Elena Hernandez Carillo +34 91 436 5171 Landsbanki ||| Kepler [email protected]
Reuters MDF.MC / Bloomberg MDF SM Index: FTSE Euro First 300 Rating Previous Reduce None Duro Felguera 287 6 February 2008 - INITIATION OF COVERAGE SPAIN - SMALL / MID-CAPS INDUSTRIAL ENGINEERING
Defensive profile already priced in Target Price Current Price The stock has outperformed both the market and the sector on EUR7.85 EUR7.54 the strength of its defensive profile and solid order backlog Market Cap Free Float (guaranteeing earnings for the next two years). That said, the EUR769.2m 22% company’s multiples already discount good earnings prospects. We initiate coverage with a Reduce and a EUR7.85 target price.
Reduce EUR 7.54 769.2 m 22 % 7.85 EUR EUR
Year Sales EBIT EBIT Net EPS P/E P/CF EV/ EV/ EV/ Div. YTD Abs. Perf. -13.2% End Margin Profit Sales EBITDA EBIT Yield Shares Outstanding (m) 102 Dec. 31 (EURm) (EURm) (%) (EURm) (EUR) (%) Daily Trade Vol.(sh 000) 198 2005 511.2 15.1 2.9 23.3 0.23 7.4 5.4 0.3 5.9 8.5 28.7 52 Week High/Low EUR9.50/EUR7.02 2006 566.4 39.4 7.0 33.7 0.33 13.1 10.3 0.5 5.6 6.6 3.9 Enterprise Value (EURm) 553 2007E 792.2 58.5 7.4 41.0 0.40 21.0 16.6 0.8 9.5 11.0 2.8 Net Debt (EURm) -210 2008E 863.2 62.7 7.3 46.0 0.45 16.7 13.3 0.6 7.6 8.8 3.5 2009E 983.8 72.8 7.4 54.1 0.53 14.2 11.4 0.5 5.7 6.6 4.1
Source: Landsbanki Kepler
Current backlog ensures earnings, but 2008 order intake decreases versus 2007 Duro Felguera is a former Spanish manufact uring industrial group, which has been transformed into an engineering and project development company, with a main focus on the energy segment (50% power and 9% oil and gas). We expect the company to post strong growth in the years ahead (+10% EPS CAGR 2006-11E) on the back of a solid 2007 backlog (around EUR1.5bn), which ensures sales volumes for the next two years. However, we expect 2008 order intake to drop by 22% in 2008, as 2007 can be considered an exceptional year, with order intake growth of 41%. In addition, we expect a slowdown in Spanish (and mature) markets in CCGT plant development, as the 2005-07 boom in Spain which saw installed capacity increase by 129% comes to an end. To minimise this impact, the company is focused on reinforcing its exposure to emerging markets (especially LatAm). Dur o Felguer a r el. FTSE Eur o Fir st 300
Dur o Fel guer a Free cash flow generation also decelerating 10.0 FT SE Eur o Fi r st 300 0.0070
We expect Duro Felguera to generate free cash flow of around on average EUR56m a year in 9.5 0.0066
2007-11E, thanks to: 1) a strong operating performance (+12.6 EBITDA CAGR 2006-11E); 9.0 0.0062 2) negative working capital; 3) low capex. Nevertheless, in 2007-11E free cash flow generation 8.5 0.0058 could be below 2005-06, as result of an increase in working capital requirements. 8.0 0.0054
Initiating coverage with Reduce rating and a EUR7.85 target price 7.5 0.0050
Thanks to its defensive profile, the stock has already seen a good relative performance and 7.0 0.0046 Feb 07 May 07 Aug 07 Nov 07 Feb 08 is consequently trading as a 20 % premium to the market and its sector (Duro Felguera Source: Landsbanki Kepler multiples: PE 16.7 and EV/EBITDA 7.6 in 2008). Furthermore, although we ar e confident Published by: about the company’s growth, the expected order intake drop for 2008 could lead to a price Landsbanki Kepler This report is subject to important correction. Therefore, we initiate coverage with a Reduce rating and a target price of disclosures and disclaimers which can EUR7.85, based on a DCF model, assuming a WACC of 9.45% and a g of 2%. be found at the end of this report and which form an integral part of it.
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Landsbanki | Kepler Duro Felguera 2
Key financials
Company profile Sales split – Geographical and divisional
Duro Felguera is a Spanish company that was a former manufacturing industrial group, that has transformed into an engineering and project development company in the last 100.0% 100.0% decade. Currently, Duro Felguera operates in three main business lines : integrated 90.0% Ot hers 23% 90.0% Manufact urin g of Capit al project management( energy , industrial plants and oil and gas storage), specialized 80.0% 80.0% Goods 17%
services and industrial equipment manufacturing. The company main market is Spain 70.0% 70.0% contributing with a 68% of the sales. O.C.D.E 60.0% Countries 2% 60.0% Specialized Services 9% 50.0% 50.0%
Top shareholders Events calendar 40.0% European 40.0% Inversiones Piles 22.2% Union 7% 30.0% 30.0% Residencial Vegasol 19.7% Int egrat ed TSK Electrónica y Electricidad 10.1% 20.0% 20.0% Project Spain 68% Management José Luis García Arias 9.4% 10.0% 10.0% 74%
Cartera de Inversiones Melca 8.1% 0.0% 0.0%
Income statement (EURm), Dec. 31 2006 2007E 2008E 2009E Balance sheet (EURm), Dec. 31 2006 2007E 2008E 2009E
Sales 566.4 792.2 863.2 983.8 Cash and equivalents 212.1 247.8 247.0 319.5 EBITDA adjusted 46.7 67.6 72.6 84.2 Account receivables 248.9 348.0 378.4 404.3 Depreciation & amortisation -7.3 -9.1 -9.9 -11.3 Other current assets 19.7 27.4 29.4 33.5 EBIT adjusted 39.4 58.5 62.7 72.8 Current assets 480.7 623.2 654.8 757.3 Net financial & associates 0.3 1.0 1.1 1.2 Non recurring items 0.0 0.0 0.0 0.0 Goodwill 0.2 0.2 0.2 0.2 PBT 39.7 59.4 63.8 74.1 Other intangible assets 1.5 1.5 1.5 1.5 Income tax -4.2 -16.6 -15.9 -18.1 Property, plant & equipment 106.4 106.3 106.2 106.1 Tax rate (%) 10.6% 28.0% 25.0% 24.5% Financial assets 17.6 17.6 17.6 17.6 Minorities -1.8 -1.8 -1.8 -1.8 Fixed assets 125.7 125.6 125.5 125.4 Reported net earnings 33.7 41.0 46.0 54.1 Adjustments 0.0 0.0 0.0 0.0 Short-term debt 10.1 10.1 10.1 10.1 Adj. net earnings (group) 33.7 41.0 46.0 54.1 Accounts payable 386.4 505.1 512.8 586.2 Other current liabilities 27.5 27.5 27.5 27.5 Cash-flow statement (EURm) 2006 2007E 2008E 2009E Current liabilities 423.9 542.6 550.3 623.7
Adj. net earnings 33.7 41.0 46.0 54.1 Long-term debt 27.1 27.1 27.1 27.1 D&A 7.3 9.1 9.9 11.3 Pension provisions 0.0 0.0 0.0 0.0 Change in WC 112.6 11.9 -24.7 43.4 Other long-term liabilities 28.0 28.0 28.0 28.0 Other adjustments 2.2 1.8 1.8 1.8 Long-term liabilities 55.1 55.1 55.1 55.1 Operating cash flow 155.7 63.8 33.0 110.6 Capex 7.3 9.0 9.8 11.2 Shareholders' equity 119.5 141.4 163.4 190.6 Free cash-flow 148.30 54.75 23.22 99.42 Minority interest 7.9 9.7 11.5 13.3 Total shareholders' equity 127.4 151.1 174.9 203.9 Disposals 0.6 0.0 0.0 0.0 Financial investments 0.1 0.0 0.0 0.0 Net debt -174.9 -210.6 -209.8 -282.4 Dividends 10.1 19.1 24.0 26.9 Net working capital -155.8 -167.7 -143.0 -186.4 Share buy-backs 0.0 0.0 0.0 0.0 Capital employed 311.1 417.9 450.1 480.0 Equity issued 0.0 0.0 0.0 0.0 Total assets 606.3 748.8 780.3 882.7 Others 5.5 0.0 0.0 0.0 Net debt change -144.2 -35.7 0.70.70.7 -72.5
Ratios 2006 2007E 2008E 2009E Per share (EUR) 2006 2007E 2008E 2009E
Sales growth (%) 10.8% 39.9% 9.0% 14.0% EPS adjusted 0.33 0.40 0.45 0.53 EBITDA growth (%) 115.2% 44.8% 7.5% 15.9% EPS reported 0.33 0.40 0.45 0.53 EBIT growth (%) 161.6% 48.3% 7.2% 16.2% CFPS 0.42 0.51 0.57 0.66 Net earnings growth (%) 44.4% 21.8% 12.3% 17.6% BVPS 1.17 1.39 1.60 1.87 Gross margin (%) 40.2% 40.2% 40.2% 40.2% DPS 0.17 0.23 0.26 0.31 EBITDA margin (%) 8.2% 8.5% 8.4% 8.6% EBIT margin (%) 7.0% 7.4% 7.3% 7.4% Year-end nb of shares(m) 102.0 102.0 102.0 102.0 Net earnings margin (%) 5.9% 5.2% 5.3% 5.5% Av. diluted nb of shares(m) 102.0 102.0 102.0 102.0
Net debt/equity (%) -137.4% -139.4% -120.0% -138.5% Valuation 2006 2007E 2008E 2009E Net debt/EBITDA (x) -3.7 -3.1 -2.9 -3.4 ROE (%) 31.4% 31.4% 30.2% 30.6% P/E 13.1 21.0 16.7 14.2 ROCE (%) 13.4% 16.0% 14.4% 15.7% P/BV 3.7 6.1 4.7 4.0 Equity/total assets (%) 21.0% 20.2% 22.4% 23.1% P/CF 10.3 16.6 13.3 11.4 Net WC/sales (%) -27.5% -21.2% -16.6% -18.9% Dividend yield 3.9% 2.8% 3.5% 4.1% FCF yield 33.3% 6.4% 3.0% 12.9% Operating CF/sales (%) 27.5% 8.0% 3.8% 11.2% Capex/sales (%) 1.3% 1.1% 1.1% 1.1% EV/sales 0.46 0.81 0.64 0.49 FCF/sales (%) 26.2% 6.9% 2.7% 10.1% EV/EBITDA 5.6 9.5 7.6 5.7 Capex/D&A (%) 101.1% 98.9% 98.9% 98.9% EV/EBIT 6.6 11.0 8.8 6.6 Dividend pay out (%) 51.0% 58.5% 58.5% 58.5% EV/capital employed 0.9 1.8 1.3 1.0
Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 3
Contents
Duro Felguera
Defensive profile already priced in
Key financials 2
Summing up 4
Strong past performance… 4 …likely to weaken 4 Free cash flow generation also decelerating 5 At this stage, fairly valued 5 Conclusion 5 Risk to our rating 6
Key questions for management 7
Drivers and catalysts 9
Good prospects for sector growth, but Spanish CCGT decelerating 9 Greater internationalisation needed to weather the slowdown 10 Current backlog assures earnings 10 Lower order intake expected 11 Free cash flow generation also slowing 12 Net cash position 13 Risks to our rating 14 Biodiesel segment: not the best time to invest 15
Constructing the forecast 16
Order intake and backlog 16 Strong sales visibility for the next two years 17 Low depreciation and amortisation 19 Positive financial result 19 Margin stability 19 Increasing taxes from 2006 20
Full financials 21
P&L 21 Sales by division 21 Sales by region 22 Balance sheet 22 Cash flow statement 23
Valuation 24
DCF model 24 Multiples comparison 25 Historical multiples comparison 27
Additional insights 28
Company background 28 Company description 28 Shareholder structure 29 Turnkey projects sales recognition 29 How is a turnkey project price fixed? 30 Control of potential risks 30 Competitive structure 31 Main clients 31
Disclosures 33
Legal information 35
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 4
Summing up
Strong past performance…
Duro Felguera is a former Spanish manufacturing industrial group turned engineering and project development company. It has three main business lines: integrated project management, specialised services and manufacturing.
Table 1: Duro Felguera - Business lines Division Description Aggregated sales Aggregated sales Sales CAGR 2006 2008 2006-11E Integrated project Business unit devoted to developing large turnkey industrial projects, 70.2% 74.0% 12.7% management which include: Energy Execution of turnkey projects mainly for electric power stations with gas 36.3% 49.8% 18.8% turbines (single-cycle or combined cycle), thermal power stations, desulphurisation and denitrification plants in coal-fired power stations Industrial plants Engineering activities and execution of turnkey projects in the areas of cranes, 19.6% 15.8% 6.8% steelworks (secondary metallurgy, rolling mills), automated warehouse, mining and material handling (ship grab unloaders, train loading and unloading stations, storage silos) Oil & gas storage Turnkey projects for oil and gas storage facilities and the supply of storage 14.3% 8.1% -0.4% equipment (floating roof tanks, fixed roof tanks, spherical tanks. Specialised Execution of mechanical assembly and electrical installations for industry, 13.3% 16.4% 27.5% services industrial plant maintenance; supply and installation of insulations; assembly and overhaul of turbo generators Manufacturing Manufacturing of mechanical metal components: heat recovery steam 16.5% 9.6% -3.3% generators, equipment for large civil works infrastructure, turbines, generators, refineries offshore equipment, rolling mill, railway equipment Source: Landsbanki
Furthermore, the company is undergoing an internationalisation process and, although it has a direct presence in 12 countries, this process has been carried out through external networks. Duro Felguera currently has cooperation agreements with the four main players worldwide in the energy supply sector: General Electric, Alstom, Mitsubishi and Siemens, and international sales account for around 32% of total sales in 2006. Thanks to this restructuring process and a boom in the energy sector (in 2005-07, Spanish combined cycle gas turbines plants’ (CCGT) installed capacity grew by 129%), Duro Felguera was able to post strong growth in 2004-06, with CAGRs of 21% in sales, 35% in EBITDA and 71% in net profit. Furthermore, its EBITDA margin improved from 5.9% in 2004 to 8.2% in 2006. During 2007, new order intake increased by 41%, to EUR1.1bn. With this rise, we estimate the company’s backlog at end-2007 to be around EUR1.5bn, giving visibility on sales for the next two years.
…likely to weaken
Spanish CCGT development decelerating, need to focus outside The company’s exposure to the energy segment means it will be partly hedged against the economic cycle, given energy’s huge growth potential in the long term. According to the IEA (International Energy Agency), we could see global primary energy demand increase by 55% and investments in energy facilities of USD22trn in 2005-30. This investment will mainly focus on developing countries, as the faster population and economic growth in these regions could generate 74% of the total increase in primary energy demand.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 5
Therefore, although we expect the positive growth in the energy sector in Spain and other mature markets to continue in coming years, we also see a deceleration in demand as a result of: 1. Heavy investments already carried out in Spain (+129% CCGT installed capacity increase in 2005-07 vs. 21% accumulated growth expected for 2008-11). 2. A likely economic slowdown. To weather this possible demand deterioration in mature markets, Duro Felguera will continue its internationalisation strategy, through external networks and cooperation agreements. It will mainly focus on LatAm and other developing regions, where highest demand growth is expected. The company aims to reach a 50% international sales weighting (32% in 2006).
Decrease in order intake from 2007 Although order intake could be sustained by strong demand, we estimate the company’s order intake for 2008 could drop by 22% to EUR836m. Due to the strong increase in backlog in 2007, the company may reject projects to maintain (or increase) its profitability and its parameters of quality and timing of project execution. Furthermore, the aforementioned slowdown in CCGT plant development could damage future order intake. Beyond 2008, we expect an order intake increase (from EUR836 in 2008 to EUR1,020 in 2011), as previous projects are completed, allowing the company to manage higher order intake.
Strong operating performance but lower than previous year We expect the company to continue to post strong operating performance (CAGRs of 12.29% in sales and 12.6% in EBITDA in 2006-11E) and solid margins (EBITDA margin 8.4% and PBT margin of 7.4%) on the back of its sound 2007 backlog, although net profit growth (5.8% CAGR in 2006-11E) may be hit by the normalisation of the company’s tax situation (2007E effective tax rate around 28% vs. 10.5% in 2006). Table 2 shows that in 2007-11E growth is likely to be below that achieved in 2004-06, across the P&L account.
Table 2: Consolidated P&L summary EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E CAGR CAGR CAGR 2004-06 2007-09 2006-11 Total revenues 319.9 511.2 566.4 792.2 863.2 983.8 997.8 1008.3 21.0% 7.5% 12.2% % growth -7% 59.8% 10.8% 39.9% 9.0% 14.0% 1.4% 1.1% EBITDA 18.9 21.7 46.7 67.6 72.6 84.2 84.6 84.3 35.1% 7.6% 12.6% % growth 0.4586 14.6% 115.2% 44.8% 7.5% 15.9% 0.5% -0.3% EBITDA margin (%) 5.9% 4.2% 8.2% 8.5% 8.4% 8.6% 8.5% 8.4% EBIT 13.4 15.1 39.4 58.5 62.7 72.8 73.1 72.8 43.3% 7.6% 13.0% % growth n.a. 13% 162% 48.3% 7.2% 16.2% 0.4% -0.5% PBT 10.1 20.7 39.7 59.4 63.8 74.0 74.5 74.2 57.8% 7.6% 13.3% % growth n.a. 104.8% 91.8% 49.9% 7.3% 16.1% 0.6% -0.4% PBT margin (%) 3.2% 4.0% 7.0% 7.5% 7.4% 7.5% 7.5% 7.4% Net profit 6.6 23.3 33.7 41.0 46.0 54.1 54.4 54.2 71.8% 9.7% 10.0% % growth n.a. 250.9% 44.4% 21.8% 12.3% 17.5% 0.6% -0.4% Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 6
Free cash flow generation also decelerating
According to our estimates, the company could generate free cash flow of around on average EUR56m a year in 2007-11 thanks to: 1. A strong operating performance. 2. Negative working capital: the structural quality of the company due to advanced payments (5%-20% of total price) required at the beginning of projects. 3. Low investment (EUR8-10m a year). Although we are confident about the company’s capacity to generate cash flow in 2007-11E, our free cash flow prospects for 2007-11E are below 2005-06 levels, mainly due to an increase in working capital requirements. In 2008, the company will have to use cash from previous years to meet project development costs generated in 2006-07. Nevertheless, we think the company’s net cash position was close to EUR211m by the end of 2007 and is expected to increase to EUR322m in 2011.
At this stage, fairly valued
We have set our target price of EUR7.85 per share, with a DCF valuation, assuming a 9.45% WACC (4.75% risk-free rate, 4.50% market premium and 1.1 company beta) and a 2% perpetual growth rate. It’s difficult to find a clear comparable for Duro Felguera. The most similar companies are Técnicas Reunidas (Spain) and other European project developers; however, these companies are bigger (both in market cap and backlog volume), have more liquidity and are mainly exposed to the oil and gas segment. Overall, in terms of PE, the stock is trading with a 20% premium versus the average of European peers’ multiples. In our view, this premium is not justified by higher growth prospects, as its comparables have more exposure to the oil and gas segment, where demand increase is expected to be higher than in the power segment.
Table 3: European peer multiple comparison Price Mkt cap EV/EBITDA PER Dividend yield (EUR/share) (EURm) 2007 2008 2009 2007 2008 2009 2007 2008 2009 Duro Felguera 7.7 785 9.5 7.6 5.7 21.0 16.7 14.2 2.8% 3.5% 4.1% Average 10.1 8.1 6.6 18.2 14.6 12.1 2.3% 2.8% 3.3% Avge weighted mkt cap 9.8 8.0 6.7 18.1 14.4 11.9 2.2% 2.5% 3.0% Source: Landsbanki Kepler, Bloomberg.
Conclusion
The company has a defensive profile (no exposure to the cycle, good financial situation) which has already been reflected in its better performance versus the market and the sector (in the last three months, the company’s share price has dropped 12.9%, while Spanish small- mid caps decreased 20%). As result, the company is trading at multiples of PE16.7x and EV/EBITDA7.6x, which implies around a 20% premium in PE to the sector and Spanish small and mid-caps. Therefore, in relative terms, we think that after market weakness, there are better opportunities for investing. Therefore, despite visibility on earnings and a sound business model, we initiate coverage on Duro Felguera with a Reduce rating, as in our view these good prospects are already discounted. The absence of new important projects in the short term, coupled with expected lower order intake for 2008, is set to limit the stock’s performance. That said, we don’t see any risk of huge downside, as the company’s good fundamentals support its valuation.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 7
Risk to our rating
There are two factors which could lead to a better-than-expected performance in 2008: 1. Beyond 2008, we estimate order intake to be below that obtained in 2007, but we are seeing strong demand momentum and if the company proves its ability to manage increased backlog and internationalisation capacity, we don’t rule out a 2008 order intake above EUR900m. Furthermore, an engineering acquisition would mean an increase in projects due to a higher number of qualified workers. 2. We are assuming stable PBT margins (around 7.5%) due to uncertainties over future backlog execution and higher risks associated with the internationalisation process. However, there are also triggers (higher pricing power due to strong demand momentum, better business mix) which could lead to margin improvements in the years ahead.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 8
Key questions for management
Strategies
• According to your guidance, Duro is looking to increase its international sales weighting to 50% in 2009. Could you explain how this will be achieved? Are new investments likely in order to set up new plants outside Spain, or will the company expand through its external network? • Which regions offer the greatest opportunities for expansion? • The company plans to reduce manufacturing division weighting while services is expected to increase. Would you consider a total disinvestment of manufacturing? What drivers could lead to a specialised services’ sales weighting increase? • Is the company looking for buying opportunities? Is an acquisition outside of Spain viable? What value or conditions do you consider when approaching acquisitions?
Financials
• How comfortable are you that 2007 order intake growth will continue over the next few years? • After the normalisation of the company’s fiscal tax situation, what are your estimates for the company’s tax rate? • How could the company be affected by dollar depreciation? Does the company plan to take any new measure to hedge currency risk? • Would you consider increasing payout if free cash flow generation continues to grow?
Outlook
• What are your expectations for the Spanish power generation segment? Given the current boom, do you think it is possible for CCGT installed capacity to continue to grow in Spain as in previous years? • What are your expectations regarding energy growth of developing countries? • Do you expect any significant project awards in the months ahead? • What are your feelings about the bio-diesel segment? Do you think that it could become a new segment opportunity in the near future? • After lifting your sales guidance for 2007-09 in October 2007, is there any scope for a sales guidance increase in the short term?
Recent trends
• As an inadequate workforce level could make it difficult to cope with a bigger backlog, do you have a personnel policy in place to solve it? Have you had any problems hiring qualified personnel? • What is your outlook on the Gijon biodiesel plant construction awarded to the company in 2006, now that the process has been paralysed?
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 9
Drivers and catalysts
Good prospects for sector growth, but Spanish CCGT decelerating
Although Duro Felguera also operates in other segments (like civil works, railway or ports), the company is focused primarily on developing projects related to the energy segment. Despite short-term uncertainties, the energy segment offers huge potential growth, mainly in developing countries. According to the International Energy Agency (IEA) USD22trn investments will be needed in worldwide infrastructure to meet the 55% projected increase in global energy demand in 2005-30.
Power (49.8% aggregated sales in 2008E) Duro Felguera is specialised in power projects, and has a strong Spanish presence in the construction of combined-cycle gas-turbine (CCGT) plants. We are in a boom phase for CCGT plant development in developing regions, spurred by faster population growth and economy development. According to the IEA, developing countries will contribute 74% of the total increase of primary energy demand in 2005-30, requiring huge investment in this area to meet demand.
Table 4: Primary energy supply by region GWHm 2005 2030 Accumulated growth Growth per year OECD 64.5 82.2 127.4% 0.9% Middle East 5.9 11.1 190.4% 1.9% Transition economies 12.6 16.5 130.7% 0.9% China 20.2 38.8 192.0% 2.0% Asia 14.9 27.3 183.0% 1.8% Latin America 5.9 9.6 163.2% 1.6% Africa 7.0 11.1 158.1% 1.5% Bunkers 2.0 2.4 119.7% 0.7% Source: International Energy Agency
However, following a buoyant period in Spain, and in most of Europe, we now expect to see demand deteriorate in the years ahead, as CCGT plants reach maximum development (in October 2007, 29% of Spanish electricity demand was covered through CCGT plants, versus 8.2% covered in December 2004). In addition, Spain added 14 new CCGT plants in 2007 alone, and Spanish installed capacity increased from 10,020 MW in 2005 to 22,990MW in 2007 (129% accumulated growth) in only two years. According to the Spanish Energy Ministry, installed capacity is expected to increase to 28,020MW in 2011 (21% accumulated growth in 2008-11). On the other hand, stiffer environmental requirements now call for companies to carry out de-sulphurisation and de-nitrification processes in coal-fired power stations. So the fact that in 2005 a 25% of total energy worldwide supply came from coal plants would appear to be an opportunity for Duro Felguera’s new projects in these areas. Furthermore, we are in a phase of coal demand recovery as a result of higher fossil-fuel prices (making coal more competitive) and energy demand from China and India.
Oil & gas (8.1% aggregated sales in 2008E) Fossil fuels are the major source of primary energy in Spain and worldwide. According to the IEA, oil demand could grow by an average of 1.1% a year in 2005-30, meanwhile natural gas demand is expected to grow by 1.6% on average over the same period. This demand, coupled with rising oil and gas prices, support projections of new investment of around
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 10
EUR2.9trn in the fuel segment and EUR2.6trn in natural gas in 2005-30 (according to the IEA). Duro Felguera is a leading player in the Spanish market of supply and production of fuel- storage facilities, an area that currently shows huge growth potential. For example: according to its 2007-12 strategic plan, Enagas, one of Duro Felguera’s main clients, expects to invest around EUR1.4bn (35% of its total investment) in LNG re-gasification and storage facilities.
Other markets: Mining and steelworks (15.8% aggregated sales in 2008E) Raw material price growth (steel, nickel, coke) coupled with growing demand are also pushing up investment in the mining area. Furthermore, the aforementioned resurgence of coal plants could lead to new investment in these areas. Duro Felguera has a presence in areas with mining sources such as Venezuela and the US.
Greater internationalisation needed to weather the slowdown
As explained above, we expect a deterioration of energy project (and especially CCGT) demand in Spain and developed countries in general. To minimise the impact of the foreseeable slowdown in mature markets, the company will focus on reinforcing its position in emerging markets, mainly on Latin America. The company’s target is to reach a 50% international sales weighting (vs. 32% in 2006); we think this target is reachable on the back of huge potential development of infrastructure and energy facilities in these countries. However, obviously it implies more risk than growing in Spain. Currently, Duro has a direct presence through subsidiaries and branch offices in 12 countries, mainly in Latin American but also in Europe and Asia. Nevertheless, Duro prefers to expand its business through an indirect network or in association with local partners to assume lower risks. In this area, Duro Felguera has a competitive advantage, as it simultaneously has collaboration agreements with the four main global players in the capital goods supply segment: General Electric, Siemens, Mitsubishi IHI and Alstom. The companies adapt the way they work together to suit project needs. These associations give Duro easier access to new markets and clients.
Current backlog assures earnings
We expect that Duro Felguera may have secured an order intake above EUR1bn in 2007, a 41% increase on 2006. As Graph 1 shows, this order intake increase comes mainly from the integrated project management division, which we expect to increase by 38% in 2007. These 2007 order intake hikes are based on an excellent Q3, stacked with project awards in the energy segment: installation of six CCGT plants (five in Spain and another in Chile), with installed generating capacity of 1,190MW and worth EUR445m. This order intake rise leads us to expect that in 2007 the backlog will increase by 27.3% to EUR1.5bn, giving strong visibility on Duro Felguera’s sales for at least the next two years.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 11
Chart 1: Order intake by division
900 845 800 700 585 613 600 555 500 400 428 300 138 103 118 200 179 93 196 94 100 93 73 96 36 37 42 44 46 44 0 2001 2002 2003 2004 2005 2006 2007E
Integrated Project Management Specialized Services Manufacturing of Capital Goods
Source: Landsbanki Kepler
Table 5: 2007 main new contracts Name Location Client EURm Two gas port terminals Brazil Petrobras 104 Spare parts Phase I and new orders of equipment Phase II Venezuela Ferrominera Orinoco 28 Equipment for coke transfer Mexico Kuttner 3 CCGT Plant 800MW Argentina Fideicomiso José D. San Martín 64 De-sulphurisation Spain Iberdrola 43 2 Coke drums USA Fuor/Valero 11 High-pressure piping, Cycofos CCGT Plant 480MW France Alstom Power 5 Various tanks and spheres Spain Cepsa 16 2 LNG tanks of 150.000 m3 Spain Enagas 73 CCGT Plant Ca Tresorer 230MW Spain GESA-Endesa 187 2 CCGT Plant Besós V400MW Spain Endesa 95 2 CCGT Plant Barcelona Port 400MW Spain Gas Natural 125 Tierra Amarilla simple cycle power plant (160 MW) Chile Southern Cross Group 38 Turboalternator 501FCT Cardones Chile SWC 8 Turboalternator 2x1 CCGT Plant San Martín Argentina Cotersa 6 Source: Duro Felguera
Lower order intake expected
We estimate 2008 order intake to drop by 22% to EUR836m. Although 2007 order intake could be supported by solid demand, the difficulty in managing the current backlog could lead to higher execution risks due to bottlenecks and lower quality, if the company backlog continues to grow at the rate set in 2007. At this stage, for the years ahead we think the company may be more selective in choosing contracts or rule out less profitable ones to maintain profitability, parameters of quality and timing of execution. In addition, as stated earlier, following the boom period, we expect a slowdown in CCGT plant construction in Spain.
Chart 2: Duro Felguera - Order intake and backlog 2004-11E (EURm)
1200.0 1600 1000.0 1400 1200 800.0 1000 600.0 800 400.0 600 400 200.0 200 0.0 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E
Backlog Order Intake
Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 12
Free cash flow generation also slowing
According to our estimates, the company will be able to generate free cash flow (measured as cash flow generated by the company before dividend distribution) of around EUR56m on average a year in 2007-11, driven by a strong operating performance, negative working capital and low investment.
Chart 3: FCF generation 2004-11E (EURm)
160 148 140 120 99 100 76 80 55 53 60 51 40 23 20 -9 0 -20 2004 2005 2006 2007E 2008E 2009E 2010E 2011E
Source: Landsbanki Kepler
Although we are confident in the company’s capacity to generate cash flow (Chart 3), our free cash flow prospects for 2007-11E are below 2005-06 levels, mainly due to working capital requirements as we explain below.
Negative working capital Negative working capital could be considered structural of the business derived from the timing and payment of contracts. In a standard project, an advance payment of 5-20% (depending on risk) of the total project cost is required. This means that during the first 8-9 months, the company has an excess of cash derived from this project. During the following year, it finances around 20% of total project costs with the excess of cash derived from other projects. The rest of the project’s payments and benefits are received in the last six months. In 2005 and 2006, the company received around EUR127m and EUR210m respectively from advanced project payments. This has led to exceptional cash generation. In 2007, we estimate negative working capital will increase by 8%, due to advanced payments received for new projects awarded in 2007. But in 2008, although the working capital will remain negative, we will see a 16% working capital decrease, because the company will have to use its cash to develop projects achieved in 2006-07, while, as we have already mentioned, new order intake (and therefore cash derived from advance payments) will be lower than in 2007.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 13
Chart 4: Working capital 2004-11E
150 150 100 65 113 100 32 43.4 50 11.9 -3.9 -5.0 50 0 0 -19 -50 -24.7 -50 -33 -100 -100 -150 -150 -132 -145 -157 -200 -176 -172 -167 -200 2004 2005 2006 2007E 2008E 2009E 2010E 2011E
Working Capital WORKING CAPITAL (Requirements) / Excess
Source: Landsbanki Kepler
Limited capex plan Historically, Duro Felguera´s investments were EUR9-15m, mainly linked to restructuring and maintenance of manufacturing facilities. Despite the company’s internationalisation strategy, we expect Duro Felguera’s capex to remain low, around EUR8-10m (1.2% of total sales) in 2007-11E, as a result of the aforementioned strategy of expansion through local developer networks and the lack of established operations in these countries. Furthermore, Duro Felguera doesn’t invest in technology development and prefers to buy directly from third-parties.
Net cash position
We expect the company to achieve a net cash position of close to EUR211m by the end of 2007, which could increase to EUR322m in 2011. This net cash position is structural, as the bulk of it comes from advance payments which have to be stored to fund further project costs. The company had no opportunity to dramatically alter its cash level, as it is forced to maintain a healthy financial situation to avoid a liquidity crisis and the impossibility of financing project costs. Nevertheless, there are some options for investing its cash:
Great payout level In 2006, Duro paid a total gross dividend of EUR0.17 per share (EUR17m total). This dividend represents a 50% payout over 2006 net profit. In 2007, the company stated its intention to lift its payout to 58.5%. On 11 December it paid an initial dividend of EUR0.07 from 2007 net profit. We don’t rule out that the company’s net cash position will lead it to increase its payout in future. But according to the company, if good acquisition opportunities arise, the company will be willing to cut back its shareholder remuneration to carry them out.
Table 6: Dividend policy 2004-11E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Payout 55.6% 30.8% 51.0% 58.5% 58.5% 58.5% 58.5% 58.5% Dividend yield 28.3% 28.7% 3.9% 2.8% 3.5% 4.1% 4.1% 4.1% Total dividend 3.7 7.1 17.3 24.0 26.9 31.6 31.8 31.7 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 14
Seeking an engineering acquisition Duro Felguera is seeking to acquire a small- to mid-sized engineering company in Spain or abroad. According to the company, it could afford an acquisition worth EUR250m, but the candidates which have been considered are below this value. The acquisition target must fulfil the following requirements: 1) the acquisition must be friendly, to hold onto the acquired company’s management and staff; 2) efficiency margins at the same level or above Duro Felguera’s margins; 3) low debt. In our view, an acquisition would be positive for Duro Felguera, as it would increase its engineering workforce and could complete its service portfolio. Nevertheless, with uncertainties concerning current market conditions and fears of a liquidity crisis, the company feels comfortable with its current financial situation, so carrying out an acquisition is not a major priority.
Risks to our rating
Order intake: A key factor which could enhance our valuation In 2008-11, we estimate an order intake below that obtained in 2007E. But as mentioned earlier, this order intake decline is not only due to the fact that CCGT´ growth in Spain will be lower, but also because the company may choose to reject projects to maintain profitability and quality parameters. Therefore, we do not rule out that 2008 order intake could rise above EUR900m, if the company obtains big projects (EUR300-400m), as this kind of project proportionally uses fewer resources than for example 30 projects of EUR10m, or if the qualified workforce increases as result of an engineering acquisition.
Could margins improve? Beyond 2007, we expect pretax profit margins to be stable at 7.4-7.5%, as a result of uncertainties regarding future backlog execution and higher risks associated with the internationalisation process. Nevertheless, we do not rule out the possibility of margin improvements as a result of: 1. Sector momentum is leading to higher pricing power which would be reflected in margins; furthermore, this momentum could allow the company to be more selective, choosing projects with higher margins. 2. Due to their high-risk profile, projects carried out in developing countries are generally higher-margin. 3. A gradual decrease in manufacturing contribution while specialised services weighting (division with the highest margins) tends to increase. The table below shows EBITDA margin trends by division, and each division’s contribution to consolidated EBITDA.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 15
Chart 5: EBITDA margin by division Chart 6: Contribution to consolidated EBITDA by division
16.0% 13.9% 13.9% 13.9% 13.9% 13.7% 13.5% 100% 14.0% 11.9% 12.0% 10.5% 80% 10.0% 8.5% 60% 6.1% 8.4% 9.0% 8.0% 7.9% 7.9% 7.9% 7.9% 7.7% 7.5% 40% 6.0% 6.5% 6.5% 6.3% 6.1% 20% 4.0% 0% 2.0% 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 0.0% -20% -40% -2.0% 2004-2.3% 2005-2.4% 2006 2007E 2008E 2009E 2010E 2011E -4.0% Integrated Project Management Specialized Services Manufacturing of Capital Goods Integrated Project Management Specialized Services Manufacturing of Capital Goods Others
Source: Landsbanki Kepler Source: Landsbanki Kepler
4. All project prices cover potential risk costs of the execution process, if at the end of the project these costs have not been incurred, they are accounted as earnings, so we could see a margin improvement at the end of the projects.
Biodiesel segment: Not the best time to invest
At the end of 2006, Duro Felguera was awarded a concession for the construction and operation of a biodiesel plant in Gijon, with a production capacity of 63,000 tonnes. The investment necessary for this project will be around EUR50m With the process now paralysed, Duro Felguera is seeking a partner to develop the project; as stated earlier, the group is not interested in technological development, and its major focus in the biodiesel segment is logistics and fuel storage. If the company is unable to find a partner to develop the project, it might give it up. While we think biodiesel storage could represent a new opportunity for Duro Felguera in terms of new projects related to fuel storage, in our view this is not the best time to invest in this segment. Currently, in Spain there are 19 biodiesel plants with a capacity of 795,000 tonnes a year, but at present only three plants are operational and the others are out of use as a result of raw-material price increases and US (dollar-denominated) imports. Therefore, we think it is very unlikely this project will go ahead.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 16
Constructing the forecast
We estimate CAGRs of 12.2% in sales, 12.6% in EBITDA and 10.0% in net profit in 2006-11E.
Table 7: Consolidated P&L summary EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E CAGR 2006-11E Total revenues 319.9 511.2 566.4 792.2 863.2 983.8 997.8 1,008.3 12.2% % Growth -7% 59.8% 10.8% 39.9% 9.0% 14.0% 1.4% 1.1% EBITDA 18.9 21.7 46.7 67.6 72.6 84.2 84.6 84.3 12.6% % Growth 0.4586 14.6% 115.2% 44.8% 7.5% 15.9% 0.5% -0.3% EBITDA margin (%) 5.9% 4.2% 8.2% 8.5% 8.4% 8.6% 8.5% 8.4% EBIT 13.4 15.1 39.4 58.5 62.7 72.8 73.1 72.8 13.0% % Growth n.a. 13% 162% 48.3% 7.2% 16.2% 0.4% -0.5% EBIT margin (%) 4.2% 2.9% 7.0% 7.4% 7.3% 7.4% 7.3% 7.2% PBT 10.1 20.7 39.7 59.4 63.8 74.0 74.5 74.2 13.3% % Growth n.a. 104.8% 91.8% 49.9% 7.3% 16.1% 0.6% -0.4% PBT margin (%) 3.2% 4.0% 7.0% 7.5% 7.4% 7.5% 7.5% 7.4% Taxes -2.449 4.3 -4.2 -16.6 -15.9 -18.1 -18.3 -18.2 Rate % 24.3% -21.0% 10.6% 28.0% 25.0% 24.5% 24.5% 24.5% Net profit 6.6 23.3 33.7 41.0 46.0 54.1 54.4 54.2 10.0% % Growth n.a. 250.9% 44.4% 21.8% 12.3% 17.5% 0.6% -0.4% Source: Landsbanki Kepler
The main assumptions used in our model are:
Order intake and backlog
In 2007, we expect Duro Felguera’s order intake to jump by 40.7% to around EUR1.1bn. This huge increase could mean backlog expected by the end of the year could reach EUR1.5bn, giving visibility on sales and a stable balance sheet for the next two years. We expect a decrease of 21.9% in 2008 orders to EUR836m. Although we think that 2007 order intake could be sustained by demand, but if the company backlog continues to grow at the 2007 rate, excessive backlog could lead to higher execution risk and quality reduction, cutting into profitability. Furthermore, in the years ahead we see a slowdown in CCGT plant construction in Spain (main contributor to 2007 order intake growth), as result of the huge development (+129% installed capacity increase) this sector saw in 2005-07. Beyond 2008, we estimate that the company will be able to increase order intake due to sustained energy demand growth and a gradual reduction of its backlog, due to the completion of projects begun in 2007.
Table 8: Order intake and backlog estimates 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Order intake 767 726 760 1070 836 880 964 1020 % Growth 146.5% -5.4% 4.8% 40.7% -21.9% 5.3% 9.6% 5.9% Project management 585 555 613 845 634 653 718 754 Services 44 46 44 96 125 150 165 182 Manufacturing 138 94 103 118 77 77 80 84 Backlog 719 971 1187 1454 1425 1314 1278 1291 % Growth 103.7% 35.1% 22.2% 22.5% -2.0% -7.7% -2.7% 1.0% Project management 450 662 857 1084 1034 910 867 862 Services 89 88 83 117 148 172 187 203 Manufacturing 186 159 163 170 161 157 151 152 Others -6 62 83 83 81 75 73 74 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 17
By division, we expect the integrated project management division to generate the majority of contract wins (73-79% of total order intake in 2007-11E). We assume that order intake from the specialised service division would be the fastest-growing, as a result of maintenance contracts linked to new projects. On the other hand, we expect the manufacturing division weighting to decline to 8% in 2011 (14% in 2006).
Strong sales visibility for the next two years
We estimate a 39.9% increase in 2007 sales, reaching EUR792m, driven mainly by integrated project management area revenues, where we expect a 38% increase, and, more specifically, due to sales from the energy project area almost doubling relative to 2006, to around EUR305m. For 2008, we estimate that consolidated sales could increase by 9% to EUR863.2m. The 2008 growth rate is below 2007, as despite the backlog increase, the majority of revenues from projects awarded in 2007 are accounted in their final stage (2009), as the company sales recognition is made through a percentage-of-completion method. In 2009, we estimate 14% sales growth due to the completion of projects begun in 2007. Beyond 2010, we assume flattish revenue growth of 1-2% growth a year, with a 0.8x revenues/backlog ratio.
Table 9: Consolidated sales estimates 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Order intake 767 726 760 1070 836 880 964 1020 Backlog 719 971 1187 1454 1425 1314 1278 1291 Sales 319.9 511.2 566.4 792.2 863.2 983.8 997.8 1,008.3 % Growth -6.7% 59.8% 10.8% 39.9% 9.0% 14.0% 1.4% 1.1% Backlog/sales (years) 2.2 1.9 2.1 1.8 1.7 1.3 1.3 1.3 Book to bill (OI/revenues) 2.4 1.4 1.3 1.4 1.0 0.9 1.0 1.0 Revenues/backlog 0.9 0.7 0.6 0.7 0.6 0.7 0.8 0.8 Source: Landsbanki
Better sales distribution mix By division, we expect that integrated project management will continue to be the major contributor on the back of sustained demand growth and recently awarded energy projects. For 2007, we expect a 48% increase of sales to EUR618.1m. In 2008, we assume an 11% rise in sales because despite huge increases in 2007 backlog, the majority of the revenues are accounted in the last year of the project. Summing up, we forecast a 12.7% sales CAGR in 2006-11E.
Table 10: Integrated project management division estimates 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Order intake 585 555 613 845 634 653 718 754 Backlog 450 662 857 1084 1034 910 867 862 Sales 200.3 343.2 417.8 618.1 684.4 776.6 761.1 760.0 Sales growth n.a. 71% 22% 48% 11% 13% -2% 0% Energy n.a. n.a. 217.1 417.8 462.6 524.9 514.4 513.7 Industrial plants n.a. n.a. 117.2 132.4 146.6 166.4 163.1 162.8 Storage n.a. n.a. 85.4 67.9 75.2 85.3 83.6 83.5 Backlog/sales (years) 2.2 1.9 2.1 1.8 1.5 1.2 1.1 1.1 Book to bill (OI/revenues) 2.9 1.6 1.5 1.4 0.9 0.8 0.9 1.0 Revenues/backlog n. a. 0.8 0.6 0.7 0.6 0.8 0.8 0.9 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 18
Duro Felguera aims to increase the weighting of specialised services (maintenance and other after-sale services) to 25% of aggregated sales in 2009 (14% in 2006), to increase recurrent earnings and to hedge against an economic cycle slowdown (this division has the highest EBITDA margins, around 14% in 2006). While we think the weighting of specialised services could increase as a result of energy project contracts and their associated maintenance services, in our view, a 25% target may prove difficult. We see a goal of 19% as more realistic.
Table 11: Specialised services division estimates 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Order intake 44 46 44 96 125 150 165 182 Backlog 89 88 83 117 148 172 187 203 Sales 39.5 46.2 49.1 62.9 93.9 126.5 150.2 165.2 % Growth n.a. 17.0% 6.2% 28.3% 49.3% 34.6% 18.8% 10.0% Backlog/sales (years) 2.2 1.9 1.7 1.9 1.6 1.4 1.2 1.2 Book to bill (OI/revenues) 1.1 1.0 0.9 1.5 1.3 1.2 1.1 1.1 Revenues/backlog n.a. 0.5 0.6 0.8 0.8 0.9 0.9 0.9 Source: Landsbanki Kepler
On the other hand, the company is also aiming to reduce the weighting of equipment manufacturing to 15% of total aggregated sales by 2009 (17% in 2006), to focus on markets with higher margins and growth prospects. Capital goods manufacturing is a mature market, very dependent on economic cycles and with competitive risk from Asia, so we see reducing sales in this business line as a sensible strategy for Duro Felguera longer term.
Table 12: Manufacturing division estimates 2004-11E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Order intake 138 94 103 118 77 77 80 84 Backlog 186 159 163 170 161 157 151 152 Sales 79.4 119.3 93.8 111.1 84.9 80.7 86.5 83.1 Growth n.a. 50.2% -21.4% 18.5% -23.6% -4.9% 7.1% -3.9% Backlog/sales (years) 2.3 1.3 1.7 1.5 1.9 1.9 1.7 1.8 Book-to-bill (OI/revenues) 1.7 0.8 1.1 1.1 0.9 0.9 0.9 1.0 Revenues/backlog 0.0 0.6 0.6 0.7 0.5 0.5 0.6 0.6 Source: Landsbanki Kepler
Sales guidance versus Landsbanki Kepler estimates At the beginning of 2007, the company guided for 2009 sales of EUR850m. Only six months later, in October 2007, the company published new sales guidance, lifting its sales outlook to EUR750m for 2007, EUR850m for 2008 and EUR1bn for 2009. We think the company could beat this guidance in 2007 and 2008, fuelled by higher 2007 order intake. In 2009, our estimates are in line with guidance.
Table 13: Sales guidance versus Landsbanki Kepler estimates EURm Duro Felguera guidance Landsbanki Kepler estimates 2007E 750 792 2008E 850 863 2009E 1000 984 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 19
Low depreciation and amortisation
Due to the structure of its business, historically the company has a low depreciation and amortisation level derived mainly from manufacturing division assets. From previous years, we assume depreciation and amortisation could represent 1.2% of total sales.
Table 14: Depreciation and amortisation 2004-11E EURM 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Depreciation and amortisation -5.6 -6.6 -7.3 -9.1 -9.9 -11.3 -11.5 -11.6 % Change 19% 10% 25.3% 9.0% 14.0% 1.4% 1.1% Depreciation/sales 1.7% 1.3% 1.3% 1.2% 1.2% 1.2% 1.2% 1.2% Depreciation/fixed assets 5% 6% 7% 8.4% 9.2% 10.5% 10.7% 10.8% Source: Landsbanki Kepler
Positive financial result
As result of its net cash position, we assume the company will be able to set positive financial results. Although, in the years ahead, interest rates are expected to continue to rise, we also assume higher financial costs as the internationalisation process leads to: 1. Higher risks covered through derivatives or other structured financial products. 2. Costs derived from dollar depreciation. Long-term, we assume a 0.5% cash-income rate.
Table 15: Financial results 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Net financial result -3.3 5.6 0.3 1.0 1.1 1.2 1.4 1.5 Average net debt/(cash) 37 8 -104 -193 -210 -246 -293 -313 Fin. Result/Avg net cash 8.8% -66.6% 0.2% 0.5% 0.5% 0.5% 0.5% 0.5% Source: Landsbanki Kepler
Margin stability
As result of Duro Felguera’s having successfully restructured itself from manufacturing company to project developer, coupled with positive results in the manufacturing division, the company has substantially improved its efficiency margins, from 4.2% EBITDA margin in 2005 to 8.2% in 2006. During H1 2007, margins were helped by a strong contribution from the manufacturing division due to the completion of major contracts. Without this non-recurrent factor, 2007 pretax profit margins would be around 7.5% (7.0% in 2006). This organic improvement is derived mainly from better pricing conditions thanks to strong demand. Furthermore, excess demand allows the company to be more selective in choosing contracts. Beyond 2007 we maintain our pretax profit margin estimates at 7.4-7.5%, as result of uncertainties regarding personnel expenses coupled with higher risks associated with currency and execution.
Table 16: Duro Felguera - Margins 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Total revenues 319.9 511.2 566.4 792.2 863.2 983.8 997.8 1008.3 EBITDA 18.9 21.7 46.7 67.6 72.6 84.2 84.6 84.3 EBITDA mg (%) 5.9% 4.2% 8.2% 8.5% 8.4% 8.6% 8.5% 8.4% EBIT 13.4 15.1 39.4 58.5 62.7 72.8 73.1 72.8 EBIT mg (%) 4.2% 2.9% 7.0% 7.4% 7.3% 7.4% 7.3% 7.2% PBT 10.1 20.7 39.7 59.4 63.8 74.0 74.5 74.2 PBT mg (%) 3.2% 4.0% 7.0% 7.5% 7.4% 7.5% 7.5% 7.4% Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 20
Increasing taxes from 2006
In 2006, the company used up tax credits from losses in the 1990s, so in 2007 we could see a normalisation of the fiscal tax situation which led the company to report taxes of around 28% (10.5% in 2006). In our view, the company will be able to trim this rate in the years ahead through a higher weighting of international sales (according to the Spanish fiscal regulation, for international activities, the company is exempt from paying taxes when it operates under JVs), deductions from R&D activities, etc. Nevertheless, hitting the levels achieved in previous years looks impossible, and ultimately we expect the reported tax rate to be 24-25%.
Table 17: Fiscal tax situation EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Pretax profit 10.1 20.6 40.0 59.4 63.8 74.0 74.5 74.2 Taxes -2.4 4.3 -4.2 -16.6 -15.9 -18.1 -18.3 -18.2 Tax rate -24.1% 21.1% -10.5% -28.0% -25.0% -24.5% -24.5% -24.5% Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 21
Full financials
P&L
Table 18: Consolidated P&L 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Sales 319.9 511.2 566.4 792.2 863.2 983.8 997.8 1,008.3 EBITDA 18.9 21.7 46.7 67.6 72.6 84.2 84.6 84.3 Of which cost of personnel -82.1 -94.8 -100.1 -110.1 -122.2 -135.5 -146.1 -157.5 - Depreciation -5.6 -6.6 -7.3 -9.1 -9.9 -11.3 -11.5 -11.6 - Net provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 = EBIT 13.4 15.1 39.4 58.5 62.7 72.8 73.1 72.8 Net financial expenses -3.3 5.6 0.3 1.0 1.1 1.2 1.4 1.5 Earnings bef. tax & extraordinaries 10.1 20.6 40.0 59.4 63.8 74.0 74.5 74.2 Extraordinaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax -2.4 4.3 -4.2 -16.6 -15.9 -18.1 -18.3 -18.2 Consolidated net earnings 7.7 24.9 35.8 42.8 47.8 55.9 56.2 56.0 Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority interests -1.0 -1.7 -1.8 -1.8 -1.8 -1.8 -1.8 -1.8 Declared net earnings - Group 6.7 23.2 34.0 41.0 46.0 54.1 54.4 54.2 Adjustments (for EPS calculation) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adjusted net earnings 6.7 23.2 34.0 41.0 46.0 54.1 54.4 54.2 Source: Landsbanki Kepler
Sales by division
Table 19: Sales by division 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Integrated project management 200.3 343.2 417.8 618.1 684.4 776.6 761.1 760.0 Energy n.a. n.a. n.a. 417.8 462.6 524.9 514.4 513.7 Industrial plants n.a. n.a. n.a. 132.4 146.6 166.4 163.1 162.8 Storage n.a. n.a. n.a. 67.9 75.2 85.3 83.6 83.5 Specialised services 39.5 46.2 49.1 62.9 93.9 126.5 150.2 165.2 Manufacturing of capital goods 82.9 121.6 98.5 111.1 84.9 80.7 86.5 83.1 Total 322.7 511.0 565.3 792.2 863.2 983.8 997.8 1,008.3 Source: Landsbanki Kepler
Table 20: % Contribution to sales by division 2004-11E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Integrated project management 62% 67% 74% 78% 79% 79% 76% 75% Energy n.a. n.a. n.a. 53% 54% 53% 52% 51% Industrial plants n.a. n.a. n.a. 17% 17% 17% 16% 16% Storage n.a. n.a. n.a. 9% 9% 9% 8% 8% Specialised services 12% 9% 9% 8% 11% 13% 15% 16% Manufacturing of capital goods 26% 24% 17% 14% 10% 8% 9% 8% Total 100% 100% 100% 100% 100% 100% 100% 100% Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 22
Sales by region
Table 21: Sales by region 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Spain 185.8 325.9 385.6 514.9 517.9 541.1 518.8 524.3 European Union 67.9 82.7 36.9 56.7 70.6 90.5 97.9 98.9 OECD countries 39.0 23.7 13.9 21.3 26.6 34.1 36.9 37.3 Others 27.2 78.9 129.9 199.3 248.1 318.1 344.2 347.8 Total 319.9 511.2 566.4 792.2 863.2 983.8 997.8 1008.3 Source: Landsbanki Kepler
Table 22: Contribution to sales by region 2004-11E 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Spain 58.1% 63.7% 68.1% 65.0% 60.0% 55.0% 52.0% 52.0% European Union 21.2% 16.2% 6.5% 7.2% 8.2% 9.2% 9.8% 9.8% OECD countries 12.2% 4.6% 2.5% 2.7% 3.1% 3.5% 3.7% 3.7% Others 8.5% 15.4% 22.9% 25.2% 28.7% 32.3% 34.5% 34.5% Total 100% 100% 100% 100% 100% 100% 100% 100% Source: Landsbanki Kepler
Balance sheet
Table 23: Consolidated balance sheet 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Fixed assets 125.1 131.7 125.7 125.6 125.5 125.4 125.2 125.1 Net tangible fixed assets 104.5 106.2 106.4 106.3 106.2 106.1 105.9 105.8 Net intangible assets 2.5 2.6 1.7 1.7 1.7 1.7 1.7 1.7 Net financial assets 18.1 22.8 17.6 17.6 17.6 17.6 17.6 17.6 Current assets 255.2 350.6 480.7 623.2 654.8 757.3 784.4 808.3 Inventories 22.2 16.8 19.3 27.0 29.4 33.5 34.0 34.4 Trade receivables 187.8 232.6 248.9 348.0 378.4 404.3 410.0 414.4 Other receivables 0.8 0.8 0.4 0.4 0.0 0.0 0.0 0.0 Cash & equivalents 44.3 100.4 212.1 247.8 247.0 319.5 340.4 359.6 Prepayment & adj. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total assets 380.3 482.3 606.3 748.8 780.3 882.7 909.7 933.4 Shareholder equity-group 78.5 95.1 119.5 141.4 163.4 190.6 213.5 235.8 Minority interests 6.3 7.6 7.9 9.7 11.5 13.3 15.1 16.9 Shareholders' equity 84.8 102.8 127.4 151.1 174.9 203.9 228.6 252.7 Provisions 23.5 28.5 28.0 28.0 28.0 28.0 28.0 28.0 Debt 93.5 68.0 37.2 37.2 37.2 37.2 37.2 37.2 Trade payables 162.1 258.7 386.4 505.1 512.8 586.2 588.4 588.1 Other payables 16.4 24.2 27.5 27.5 27.5 27.5 27.5 27.5 Deferred income & adj. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total liabilities 380.3 482.3 606.3 748.8 780.3 882.7 909.7 933.4 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 23
Cash flow statement
Table 24: Cash flow statement 2004-11E EURm 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Cash flow 13.3 31.5 43.1 51.9 57.7 67.2 67.8 67.6 - Change in work. cap. req. 18.9 -65.0 -112.6 -11.9 24.7 -43.4 3.9 5.0 = Operating cash flow -5.7 96.6 155.7 63.8 33.0 110.6 63.9 62.6 - Capital expenditure 15.0 9.9 7.3 9.0 9.8 11.2 11.4 11.5 = Operating free cash flow -20.7 86.6 148.3 54.8 23.2 99.4 52.5 51.1 - Financial investments 0.0 0.3 0.1 0.0 0.0 0.0 0.0 0.0 - Dividends to shareholders 0.0 6.0 10.1 19.1 24.0 26.9 31.7 31.9 - Dividends (minority interests) 0.0 0.4 1.6 0.0 0.0 0.0 0.0 0.0 = Net free cash flow -20.7 80.0 136.5 35.7 -0.7 72.5 20.8 19.2 + Assets disposal 5.2 1.3 0.6 0.0 0.0 0.0 0.0 0.0 +/(-) Others -8.1 0.3 5.5 0.0 0.0 0.0 0.0 0.0 = Financial surplus/(deficit) -23.6 81.5 142.6 35.7 -0.7 72.5 20.8 19.2 Rights' issue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net debt increase/(decrease) 23.6 -81.5 -142.6 -35.7 0.7 -72.5 -20.8 -19.2 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 24
Valuation
DCF model
We have based our target price of EUR7.85 per share on a simple DFC model. We have used a 9.45% WACC (4.75% risk-free rate, 4.50% market premium and 1.1x company beta). We have calculated our residual value from 2014, using a 2% perpetual growth rate after 2014 and we have assume a conservative long-term EBITDA margin of 7.2% (8.5% in 2006).
Table 25: DCF valuation 2008E 2009E 2010E 2011E 2012E 2013E 2014E EBIT 62.7 72.8 73.1 72.6 71.5 68.8 62.2 YOY (%) 7.2% 16.2% 0.4% -0.7% -1.6% -3.7% -9.6% Tax on EBIT -15.9 -18.1 -18.3 -18.2 -17.9 -17.3 -15.7 Nopat 46.8 54.7 54.9 54.4 53.5 51.5 46.6 YOY (%) 11.8% 17.0% 0.3% -0.8% -1.6% -3.8% -9.7% + Depreciation -9.9 -11.3 -11.5 -11.6 -11.8 -11.9 -11.9 Gross cash flow 56.7 66.0 66.3 66.0 65.3 63.4 58.4 Capex 9.8 11.2 11.4 11.5 11.7 11.7 11.8 - WCR variation 24.7 -43.4 3.9 5.0 7.6 12.1 0.0 Operating free cash flow 22.2 98.2 51.0 49.5 46.0 39.6 46.7 WACC 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% DFCF 20.3 82.0 38.9 34.5 29.3 23.0 24.8 DFCF sum 252.8 + Discounted terminal value 333.0 Perpetual growth rate 2.0% = Total 585.8 - Minority interest 11.5 + Financial assets 17.6 - Net financial debt (cash) -209.8 = Total 801.8 Number of shares 102.0 DCF/share 7.85 Stock price 7.62 Premium/discount -3.1% Source: Landsbanki Kepler
What would happen if…? Note that the company’s net cash position penalises the WACC. Although in a project development company, due to its business structure, it is necessary to maintain this healthy financial situation, the valuation could be enhanced by a potential re-leveraging. On the other hand, uncertainties in the market or company risk profile could lead to a higher risk premium. To analyse these possible situations, we have carried out a sensitivity analysis changing our WACC and perpetual growth rate assumptions.
Table 26: Sensitivity to WACC and perpetual growth rate G/WACC 8.45% 8.95% 9.45% 9.95% 10.45% 1.0% 8.16 7.79 7.47 7.19 6.93 1.5% 8.41 8.01 7.65 7.34 7.07 2.0% 8.70 8.25 7.85 7.52 7.22 2.5% 9.04 8.53 8.09 7.72 7.39 3.0% 9.44 8.86 8.37 7.95 7.58 Source: Landsbanki Kepler
As mentioned earlier, order intake is one of the company’s key factors, as a possible economic slowdown could lead to a slowdown in the number of projects awarded. However, we have been rather conservative in our order intake estimates, as we are seeing strong
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 25
demand, so if the aforementioned engineering acquisition takes place, or the company trims the number of projects but boosts the amount per contract, we could see an increase in company order intake. This prompted us to carry out a sensitivity analysis to different order intake scenarios. We are changing our order intake, assuming a growth/reduction rate in 2008-14 over our order intake base case, we have maintained our revenues/backlog ratios per division as well as our pretax profit margin assumptions.
Table 27: Sensitivity to order intake % Order intake change over our base case Sales CAGR 2006-11E Target price (EUR per share) -30% 4.70% 5.71 -20% 7.5% 6.43 -15% 8.7% 6.78 -10% 9.9% 7.14 -5% 11.1% 7.5 0% 12.2% 7.85 5% 13.3% 8.22 10% 14.3% 8.58 15% 15.3% 8.94 20% 16.3% 9.29 30% 18.10% 10.01 Source: Landsbanki Kepler
We have also studied the impact of an improvement (or a deterioration) of efficiency margins in 2008-14 in the company’s valuation, maintaining our sales estimates as well as WACC and g assumptions.
Table 28: Sensitivity to EBITDA margin EBITDA margin trend Target price (EUR per share) 5.5% (2008)-4.2% (2014) 5.36 6.5% (2008)-5.2% (2014) 6.19 7.5% (2008)-6.2% (2014) 7.03 8.5% (2008)-7.2% (2014) 7.85 9.5% (2008)-8.2% (2014) 8.69 10.5% (2008)-9.2% (2014) 9.53 11.5% (2008)-10.2% (2014) 10.36 Source: Landsbanki Kepler
Multiples comparison
It is difficult to find a clear comparable for Duro Felguera, as it operates in different areas, but Técnicas Reunidas is the most similar, although it is more focused on oil and gas projects (83% of total sales), is bigger (Técnicas Reunidas market cap around EUR2.300bn) and doesn’t operate in manufacturing.
Table 29: Duro Felguera and Técnicas Reunidas comparison EURm Duro Felguera Técnicas Reunidas Market cap 755 2,242 Backlog 2008E 1,425 3,967 Sales 2008E 863 2,852 EBITDA margin 2008E 8% 6.0% % Tax rate 28% 0% Net profit 2008E 46 162 Net cash 2008E 216 -493 Sales by division Power (54%), industrial plants (17%), oil & gas (9%), Oil & gas (83%), power (13%), services (11%), manufacturing (10%) infrastructure (4%) CAGR EPS 2007-09E 14.9% 42.60% Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 26
Other European companies dedicated to engineering projects are Petrofac (UK), Saipem (Italy), Technip (France) and Aker (Norway), although these companies also have more exposure to the oil & gas sector than the power generation sector.
Table 30: European peer multiples comparison Price Mkt cap EV/EBITDA PER Dividend yield (EUR) (EURm) 2007 2008 2009 2007 2008 2009 2007 2008 2009 Duro Felguera 7.7 775 9.5 7.6 5.7 21.0 16.7 14.2 2.8% 3.4% 4.0% Técnicas Reunidas 41.4 2,318 16.2 10.8 8.2 20.9 14.3 10.3 2.2% 3.2% 4.5% Petrofac 7.3 2,525 10.3 9.3 7.9 20.0 17.8 15.7 1.3% 1.5% 1.6% Saipem 24.0 10,603 10.9 8.9 7.5 19.4 15.3 12.5 1.8% 2.0% 2.4% Technip 45.0 4,825 5.4 4.8 4.2 17.0 13.5 11.7 2.7% 3.0% 3.3% Aker 12.2 3,347 8.2 7.0 5.9 11.1 9.6 7.9 2.9% 3.4% 4.1% Average 10.1 8.1 6.6 18.2 14.7 12.1 2.3% 2.7% 3.3% Avge weighted mkt cap 9.8 8.0 6.7 18.1 14.4 11.9 2.2% 2.5% 3.0% Source: Landsbanki Kepler, Bloomberg.
In terms of 2008 PE, Duro is trading at around a 16% premium to average market multiples and a 20% premium to Técnicas Reunidas. In the case of Técnicas Reunidas, Duro Felguera’s higher PE is justified by its negative tax fiscal situation, as Técnicas Reunidas’ effective tax rate is close to zero, while Duro Felguera’s effective tax rate will be around 25-28%. On the other hand, regarding 2008 EV/EBITDA, Duro is trading at a discount versus average market multiples, a fact justified by Duro Felguera’s better EBITDA margins. Nevertheless, as table 31 shows, other companies such as Técnicas Reunidas have higher growth prospects both in sales and in efficiency margin improvement, due to their exposure to oil & gas projects.
Table 31: Fundamentals sector comparison Sales EBITDA EBIT Net profit EBITDA margin (CAGR 07-09E) (CAGR 07-09E) (CAGR 07-09E) (CAGR 07-09E) 2008E Duro Felguera 11.4% 11.6% 11.6% 14.9% 8.4% Técnicas Reunidas 27.3% 41.2% 42.5% 42.6% 6.0% Petrofac 10.7% 14.2% 14.7% 12.0% 12.9% Saipem 8.7% 20.3% 21.1% 21.5% 13.4% Technip 3.1% 12.5% 12.6% 16.3% 9.1% Aker 4.4% 17.9% 17.8% 17.7% 7.8% Source: Landsbanki Kepler
By applying the sector average EV/EBITDA to Duro Felguera’s estimated 2008 EBITDA, we reach a target price of EUR7.75per share, in line with the valuation set by our DCF model. Although we think this valuation method is not the most appropriate for this stock, as it doesn’t consider company growth prospects, it proves that at current prices the stock is fairly valued.
Table 32: Valuation by multiples method EV/EBITDA sector average 2008 8.0 EBITDA Duro 2008 72.6 EV Duro 578.3 Net debt 209.8 Equity 788.2 Number of shares 102.0 Target price (EUR per share) 7.75 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 27
Historical multiples comparison
It is difficult to compare Duro Felguera’s current multiples with those in the past, as Duro Felguera’s business has been totally restructured, and the company profile is now completely different. But comparing 2008 multiples with the recent past, we see that in 2008 the company is trading above average, but at a slight discount to 2007, as result of recent market weakness. Nevertheless, the company’s defensive profile (no exposure to cycle, good financial situation) has already been reflected in its outperformance versus the market and the sector, as in the past three months Duro Felguera’s share price has dropped by 12.9%, while the sector average and the Spanish small- mid caps universe declined by 23% and 20% respectively.
Table 33: Duro Felguera historical/projected multiples 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E PE 15.7 44.5 11.0 -17.2 13.5 7.4 13.1 21.0 16.7 14.2 14.3 14.3 EV/EBITDA 5.0 8.2 5.8 8.4 6.7 5.7 5.6 9.5 7.6 5.7 5.6 5.4 Source: Landsbanki Kepler
Table 34: Duro Felguera historical/implicit multiples 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E PE 15.7 44.5 11.0 -17.2 13.5 7.4 13.1 21.0 17.4 14.8 14.7 14.8 EV/EBITDA 5.0 8.2 5.8 8.4 6.7 5.7 5.6 9.5 8.1 6.1 5.9 5.7 Source: Landsbanki Kepler
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 28
Additional insights
Company background
Duro Felguera was founded in 1858 by Pedro Duro Benito. The company was initially called Duro y Compañía and was dedicated to iron and steel production and coal mining. In 1902, the company was listed on the Spanish stock exchange under the name Sociedad Metalúrgica Duro-Felguera, and up to the 1960s was a leading player in the Spanish mining sector. During the 1960s, Spanish mining and industrial sectors were restructured and different industrial associations were created (Union of Asturian Iron and Steel Companies, Hulleras del Norte). Duro Felguera´s assets related to iron and steel manufacturing and coal mining activities were gradually transferred to these associations. In 1968, the company changed its business activities and it began to focus on capital goods manufacturing. During the 1970s and 1980s, Duro Felguera gradually disinvested assets unrelated to manufacturing and diversified its activities to meet demand for equipment and facilities of companies in different industrial sectors (energy, railway and mining). In the mid-1980s, the company changed its business strategy again, entering the execution of turnkey projects in the energy and industrial sectors. Nowadays, Duro Felguera is specialised in integrated project development, covering all project phases from engineering to the construction and maintenance of plants. The company now has a direct presence through subsidiaries and branch offices in 12 countries.
Company description
Currently, Duro Felguera operates in three main business lines:
Integrated project management (78% of aggregated sales in 9M 2007): This unit is dedicated to developing large turnkey industrial projects and includes: 1. Energy segment (53% of sales in 9M 2007): execution of turnkey projects mainly for electric power stations with gas turbines (single-cycle or combined cycle), but also for thermal power stations and for desulphurisation and denitrification plants in coal-fired power stations. For the execution of desulphurisation plants in thermal power stations, Duro Felguera has a strategic alliance with the Japanese multinational Mitsubishi Heavy Industries. 2. Industrial plants (17% of sales in 9M 2007): engineering activities and execution of turnkey projects in the areas of cranes (engineering, procurement, installation and after-sales service of all types of heavy electric cranes and related equipment), design and supply of steelworks (secondary metallurgy, rolling mill), automated warehouse, mining and material handling (ship grab unloaders, train loading and unloading stations, storage silos). 3. Oil and gas storage (9% of sales in 9M07): in 2003, Duro Felguera joined Felguera-IHI, a company jointly owned by Duro Felguera and the Japanese company Ishikawajima-Harima Heavy Industries, to created Felguera IHI, which is currently the leading Spanish player in the production and supply of fuel storage facilities for both liquid and gaseous fuels. Felguera IHI is dedicated to the construction of BOT plants, turnkey storage facilities and the supply of storage equipment (floating roof tanks, fixed roof tanks, spherical tanks).
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 29
Specialised services (15% of aggregated sales in 9M 2007) Duro Felguera is also involved in the assembly, operation and maintenance of industrial plants. This unit gives support to other units, mainly energy and industrial plants, through the execution of mechanical assembly and electrical installations for industry in general, in addition to being involved in industrial plant maintenance, supply and installation of insulations, assembly and overhaul of turbo generators.
Manufacturing of industrial equipment: (16% of aggregated sales in 9M 2007) This was Duro Felguera’s original business line and where the company has major experience and a solid reputation. Duro is specialised in the manufacturing of mechanical metal components: heat recovery steam generators, equipment for large civil works infrastructure, turbines, generators, refineries’ offshore equipment, rolling mills, railway equipment, etc.
Shareholder structure
Duro Felguera is controlled by a group of companies in Asturias. The main shareholder is Inversiones El Piles (owned by Grupo Arrojo, the former owner of Grupo Avanza) with a 22.7% holding, followed by Residencial Vegasol with 19.8% and TSK with a 10% (until November 2007 it had a 16% stake). Other minor shareholders are Construcciones Termocarama with 6.8% and Cartera de Inversiones Melca with 6.7%. The most recent shareholder is Inversiones Liquidambar, which has held a 6% stake since December 2007. The free float of the company is 25-30%.
Chart 7: Shareholder structure
Construcciones Termoracama, 6.79% Free Float, 28.42% Inversiones Somio, 22.65%
TSK Ingenierías y Montajes, 10% Residencial Vegasol, Liquidambar Inversiones, 19.81% 6% Cartera de Inversiones Melca, 6.33%
Source: Landsbanki Kepler
Turnkey projects sales recognition
The revenues from a project are recognised in the P&L account through a percentage-of- completion method. Therefore, sales accounted are measured through the percentage of total costs of the year divided by the total cost estimated for the project. This method has a lag versus the real completion of the project and, as a result, the bills are usually received later than the service is given.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 30
How is a turnkey project price fixed?
The price for a project is fixed at the beginning, although there are special clauses allowing for a review depending on fluctuations in inflation, raw materials prices, etc. These reviews are made when it is effectively proven that the company has incurred higher supplier costs, so the accounting of this additional income to cover higher costs is usually carried out at the end of the projects. To fix the price, first, all the supply costs and subcontracting services are calculated. To do this, three suppliers are asked for a firm offer and then Duro chooses the most adequate combination of price/ quality. General and insurance costs and other costs related to execution are then added to the supply costs. Finally, a margin of 10-15% with a premium depending on country risk is applied to all these costs. This price fixation method minimises risks derived from a supplier price increases as well as ensuring the maximum level of cost planning for each phase of the project.
Control of potential risks
Currency risk All Duro Felguera contracts have exposure to several currencies, mainly dollars and euros, but also local currencies, due to payments from international projects and company international sales and supply. To hedge against currency fluctuations, the company uses the following methods: 1. The company is signing contracts with customers in euros and is looking for suppliers that bill in dollars. 2. Pre-financing loans in the main currency of the contract. 3. Acquisition of forwards and derivatives included in the final price of the project. 4. Project simulation to determine future currency cash-inflow and cash-outflow, which could therefore be offset. Nevertheless, only 85% of the total amount of a contract is covered, resulting is currency exposure, especially in the final phases of projects, when final payments are made.
Risk of international sales To assure the quality of the customers, both national and international, the following documents or processes are required: 1. Confirmed letters of credit or fully operational buyer credit with a first-rate bank. 2. Pre-shipment and post-shipment insurance if required. 3. In high-risked countries, contracts include special payment clauses, like higher advance payment or the opening by the client of an escrow account.
Capacity to manage order intake increase A huge increase in order intake in 2007 could lead to bottlenecks in project execution, especially derived from the lack of qualified personnel to develop projects. The company is now hiring in order to face backlog increases from 2007 and to take advantage of the great demand momentum. Duro has set up a programme to train around 50 newly qualified engineers a year to become project managers. This programme has allowed the company not only to build up its qualified workforce, but also to cut costs, as newly qualified engineers’ wages are lower than those for more experienced employees. The company outsources services to local companies (around 60% of total workforce in projects) to meet its increased backlog, but always maintains a project manager to control all phases of the project.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 31
Competitive structure
The booming market for project developers has resulted in a highly fragmented sector. While companies carrying out this kind of project now seem an extremely diverse bunch, we nevertheless see three main categories: 1. Pure engineering companies like Técnicas Reunidas, Saipem, Technip. These companies’ main activity is the development of turnkey projects, and they are mainly focused on energy, and more specifically on oil & gas. 2. Utilities subsidiaries like Iberinco (Iberdrola) or Soluziona (Union Fenosa). Utilities companies have established their own engineering subsidiaries to develop company projects. 3. Construction companies (ACS, for example) also has divisions to develop infrastructure and energy turnkey projects. Duro Felguera is the leading project developer in Spanish CCGT plant construction, but due to the diversity of activities developed by Duro Felguera and the diverse sector mix, it’s difficult to rank Duro Felguera or its competitors.
Main clients
The client portfolio is highly diversified, with none representing more than 20% of total sales. Although at the moment its major client is Endesa, the company has projects with the other main Spanish utilities companies like Iberdrola, Enagas, Gas Natural, Hidrocarburos del Cantabrico, etc. Internationally, the company has a highly diversified client portfolio, including Petrobras (leading LatAm oil and gas company) and Fuor. Furthermore, Duro’s cooperation agreements with Mitsubishi, Siemens, Alstom and General Electric give easy access to international clients without any previous experience with them.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 32
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 33
Disclosures
Disclosure checklist - Potential conflict of interests Stock ISIN Disclosure (see below) Currency Price ACS ES0167050915 nothing to disclose EUR 33.92 Aker NO0010234552 nothing to disclose NOK 286.00 Alstom FR0010220475 nothing to disclose EUR 132.70 Duro Felguera ES0162600417 nothing to disclose EUR 7.54 Enagas ES0130960018 nothing to disclose EUR 18.14 Gas Natural Sdg ES0116870314 nothing to disclose EUR 36.00 General Electric US3696041033 nothing to disclose USD 34.21 Iberdrola ES0144580Y14 nothing to disclose EUR 9.85 Mitsubishi JP3898400001 nothing to disclose YEN 3020.00 Petrofac GB00B0H2K534 nothing to disclose GBP 542.00 Saipem IT0000068525 nothing to disclose EUR 23.62 Siemens DE0007236101 nothing to disclose EUR 85.23 Technip FR0000131708 nothing to disclose EUR 46.04 Técnicas Reunidas ES0178165017 nothing to disclose EUR 40.25 Union Fenosa ES0181380017 nothing to disclose EUR 44.16
Source: Factset closing prices of 05/02/2008
Key:
1. Landsbanki Islands hf. (Landsbanki) or its affiliate(s)* hold or own or control 5% or more of the issued share capital of this company. 2. The company holds or owns or controls 5% or more of the issued share capital of Landsbanki or its affiliate(s)*. 3. Landsbanki or its affiliate(s)* are or may be regularly doing proprietary trading in equity securities of this company. 4. Landsbanki or its affiliate(s)* have been lead manager or co-lead manager in a public offering of the issuer’s financial instruments during the last twelve months. 5. Landsbanki or its affiliate(s)* are a market maker in the issuer’s financial instruments. 6. Landsbanki or its affiliate(s)* are a liquidity provider in relation to price stabilisation activities for the issuer to provide liquidity in such instruments. 7. Landsbanki or its affiliate(s)* act as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company. 8. Landsbanki or its affiliate(s)* and the issuer have agreed that Landsbanki or its affiliate(s)* will produce and disseminate investment research on the said issuer as a service to the issuer. 9. Landsbanki or its affiliate(s)* have received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months. 10. Landsbanki or its affiliate(s)* may expect to receive or intend to seek compensation for investment banking services from this company in the next three months. 11. The author of, or an individual who assisted in the preparation of, this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company. 12. An employee of Landsbanki or its affiliate(s)* serves on the board of directors of this company. 13. As at the end of the month immediately preceding the date of publication of the research report Landsbanki Kepler Inc. or its affliates beneficially owned 1% or more of a class of common equity securities of the subject company. 14. Landsbanki Securities (UK) Limited acts as nominated adviser to the Company on the Alternative Investment Market in the UK.
*: affiliates: Landsbanki Kepler, Landsbanki Securities (UK) Limited, Merrion Stockbrokers Limited.
We have discussed this report with the company and the recommendation has not been amended as a result of these discussions. Rating ratio Landsbanki Kepler Q4 2007 Rating ratio Merrion Stockbrokers Limited Q4 2007 Rating breakdown A B Rating breakdown A B Buy 61.0 % 0.0% Buy 39.4 % 0.0% Hold 11.8 % 0.0% Hold 40.6 % 0.0% Reduce 21 .5% 0.0% Reduce 0.0% 0.0% Not Rated/Under Review/Accept Offer 5.7 % 0.0% Not Rated/Under Review/Accept Offer 0.0% 0.0% Total 100.0% 0.0% Total 100.0% 0.0% Source: Landsbanki Kepler Source: Merrion Stockbrokers Limited A: % of all research recommendations A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied B: % of issuers to which Investment Banking Services are supplied
Rating ratio Landsbanki Islands hf. Q4 2007 Rating ratio Landsbanki Securities (UK) Limited Q4 2007 Rating breakdown A B Rating breakdown A B Buy 10.0% 5.0% Buy 55.3% 67.2% Hold 57.0% 69.0% Hold 36.7% 31.2% Reduce 2.0% 3.0% Reduce 7.5% 1.6% Not Rated/Under Review/Accept Offer 30.0% 24.0% Not Rated/Under Review/Accept Offer 0.5% 0.0% Total 100.0% 100.0% Total 100.0% 100.0% Source: Landsbanki Islands hf. Source: Landsbanki Securities (UK) Limited A: % of all research recommendations A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied B: % of issuers to which Investment Banking Services are supplied
From May 9th 2006, Landsbanki Kepler, Landsbanki Securities (UK) Limited, Merrion Stockbrokers Limited and Landsbanki Islands hf.’s rating system consists of three recommendations: Buy, Hold and Reduce. For a Buy rating, the minimum expected upside is 10% in absolute terms over 12 months. For a Hold rating the expected upside is below 10% in absolute terms. A Reduce rating is applied when there is expected downside on the stock. Target prices are set on all stocks under coverage, based on a 12-month view. Equity ratings and valuations are issued in absolute terms, not relative to any given benchmark. Landsbanki Kepler, Landsbanki Securities (UK) Limited, Merrion Stockbrokers Limited and Landsbanki Islands hf.’s strategy teams’ sector allocations rate each sector Overweight, Underweight or Neutral.
Job titles: The functional job title of the person/s responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover
Compensation: The research analyst (s) primarlily responsible for the preparation of the content of the research report attest that no part of the analyst’ (s’) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst’ (s’) in the research report. The research analyst’ (s’) compensation is, however, determined by the overall economic performance of the relevant Landsbanki affiliate and the Landsbanki Group.
Analysts own views: The research analyst (s) primarlily responsible for the preparation of the content of the research report attest that the views expressed in the research report accurately reflect the analyst’ (s’) personal and current views about all of the subject securities or issuers.
Stock prices: Prices are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated. Regulators Location Regulator Abbreviation Landsbanki Kepler Fran ce Autorité des Marchés Financiers AMF Landsbanki Kepler España Comision Nacional del Mercado de Valores CNMV Landsbanki Kepler Germany Bundesanstalt für Finanzdienstleistungsaufsicht BaFin Landsbanki Kepler Italia Commissione Nazionale per le Società e la Borsa CONSOB Landsbanki Kepler Nederland Autoriteit Financiële Markten AFM Landsbanki Kepler Switzerland Swiss Federal Banking Commission SFBC Landsbanki Securities (UK) The Financial Services Authority FSA Merrion Stockbrokers Limited The Irish Fi nancial Services Regulatory Authority IFSRA Landsbanki Helsinki Branch The Finnish Financial Supervision Authority FIN -FSA Landsbanki Norway The Financial Supervisory of Norway FSAN Landsbanki Islands hf. The Financial Supervisory Authority FME Source: Landsbanki Kepler, Landsbanki Securities (UK) Limited, Merrion Stockbrokers Limited and Landsbanki Islands hf.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 34
Landsbanki Kepler is authorised and regulated by both Banque de France and Autorité des Marchés Financiers.
Landsbanki Securities (UK) Limited is authorised and regulated by the Financial Services Authority, and is entered in its Register under Firm Reference Number 186677. Landsbanki Securities (UK) Limited is also a member of the London Stock Exchange Plc.
Merrion Stockbrokers Limited ('Merrion Landsbanki') is a member firm of the Irish Stock Exchange and the London Stock Exchange and is regulated by the Irish Financial Services Regulatory Authority.
Landsbanki Islands hf. is authorised by Fjármálaeftirlitið (The Financial Supervisory Authority, Iceland). Landsbanki Islands hf. is member firm of the OMX Nordic Exchange and the Oslo Børs.
For further information relating to research recommendations and conflict of interest management please refer to www.landsbanki-kepler.com , www.landsbanki.co.uk , www.merrion-capital.com and www.landsbanki.is .
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler Duro Felguera 35
Legal information
This product is not for retail clients.
The information contained in this publication was obtained from various sources believed to be reliable, but has not been independently verified by Landsbanki or its affiliate(s)*. Landsbanki or its affiliate(s)* does not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law.
This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information may be available on request. This report may not be reproduced for further publication unless the source is quoted.
This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of any securities, or for engaging in any other transaction. This publication is not for private individuals.
Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise. They reflect only the current views of the author at the date of this report and are subject to change without notice. Landsbanki or its affiliate(s)* has no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of Landsbanki or its affiliate(s)*.
The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and Landsbanki or its affiliate(s)* accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realize such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk.
To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this publication or its contents.
The Landsbanki Group of Companies have written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business. The Group’s research analysts and other staff involved in issuing and disseminating research reports operate independently of the Group’s Investment Banking business. Chinese Wall procedures are in place between the research analysts and staff involved in securities trading for the account of Landsbanki Group companies or clients to ensure that price sensitive information is handled according to applicable laws and regulations.
*: affiliates: Landsbanki Kepler, Landsbanki Securities (UK) Limited, Merrion Stockbrokers Limited.
United Kingdom: This document is for persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restriction in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Articles 19(5) (Investment professionals) and 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Any investment to which this document relates is available only to such persons, and other classes of person should not rely on this document. For the purpose of UK regulation, Landsbanki Securities (UK) Limited produces non independent research which is a marketing communication under the FSA Conduct of Business rules and has not been prepared in accordance with the legal requirements to promote independence of investment research nor is it subject to the prohibition on dealing ahead of the dissemination of investment research. However, the firm does have procedures in place to manage conflicts which may arise in the production , please refer to Landsbanki Securities (UK) Limited research policy, which prevents dealing ahead. The reseach policy which may be found on the website www.landsbanki.co.uk.
United States: This research is distributed in the United States by the entity that published the research as disclosed on the front page of this report to “major U.S. institutional investors,” as defined under Rule 15a-6 promulgated under the U.S. Securities Exchange Act of 1934, as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission (SEC). This research is also distributed in the United States to other institutional investors by Landsbanki Kepler, Inc. (LKI), who accepts responsibility for the contents of the research, subject to the qualifications stated in this publication which are hereby incorporated. U.S. persons seeking to execute a transaction in the securities discussed in this research should contact Landsbanki Kepler, Inc., 600 Lexington Avenue, New York, NY 10022, phone (212) 710-7600. LKI is a broker-dealer registered with the SEC and is a FINRA member firm. Nothing herein excludes or restricts any duty or liability to a customer that LKI has under applicable law. Investment products provided by or through LKI are not FDIC insured, may lose value and are not guaranteed by the entity that published the research as disclosed on the front page or LKI. Investing in non-U.S. Securities may entail certain risks. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Analysts employed by non-U.S. broker-dealers are not required to take the FINRA analyst exam.
France: This publication is issued and distributed in accordance with art. L 544-1 and seq of the Code Monétaire et Financier and with the articles 321-122 to 321-138 of the General Regulations of the Autorité des Marchés Financiers (AMF).
Italy: Information is for institutional clients only as defined by art. 31 of CONSOB reg. 11522/98. Reports on companies listed on the Italian exchange are approved and distributed to over 500 clients in accordance with art. 69 of CONSOB Regulation 11971/1999 for enforcement of the Consolidation Act on financial brokerage (legislative decree 24/2/1998). According to this article Landsbanki Kepler, branch of Milano warns on potential specific interests in securities mentioned. Equities discussed are covered on a continuous basis with regular reports at results release. Reports are released on date shown on cover and distributed via print and e-mail. Landsbanki Kepler, branch of Milano analysts are not affiliated with any professional groups or organizations. All estimates are by Landsbanki Kepler unless otherwise stated.
Spain: Reports on Spanish companies are issued and distributed by Landsbanki Kepler, branch of Madrid, registered in Spain by the Comisión Nacional del Mercado de Valores (CNMV) in the foreign investments firms registry (member of the Madrid exchange). Reports and any supplemental documentation or information have not been filled with the CNMV. Neither verification nor authorization or compliance revision by the CNMV regarding this document and related documentation or information has been made.
Switzerland: This publication is intended to be distributed to professional investors in circumstances such that there is no public offer. This publication does not constitute a prospectus within the meaning of Articles 652a and 1156 of the Swiss Code of Obligations.
Norway: This publication is issued and distributed in accordance with section 3-10 of the Norwegian Securities Trading Act of 29 June 2007 and applicable regulations.
Canada: The information provided in this publication is not intended to be distributed or circulated in any manner in Canada and therefore should not be construed as any kind of financial recommendation or advice provided within the meaning of Canadian securities laws.
Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly.
This report is subject to important disclosures and disclaimers which can be found at the end of this report and which form an integral part of it.
Landsbanki | Kepler
About Landsbanki
With solid foundations and 120 years of history as the main provider of financial services for individuals and corporations in Iceland, Landsbanki now operates in all of Europe's leading financial centres. Our focus is on providing quality service to medium and small sized international companies. We offer corporate advisory services, debt facilities including structured and asset-backed lending, as well as brokerage and investment advice to a broad base of international institutional investors in the UK and Continental Europe. Our research department is among the most comprehensive in Europe, including some 90 analysts covering more than 800 European stocks locally. Landsbanki also provides wealth management and private banking services, as well as offering UK savers a consistently competitive rate on its Icesave online deposit account. Having short communication channels, a proactive approach to business and an entrepreneurial culture, provides Landsbanki with the means to meet the needs of its clients and help them succeed.
Landsbanki Research Network
Amsterdam Geneva New York Landsbanki Kepler Nederland Kepler Equities (Suisse) SA Kepler Equities Inc. ITO Tower, 12th floor Chemin du Joran 10 600 Lexington Avenue Gustav Mahlerplein 78 1260 Nyon 10022 New York, NY USA 1082 MA Amsterdam Switzerland Telephone +1 212 710 7600 Telephone +31 20 563 2365 Telephone +41 22 361 5151
Oslo Cork Helsinki Merrion Landsbanki Landsbanki Landsbanki Trafalgar House Stortingsgata 8, 8th floor Kluuvikatu 3, 7th floor Montenotte, Cork 0161 Oslo 00100 Helsinki Telephone: +353 21 455 1950 Telephone +47 2247 6500 Telephone +358 9 681750 Paris Dublin London Merrion Landsbanki Landsbanki Kepler France Landsbanki Securities (UK) Limited Block C 112 Avenue Kléber Beaufort House The Sweepstakes Centre 75016 Paris 15 St Botolph Street Ballsbridge, Dublin 4 Telephone +33 1 5365 3500 London EC3A 7QR Telephone +353 1 240 4100 Telephone +44 20 7866 5000 Reykjavik Landsbanki Islands hf. Edinburgh Madrid Landsbanki Securities (UK) Limited Hafnarstraeti 5 Landsbanki Kepler España Level 5 101 Reykjavík Alcalá 95 Napier House Telephone: +354 410 4000 28009 Madrid 27 Thistle Street Telephone +34 91 436 5100 Edinburgh, EH2 185 Zurich Telephone +44 20 7426 9000 Landsbanki Kepler Switzerland Milan Stadelhoferstrasse 18/22 Frankfurt Landsbanki Kepler Italia Postfach Corso Europa 2 Landsbanki Kepler Germany 8024 Zürich 20122 Milano Taunusanlage 19 Telephone +41 43 333 6666 Telephone +39 02 855 07 1 60325 Frankfurt Telephone +49 69 756 960
Websites
Landsbanki Kepler Landsbanki Merrion Landsbanki Landsbanki Securities (UK) www.landsbanki-kepler.com www.landsbanki.com www.merrion-capital.com www.landsbanki.co.uk