompanying text are based on an assumed investment horizon of 12 months. If company notes are published on these shares in the future, the target prices mentioned in the subsequent notes will have priority. Global Disclaimer The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively Deutsche Bank ). The information herein is believed by Deutsche Bank to be reliable and has been obtained from public sources believed to be reliable. With the exception of information about Deutsche Bank, Deutsche Bank makes no representation as to the accuracy or completeness of such information. This published research report may be considered by Deutsche Bank when Deutsche Bank is deciding to buy or sell proprietary positions in the securities mentioned in this report. For select companies, Deutsche Bank equity research analysts may identify shorter-term opportunities that are consistent with Deutsche Bank's existing, longer-term Buy or Sell recommendations. This information is made available on the SOLAR stock list, which can be found at www.db.com\research. Deutsche Bank may engage in securities transactions in a manner inconsistent with this research report and with respect to securities covered by this report, will sell to or buy from customers on a principal basis. Disclosures of conflicts of interest, if any, are discussed at the end of the text of this report or on the Deutsche Bank website at http://equities.research.db.com. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. Prices and availability of financial instruments also are subject to change without notice. This report is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. If a financial instrument is denominated in a currency other than an investor s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and such investor effectively assumes currency risk. In addition, income from an investment may fluctuate and the price or value of financial instruments described in this report, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor s home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this report is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright 2004 Deutsche Bank AG