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February 27, 2020 Global Reference Guide to COVID-19 ("coronavirus")

While the situation continues to evolve in China and across the globe, this report is a global reference guide to companies in our coverage universe that have been or could be impacted by the COVID-19 ("Coronavirus") outbreak.

This report identifies companies globally by sector that have exposure to China, either through supply

GLOBAL RESEARCH GLOBAL or demand impacts, or potential second derivative factors.

Analysts have identified where companies have already warned on earnings impacts. We also note where we have adjusted our own earnings estimates to reflect the potential fallout, and we link to various reports within RBC Global Research referencing the events around and impacts stemming from this outbreak. Not surprisingly, given exposures, our European coverage universe sees greatest earnings risk.

There were several key themes that emerged by sector:

Within Consumer , most retailers appear to be in good shape for the coming Spring and Summer quarters. Should COVID-19 continue to impact Chinese suppliers, there could be a threat to inventories into the Fall. Within Consumer Discretionary (Luxury and Autos in particular) there is significant exposure to China and Asia, and downside risk to 1Q forecasts. Taking Moncler as an example, we now forecast China LfL in 1Q of -30%. At a group level that implies -7% vs +5% previously. Historical precedent is for relatively quick recoveries, but of course uncertain.

Within Energy, macro concerns have seen oil prices collapse. For the Global Integrateds, facing a downturn across all business segments, we see headwinds to consensus earnings estimates for some companies to the tune of 20-25% based on current forward curve commodity prices. Elsewhere, in E&P and OFS, many companies have hedging in place for H1/20, or already low expectations. If commodity prices remain weak though, risks of course mount.

Softer sales are expected for some Banks and Lifecos in our coverage, and moves in the 10-year US treasury may pressure NIMs at some financial institutions. The COVID-19 outbreak could benefit life insurers as it has increased public awareness of the need for cover. Event and travel coverage could come into play as various airline and cruise ship cancellations occur.

Select Healthcare players will likely be adversely impacted from demand and supply chain perspectives. More encouragingly, others have COVID-19 tests and potential treatments in development, though we acknowledge these potential treatments are not thesis changing at this time.

Industrials are relatively hard hit by COVID-19, both in direct demand and supply chain impacts. Similarly to Autos, European Industrials, fair worse than North American peers.

Finally, a handful of Technology companies have already adjusted FY guidance on supply chain, as well as demand for products.

Once the effects of COVID-19 have passed, this report can be harnessed as a resource for investors looking to find opportunities for indirect exposure to China within our coverage universe.

Priced as of prior trading day's market close, EST (unless otherwise noted). Disseminated: Feb 27, 2020 00:37ET; Produced: Feb 27, 2020 00:37ET All values in USD unless otherwise noted. For Required Non-U.S. Analyst and Conflicts Disclosures, see page 90.

Global Reference Guide to COVID-19 ("coronavirus")

Table of Contents Macro Overview ...... 3 Industrials ...... 48 US Autos & Auto Parts ...... 48 Consumer Discretionary & Staples ...... 5 European Autos ...... 51 European Luxury & Premium Brands ...... 5 Canadian Automotive & Diversified Industrials...... 52 Global Apparel and Specialty Softlines ...... 7 European Industrials ...... 53 European General Retail ...... 9 US Chemicals and Packaging ...... 58 Canadian Consumer Discretionary, Consumer Staples ...... 11 Canadian Chemicals ...... 61 European Consumer Staples ...... 13 Australian Transport Infrastructure ...... 61 European Internet ...... 14 Canadian Airlines and Aerospace ...... 62 European Leisure ...... 15 Rails, Canadian Trucking and Diversified Industrials ...... 63 US Leisure ...... 16 Waste...... 65 US Consumer Staples ...... 17 US Building Products ...... 65 US Hardlines/Broadlines Retail ...... 18 US Multi-Industry & Electrical Equipment ...... 67 Restaurants ...... 19 US Industrial Machinery ...... 68 Energy ...... 20 European Business Services...... 69 Canadian Integrated Oil, Senior & Intermediate E&P ...... 20 European Transport Infrastructure ...... 70 Canadian Exploration & Production ...... 21 Information Technology ...... 74 Canadian Energy Infrastructure ...... 22 Enterprise Hardware ...... 74 Global Integrated Energy ...... 22 Canadian Technology ...... 74 European Utilities ...... 23 Australian Technology ...... 75 Global Oilfield Services, Equipment and Drilling...... 24 Communications Infrastructure ...... 77 US Energy Midstream ...... 25 Internet ...... 77 US Exploration & Production ...... 25 Payments, Processors & IT Services ...... 78 US Refining ...... 27 Semiconductors ...... 79 US Power & Utilities ...... 28 Software ...... 79 Financials ...... 29 Materials...... 81 European Banks ...... 29 North American Base Metals ...... 81 US Banks ...... 31 European Diversified Metals and Mining ...... 82 Canadian Life Insurance ...... 36 Fertilizers ...... 83 European Insurance ...... 37 Paper, Packaging, & Forest Products ...... 83 US Insurance ...... 39 European Diversified Financials ...... 40 Real Estate ...... 85 Consumer Finance ...... 40 European Real Estate...... 85 US BDCs and Mortgage REITs...... 41 US REITs ...... 85

Healthcare ...... 42 Additional Disclosures ...... 87 US Biotechnology ...... 42 US Pharmaceuticals ...... 44 US Healthcare Services ...... 45 US Life Science Tools & Diagnostics ...... 46 Canadian Healthcare ...... 46 EU Midcap Healthcare ...... 47

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Global Reference Guide to COVID-19 ("coronavirus")

Macro Overview RBC Capital Markets, LLC Lori Calvasina (Head of U.S. Equity Strategy) (212) 618-7634; [email protected] Tom Porcelli (Chief US Economist) (212) 618-7788; [email protected] Michael Tran (Commodity Strategist) (212) 266-4020; [email protected] RBC Europe Limited Cathal Kennedy (European Economist) +44 20 7029 0133; [email protected] Peter Schaffrik (Global Macro Strategist) +44 20 7029 7076; [email protected] Royal Bank of Canada - Sydney Branch Su-Lin Ong (Head of Australian and New Zealand FIC Strategy) +612 9033 3088; [email protected]

As the threat of COVID-19 (“coronavirus”) continues to spread globally, incremental data points help to inform views around the world on the potential impact. While the number of reported cases on mainland China continues to fall, the surge of infections outside of China appears to now be the new driving force of concern for markets. South Korea and Italy are the latest to fall victim to a growing number of infections, and Iran is now imposing travel restrictions on its citizens to various countries after confirming both a rise in new cases and several deaths.

As Tom Porcelli highlighted in the Daily Deck (February 18, 2020), one of the statistics that investors have looked at to try to gauge the economic fallout from COVID-19 is the significant increase in China’s share of global GDP since the SARS outbreak circa 2003.

China’s share of global output has increased markedly to about 16% in 2018 from just above 4% in 2003. Additionally, there is the potential for significant supply chain disruptions the longer the outbreak drags on. IMF Managing Director Kristalina Georgieva predicts the epidemic will shave 0.1 percentage points off global growth this year.

While China’s share of global GDP has surged over the last few decades, US growth exposure to China vis-à-vis exports has grown only marginally. US exports to China accounted for about 0.25% of GDP back in 2003. In 2009, China was a total of 0.5% of US GDP. In other words, if they went from the current $106b to zero, it would shave – all else equal – 0.5% from US growth.

Following the sharp selloff in equity prices earlier this week, calls have come for the Fed to step in with more insurance cuts. While equity valuations have indeed been a final arbiter in terms of monetary policy decisions in recent years (most notably the late 2018 u-turn), we think the Fed is still a ways away from being compelled to cut rates further.

Other parts of the world are significantly more linked to China and thus it is not surprising that as the virus has taken hold, the US has looked increasingly like the relative value destination.

In Europe, several ECB policymakers have acknowledged the potential negative impacts of the COVID-19 outbreak to euro area growth. China’s contribution to Euro GDP has evolved since SARS as well. In 2003, euro area exports to China were around 0.5% of euro area GDP versus 1.5% now – specifically through the export channel. Around 7.7% of total euro area exports go to China making it the third-largest goods export destination. Given the already fragile state of the euro area manufacturing sector, and that much of the growth in euro area exports in Q4 was due to China, this amplifies the potential near-term economic impacts of COVID-19 to euro area growth and, in particular, the manufacturing sector in the first quarter of 2020.

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Global Reference Guide to COVID-19 ("coronavirus")

In the UK, our longstanding forecast for Q1 GDP has been for an expansion of 0.2% q/q, which is in line with the early Q1 growth indication from the January PMIs. For the moment the “higher levels of consumer spending and business investment” cited in the January report (the former backed up to some degree by a recent rise in retail sales of 0.9% m/m in January) should outweigh other concerns, such as hardening Brexit rhetoric and headlines around COVID-19.

Further adding to risks to euro area exports is the impact a slowdown in China will have on economies in close proximity and with which it has large trading relationships, such as Japan, Hong Kong, South Korea, Singapore, etc. Around 25% of all euro area exports go to Asia (inc- China), which equates to around 4.7% of euro area GDP.

In Canada, the focus has been on energy and travel. Concerns about fuel demand from China have pushed global oil prices lower, which could temporarily reduce revenue for the Canadian oil and gas sector near term, though many companies have hedges in place. On the travel side, bilateral Canada-China travel has increased dramatically since the SARS outbreak. China accounted for almost 7% of non-resident arrivals by air in Canada in 2018 compared to 1% in 2003. Air transportation accounts for 0.5% of the Canadian economy.

According to RBC Economics, at this point, the economic impact of COVID-19 in Canada looks more likely to be limited to a pullback in international air travel, along with potentially some disruption to industrial supply chains from the disruption to production in China. That should leave a limited and temporary impact on GDP growth of two- or three-tenths of a percent (annualized) in Q1. RBC Economics expects the Bank of Canada may cut interest rates, but not in response to the spread of COVID-19 itself. Today, the negative economic fallout from COVID- 19 in Canada will just add to an already soft economic growth backdrop that they think was already putting the BoC in position to cut the policy rate by mid-year.

Our Australian Strategists have updated growth forecasts to try to take into account the impact of both the bushfires and COVID-19. Concentrated largely in H1 2020 and based on a number of assumptions, full-year growth was taken down by just under ¼% to 2.1%. There have been a number of developments in recent weeks discussed in the note which suggest this may well be conservative.

Other Insights We continue to deliver macro insights on the situation as it evolves.

In the latest Strategy Spotlight (February 27, 2020) Lori Calvasina examines investor views on COVID-19, which dominated conversations over the last week, in addition to the 2020 election. We continue to sense that the long-only community hasn’t been doing much in terms of repositioning portfolios for COVID-19. We would not be surprised to see the S&P 500 fall to 3,050 (down 10% from its 2020 high, consistent with the early 2018 / low vol unwind). If that doesn’t hold, the index could fall to the 2700-2900 range for a total drop of 14-20%, consistent with the growth scares of 2010, 2011, 2015-2016, and 2H2018. See the note for further stress testing of S&P 500 index levels and 2020 EPS.

For a discussion on Chinese emissions as a leading indicator of reduced economic activity, as well as a deeper dive into the impacts to the European economy please see our RBC European Rates & Economics Daily (February 26, 2020).

Energy insights include our RBC Elements publication titled Oil Strategy: The Artificial Intelligence Approach to Quantifying the Coronavirus and Oil Strategy: The Flight Tracker Update – Coronavirus Edition, by Michael Tran.

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Global Reference Guide to COVID-19 ("coronavirus")

Consumer Discretionary & Staples European Luxury & Premium Brands RBC Europe Limited Piral Dadhania (Equity Analyst) +44 20 7429 8644; [email protected]

See here for our previously published work on COVID-19 (27 January 2020).

The European Luxury Goods industry has a material exposure to the Chinese consumer (35% sales on average), whilst sporting goods exposure ranges from 15-25%. Of this, hard luxury exposure is 40-50% whilst soft luxury is 30-40% as a ballpark.

Stocks in our coverage with the highest exposure to Chinese consumers are Swatch Group (SWX: UHR) (53%), Richemont (SWX: CFR) (42%) and Burberry (LSE: BRBY) (39%), whilst stocks with the lowest exposure are Essilor Luxottica (NXT PA: EL) (5%) and PANDORA (CSE: PNDORA) (12%).

Distribution models for Greater China vary considerably, with soft luxury predominantly retail (90%+) whilst hard luxury and sporting goods predominantly wholesale (70-80%).

Taking these differences into account suggests the P&L impact will vary across our coverage. Soft luxury (retail led with mid-level exposure to Chinese consumers) will see greater impact in 1Q20, however once the situation normalises should benefit from any immediate pick-up in sales. Hard luxury (lower inventory turn) and sporting goods are likely to see spillover effects from 1Q20 COVID-19 sales impact into 2Q20 onwards, as distributors will likely be carrying elevated inventories and therefore reorders in 2Q20 and beyond may be impacted.

We anticipate onshore improvement in sales to be faster than offshore, which will take time, as pipeline for future trips overseas rebuilds. Stocks with the highest offshore Chinese consumption include Swatch Group (18% of sales) and Kering (NXT PA: KER) (17% of sales).

All companies we have had contact with are addressing their variable costs with particular emphasis on current marketing spend and rent reductions (on fixed element of leases) which should help to mitigate operational deleverage.

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Global Reference Guide to COVID-19 ("coronavirus")

Exhibit 1: Hard luxury companies have greatest exposure to Exhibit 2: Non-luxury companies have a lower exposure to Chinese consumption, whilst soft luxury also has meaningful Chinese consumption, with EssilorLuxottica, PUMA and exposure PANDORA well placed in our view

Luxury stock coverage – revenues generated by Chinese nationality Premium stock coverage (sporting, eyewear, jewellery) – revenues generated consumers (onshore vs offshore) by Chinese nationality consumers (onshore vs offshore)

60% 40% 53% 35% 50% 42% 30% 39% 25% 40% 36% 35% 34% 25% 35% 32% 30% 20% 18% 27% 24% 15% 20% 19% 18% 21% 17% 15% 20% 20% 12% 8% 14% 10% 12% 5% 10% 18% 10% 15% 15% 16% 16% 16% 15% 14% 5% 5% 4% 4% 5% 0% 0% 2% Swatch Richemont Burberry Average Kering Moncler LVMH Hugo Boss adidas Group PUMA Average Pandora Essilor Luxottica Group luxury

Chinese - offshore consumption Gr China ('onshore') revenues Chinese nationality total Chinese - offshore consumption Gr China ('onshore') revenues Chinese nationality total

Note: We exclude Superdry and Ted Baker from the above analysis as China is not material Note: We exclude Superdry and Ted Baker from the above analysis as China is not material Source: Company reports, RBC Capital Markets estimates Source: Company reports, RBC Capital Markets estimates

Moncler (MILAN: MONC) – On 10 Feb, Moncler confirmed 34 stores closed and of those that are open turnover declines are -80% since 24 Jan. Moncler have also redirected product originally destined for China/Macau/HK to other markets. Also flagged overall consumption in other markets had slowed in early February as a result of COVID-19 press coverage and lower traveller flows more generally.

For Moncler, we estimate the bottom up retail LFL for 1Q using various assumptions on a monthly basis by region, which results in a -7% estimate (vs +5% previously).

Exhibit 3: Moncler 1Q20 retail LFL estimate – bottom up by month and region

1Q20 LFL calculator 1Q20 LFL 1Q weight LFL 1Q19 1Q20E impact Jan 50% 12% 146 163 Feb 30% -90% 87 9 March 20% -50% 58 29 Total 100% 291 201 -31%

LFL inputs Weight CNY HKD JPY KRW USD EUR/ITALY Group Jan 50% 12% -40% 12% 8% 8% 12% 8% Feb 30% -90% -80% 2% -15% 5% -10% -24% March 20% -50% -40% 0% -5% 5% -5% -12%

1Q20 LFL output -31% -55% 7% -1% 6% 2% -7% Source: Company data, RBC Capital Markets estimates

PUMA SE (XETRA: PUM) – PUMA has suggested (on 19 Feb) they expect COVID-19 impact to be limited to 1Q20, and over the course of FY20E should be able to mitigate most of the lost sales and earnings either in China or other regions on this basis. Also flagged logistics and production activity levels are improving in the past week with cargo transported to ports, and leaving ferry terminals. Focus is on clearing production and supply chain backlog.

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Global Reference Guide to COVID-19 ("coronavirus")

Burberry (LSE: BRBY) – On 7 Feb, confirmed 24 out of 64 stores in mainland China are closed with remaining stores operating reduced hours and seeing significant footfall declines which is impacting retail sales.

adidas AG (XETRA: ADS) – On 19 Feb, updated the market confirming activity levels in Greater China are -85% since 25 Jan. Have seen some slowdown in traffic in other Asian tourist destinations, which is consistent with PUMA commentary.

Global Apparel and Specialty Softlines RBC Capital Markets, LLC Kate Fitzsimons (Equity Analyst) (212) 428-6550; [email protected]

We discuss the impact of COVID-19 in our previously published Coronavirus Update – Framing Revenue and Potential Supply Chain Concerns and Reducing Estimates on China Exposed Names.

On a revenue basis, we note our off-pricers Ross Stores (NASDAQ: ROST) and Burlington Stores (NYSE: BURL) are least exposed given 100% revenue generated in North America, while our more global brands PVH, RL, VFC, and Canada Goose (TSE: GOOS) generate 40-50% of sales outside North America. On revenue exposure in our coverage, GOOS has the greatest, we estimate mid-teens China exposure directly but estimate 40% globally to Chinese consumers across its retail network. After GOOS, we see the greatest China exposure at PVH Corp. (NYSE: PVH) (7% to China), Abercrombie & Fitch (NYSE: ANF) (est. 8% in Asia with 4% to China), V.F. Corporation (NYSE: VFC) (6%), The Gap (NYSE: GPS) (est. 4%), Ralph Lauren (NYSE: RL), (4%), then lululemon athletica (NASDAQ: LULU) and L Brands (NYSE: LB) (3%) (see Exhibit 5).

Europe is the most important market for our group outside North America, generating sales in excess of 20-30% for PVH, RL, and VFC. ANF stands out given 22% revenue exposure to Europe in 2018. At a higher level, the biggest markets within Europe tend to be the UK and Germany, but rising infection rates out of Italy pose risk to the extent the virus leaps to neighboring markets such as France or Germany.

Exhibit 4: North America vs. International Exposure in 2019E Most Defensive -> More Exposed: North American Revenue Exposure International Exposure Builds with Europe 100% 50% 90% 45% 80% 40% 70% 35% 34% 60% 30% 19% 27% 50% 100% 100% 25% 26% 91% 91% 90% 88% 87% 87% 40% 20% 22% 70% 61% 30% 60% 57% 15% 4% 50% 15% 7% 20% 10% 7% 6% 4% 12% 10% 5% 2% 3% 10% 9% 0% 4% 6% 3% 3% 3% 4% 5% 0% 0% 1% 0%1% 1% ROST BURL URBN LB AEO GPS LULU TJX ANF GOOS VFC RL PVH LB URBN AEO GPS LULU TJX ANF GOOS VFC RL PVH

North America % of Sales AsiaPac ex-China China Europe

Source: Company reports and RBC Capital Markets estimates

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Global Reference Guide to COVID-19 ("coronavirus")

Exhibit 5: Revenue exposure in 2019E

North AsiaPac ex- US Canada America Int'l China China Europe ROST 100% 0% 100% 0% 0% 0% 0% BURL 100% 0% 100% 0% 0% 0% 0% LB 87% 4% 91% 9% 1% 3% 2% URBN 87% 4% 91% 9% 0% <1% 8% AEO 87% 3% 90% 10% 3% 0% <1% GPS 80% 7% 88% 12% 4% 4% 4% LULU 71% 17% 87% 13% 3% 3% 7% TJX 77% 10% 87% 13% 0% 0% 10% ANF 65% 5% 70% 30% 4% 4% 22% GOOS 30% 31% 61% 39% 5% 15% 19% VFC 55% 5% 60% 40% 6% 6% 26% RL 53% 4% 57% 43% 12% 4% 27%

PVH 46% 4% 50% 50% 9% 7% 34% Source: Company documents, RBC Capital Markets research

With Chinese New Year period ending on February 8, we're getting some reads on supply chain implications as work is slowly being resumed.

UAA framed the disruption in four buckets:

1) MATERIALS: including "possible impacts relating to fabric trim and package sourcing and potential delays and capacity challenges that could prove to be difficult in the second half of the year;" 2) FACTORIES: including "closures, changing timelines of when they might reopen, and trying to assess what it means for production fulfillment, capacity and the prioritization of which products to make;" 3) LOGISTICS: suggesting "...It's reasonable to expect industry-wide delays in terms of delivery around the world...and the need for increased air freight and additional measures at ports that could create unforeseen congestion;" and 4) CONSUMPTION TRENDS AND INVENTORIES: "Consumer behavior and overall economic shifts could potentially play out...is where it gets even more unclear with respect to duration and the possible levels of elevated inventories and promotional activities later in the year." Our conversations with industry contacts have further supported the view that product development work for the spring/summer seasons and especially for the important fall season has been stunted by the factory disruption.

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Global Reference Guide to COVID-19 ("coronavirus")

Exhibit 6: Sourcing Exposure

Ticker Sourcing Exposure

AEO 30% of US apparel exposure to China in 2018, with work underway to get to 20% over time In Fiscal 2018, the Company’s vendors were based primarily in Asia, with approximately 36% were sourced through China based on the cost of ANF sourced merchandise. Work was underway to get China sourcing to the US to mid- to-high teens level in 2019 and down to LDDs in 2020.

GOOS Largely sourced in Canada, "zero" supply Chain disruptions have occurred. GPS In FY18, approximately 21% of purchases were from factories in China. LULU During fiscal 2018, approximately 12% of goods were sourced in China.

PVH 20% of goods manufactured in China, with 10% bound for the US RL Est. mid- to high-20s sourcing exposure to China (from 33% in FY19), with US sourcing from China targeted at 22% in FY20.

URBN 20% private label exposure to China, so 10% total exposure with less seasonal exposure in 1Q. VFC 16% of VFC's total COGS is sourced directly from mainland China, of which 7% is bound for the US

TJX We estimate that roughly 10% of TJX's product is directly sourced goods, primarily from China

ROST NMF BURL NMF Source: Company documents, RBC Capital Markets

European General Retail RBC Europe Limited Richard Chamberlain (Equity Analyst) +44 20 7429 8092; [email protected] For the General Retail sector, we see the impact of COVID-19 coming from three major areas:

1) Sales exposure. First, there is likely to be a direct sales impact from the closure of stores and lockdown of cities in China, and potentially other markets. Of the stocks in our coverage, we estimate that Inditex (SIBE: ITX) has the greatest exposure to Chinese demand (c.8% China sales exposure, c.23% Asia and RoW). However Inditex is also the most geographically diverse retailer, which should prove to be a competitive advantage. After Inditex, we see the greatest impact to sales for H&M (OMX: HM B) (c.6% China, c.12% Asia Pac), WH Smith (LSE: SMWH) (c.5% Asia Pac) and Marks & Spencer (LSE: MKS) (c.2% China, c.4% Asia Pac). 2) Supply chain disruption. Supply chains are also likely to be impacted by capacity reductions as a result of labour and logistics constraints. A number of companies under coverage source products directly from China and Asia Pacific and are at risk of disruption to factories and deliveries. Although we expect only limited short-term disruption for this Spring/Summer, with perhaps some sporadic issues for repeat orders, the risk is more for potential labour shortages impacting supply of Autumn/Winter products. Also China is a major supplier of woven fabric for other Asian markets, for machine made hard goods and for components of more technical products. In our view, Primark (LSE: ABF) and H&M are likely to be the most exposed apparel retailers, with c.45% and c.30% of products sourced from China respectively and c.75% from Asia Pacific. Inditex should be least exposed, as it sources only one-third of product from Asia and its faster turn product comes from proximity sourcing markets.

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Global Reference Guide to COVID-19 ("coronavirus")

3) Travel restrictions to China. Finally, we also see some risk from a lack of physical access to China, which means that buyers and merchandisers cannot meet with factories to discuss designs and products for the upcoming season. Companies with their own sourcing offices in Asia and with lots of people on the ground e.g. H&M, are likely to be best placed in this regard.

For a more detailed discussion of the above, please see Global apparel retail - Reducing estimates on COVID-19; long-term theses intact published in conjunction with this global note.

Exhibit 7: Sales and sourcing exposure for companies under coverage

China APAC China APAC Company Name Mitigating Factors Additional Comments Sales Sales Sourcing Sourcing

Mgmt don't see any short term impact for Primark but if the outbreak is Inventories built ahead of Chinese New Year so well stocked. prolonged this could impact supply of garments for Autumn/Winter. Chinese ABF (Primark) - 17% 45% 80% Strategies under consideration (eg stepping up production from sugar campaign initiated ahead of outbreak; AB Mauri, AB Agri factories existing suppliers in other regions) operating at reduced capacity; Ovaltine manufacturing can be switched to Switzerland/Thailand

B&M sources c.70% of non-food products from China. There should be very little B&M shipped Easter ranges pre Chinese New year; proven impact short term. Most of its factories are functioning albeit with some labour B&M - - 40% 40% ability to switch between product categories; very little shortages. Spring ranges have already been shipped. There may be gaps for later technical product sold Spring/Summer product which B&M can fill with special buys. Autumn/Winter sourcing is more of a concern in line with the rest of the industry.

DC has strong supplier relationships and sources most product Supply chain impact - products not being available from suppliers (eg Apple) Dixons Carphone - - 10% 10% through local agents in Europe. due to disruption to factories and deliveries

Relatively long lead times so time to switch suppliers. Most Frasers Group - 2% 80-90% Nike/adidas trainers made in Vietnam these days.

Can source from alternative markets, well stocked in case Dunelm - - 15% 15% Direct sourcing only 25% supply significantly affected Likely sourcing shift away from China - could be 30% to 20% Feb 10 - announced 334 out of 520 stores (10% of total estate) closed in China. this year, back up plans in place. Lots of experience and people H&M 6% 12% 30% 80% Has been gradually reopening stores, 260 closed as of Feb 19. Mgmt don't see on the ground in Asia. May be some second order impacts on major delivery delays but see some negative sales impact the supply chain (componentry) High degree of proximity sourcing (c.60%), only a third from Likely temporary disruption from store closures. c.8% of sales from China, c.5% Inditex 9% 23% 15% 33% Asia from Italy, c.2% from Korea

JD Sports - 5% 5% 10% Most sourcing done locally apart from for own label product Majority of footwear manufacturing (Nike, adidas) in Vietnam not China

Peak Easter product shipped ahead of China new year. If the Kingfisher - - 15% 30% outbreak continues then KGF will try to source from alternative 25-30% of COGS sourced from China/Hong Kong, indirect exposure higher destinations. China sourcing exposure relatively low, however overall Asia exposure quite Marks & Spencer 2% 4% 17% 85% c.60% of sales come from Food which is sourced locally. high since move to direct sourcing some years ago.

China is not as important a sourcing market as it used to be, due to higher labour costs, and is generally producing specialised products. However the majority of woven fabric Around £20mn at retail prices of stock at risk, from the virus so far, due for Next - 3% 20% 85% comes from there which is used in garments made in February, which is traditionally a quiet month. Bangladesh and other Asian markets. So while the impact should be fairly small, a significant tail risk remains for this year’s earnings.

Turnover based rents so minimal opex impact. Product mix shift WH Smith saw a 4-5 month temporary downturn in passenger numbers during to handwipes and hand sanitizers. Flexible labour scheduling. the 2003 SARS crisis but long term Travel growth should remain strong. SMWH WH Smith 0% 6% 5% 5% SMWH can replace c.£30mn of stationery sourced from China only has 2 small stores in China, with 55 directly run units in Australia and 9 at with locally sourced products for the key back-to-school Changi Airport in Singapore. There should be minimal impact provided the virus season. is mainly contained to the Far East, and there is no widespread UK outbreak.

Source: Company Data, RBC Capital Markets estimates

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Global Reference Guide to COVID-19 ("coronavirus")

Canadian Consumer Discretionary, Consumer Staples RBC Dominion Securities Inc. Irene Nattel (Equity Analyst) (514) 878-7262; irene.nattel @rbccm.com

Alimentation Couche-Tard Inc. (TSX: ATD.B) and Casey’s General Stores, Inc. (NASDAQ: CASY) – Both companies would be indirectly impacted through movements in the price of gas. With global demand for crude oil and petroleum products falling rapidly in recent weeks, US rack fuel prices have followed suit, and to a lesser extent prices at the pump. In addition to low fuel prices temporarily inflating margins – substantially – as noted in recent weeks, c-store owners should also see a tailwind to inside store sales as extra $$ saved at the pump is partially reinvested inside the box.

Loblaw Companies Limited (TSX: L), Metro Inc. (TSX: MRU), Empire Company Limited (TSX: EMP.A), and George Weston Limited (TSX: WN) - No meaningful direct or indirect impact.

Canadian retailers: Virtually all hardlines retailers may be impacted, but opportune timing for an outbreak. Given the importance of the Chinese New Year Holiday, the movement of goods in and out of the country is at its lowest point during the break, and the ramp-up period once factories resume operations can last anywhere from 4 to 12 weeks. As such, global supply chains are already working around shutdowns in the region and usually receive products, and safety stocks, well before the Holiday period, mitigating potential impacts in the short-to-medium term. Additionally, all our channel checks highlighted the resourcefulness and flexibility of suppliers in China with respect to finding alternate sources of production (i.e. sub-contracting), supply channels, and production locations. Having said that, most hardlines retailers depend on supply from China, and in the event of a protracted and significant decline in production, could find themselves short certain types of products as we move through summer into fall.

Dollarama Inc. (TSX: DOL) – Dollarama sources directly ~55% of its 4k SKUs overseas, through ~500 suppliers, ~95% of which are located in China, although not in the regions most impacted by the outbreak. In addition, ~50% of products are sourced in North America from brokers who in turn rely on imports from China. In terms of seasonal merchandise (16% of SKUs), DOL would already have plenty on hand given it usually receives products 6-8 months in advance, and always more than it needs (which ends up being packed away for the following season).

Unsurprisingly, the Company noted that there was no impact so far, but that the longer the situation would last, the more problematic it would become – for every retailer. However, given the limited # of SKUs in DOL’s assortment and its flexible supply chain, DOL is more nimble than most retailers. While the Company’s April buying trip for seasonal merchandise is still on plan, if the situation gets worse, if factories are up and running management can defer the in-person trip and do buying remotely. If existing suppliers remain shut down, DOL could shift production elsewhere (same items or replace items) given that the Company is not locked into contracts with suppliers despite long-standing relationships (>25 years).

Canadian Tire Corporation, Limited (TSX: CTC.A) – Canadian Tire does not actively source within a ~400km radius of Wuhan, and most of the Spring/Summer products have either been received or are in transit. As such, the impact for the Summer season should be minimal/manageable (per CTC’s comments).

Looking further ahead, the next shipping window begins in late March/early April (Fall/Winter 2020 goods), and the Company is putting into place contingency plans. The Bottom line from CTC’s perspective: “at the present time the risk to our supply chain is manageable and being

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actively and thoroughly managed in cooperation with our vendor community. We have several tools at our disposal to shift demand (to other vendors, other countries and alternate sources of supply), consume down on-hand inventory to mitigate any specific business impacts at this time. So while we are managing our supply chain with urgency and criticality, we do not yet see imminent risk to our business at this time.”

Aritzia Inc. (TSX: ATZ) - ATZ partners directly with mills, suppliers and manufacturers, the latter of which are for the most part located in China, and to a much lesser extent Cambodia, India and Vietnam. Consistent with the balance of retailers in our coverage universe, Spring orders would have been completed prior to Chinese New Year, with finished product either landed in Canada or in transit. To date, there has been no impact; the Company started launching the Spring collection in mid-February. As expected, ATZ is in close contact with suppliers in China with respect to ramp of production and potential delays, which if modest, can be easily managed. With respect to recent developments in Italy, ATZ does source certain textiles from Italian mills. However, at this time, factories in Italy are not impacted and with preparation for Fall underway, risk to completion on the textile front would be negligible.

Saputo Inc. (TSX: SAP) and Maple Leaf Foods Inc. (TSX: MFI) – While it's too soon to tell what impact the outbreak will have on Chinese agricultural consumption, demand and imports, some themes are beginning to emerge that are likely to impact both pork and dairy markets, notably:

 very high levels of frozen food stocks meant to satisfy Chinese New Year demand that were not drawn down as aggressively as usual, leading to  temporary suspension of imports on some products, along with  significant drop in restaurant visits with consumers relying on pantry items,  and significant supply chain disruptions.

Looking further ahead, assuming agriculture production is more impacted than consumption, we would expect to see increased imports and higher prices, all else being equal.

In the case of SAP, most important would be the impact on powders given China accounts for ~25% of US exports into the country (up to 45% in the past). However, given the shelf-stable nature of the product and current inventory levels, we will likely only see a moderate impact unless the situation worsens/drags out for some time. On the cheese front, while demand in the country is likely to be impacted given it’s driven by the foodservice space, China remains a small consumer in the global context.

In the case of MFI, the much more important factor remains ASF; as such any incremental impact from COVID-19 should be marginal. We remind investors that China is the largest pork consumer/importer in the world, and will need to pull products from all over the world to offset the impact of massive ASF-related cull rates. While China is expanding pork production and reserves, it will likely take years to rebalance and in the meantime, will have to satisfy demand through imports, driving global hog prices higher. This is a net positive as long as: i) domestic pork prices follow suit (production benefit, prepared meats neutral if selling prices rise), and ii) product substitution at the retail level is limited. We also remind investors that MFI’s direct exposure to China is limited.

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Canadian Consumer Discretionary, Consumer Staples Cont’d RBC Dominion Securities Inc. Sabahat Khan (Equity Analyst) (416) 842-7826; [email protected]

Spin Master Inc. (TSX: TOY) – Spin Master sources a meaningful proportion of its manufactured goods from China (~60-65% as of 2019, but decreasing to below 50% by year- end 2020); however, at this point, there does not appear to be a meaningful impact on the supply chain. The company does not have significant exposure to Central China, and any potential impact would be in the form of disruptions to the movement of goods out of China or employees in other parts of the country taking a longer time to return to work. The company has some excess inventory from last year and products for Q1 have already been manufactured. If this issue persists, the primary impact would be in Q2. As long as headwinds do not impact the supply for Q3/Q4, there should not be a material impact on the company’s full-year results.

Premium Brands Inc. (TSX: PBH) – The potential impact on Premium Brands could be in the form of disruptions to sales into China (which may not be that material), and the potential impact on global protein commodity markets. Recall that African Swine Fever, which impacted the pork supply, had a reverberating impact on other regions and other proteins globally. If the supply of protein out of China is disrupted, we see the potential for upwards pressure on prices globally as other regions would see increased demand.

High Liner Foods Inc. (TSX: HLF) – Similar to the commentary noted above for Premium Brands Inc., any inflation in seafood commodities globally could negatively impact HLF’s COGS. The company sources its seafood inputs globally, and any impact on the supply/movement of product out of China could potentially lead to upward pressure on global prices.

Dorel Industries Inc. (TSX: DII.B) – The company sources a portion of its products across all three segments from China. The company operates its own baby products manufacturing facility in the country and sources a vast majority of its furniture products from China as well. The primary impact to Dorel would be in the form of potential supply chain disruptions and potential loss of some sales in the local market.

European Consumer Staples RBC Europe Limited James Edwardes Jones (Equity Analyst) +44 20 7002 2101; [email protected]

Companies have generally been reluctant to quantify the expected impact of COVID-19 as we progress through the Q1 reporting season. The two exceptions so far are Carlsberg A/S (CSE: CARLB) and Pernod Ricard (NXT PA: RI). The former set guidance for 2020 (on 5th February) making an unspecified allowance for the impact of COVID-19. The latter cut organic operating profit growth for the year to June 2020 to 2-4% from 5-7%.

We have tried to make allowance for the possible impact of COVID-19 on other companies we follow as we update our forecasts following companies reporting for the December period end. Typically we have assumed sales in China decline by 50% for two months of Q1. Other than Carlsberg and Pernod Ricard we have taken this approach for L'Oréal SA (EPA: OR), Heineken NV (ENA: HEIA), Nestle SA (SWX: NESN) and Davide Campari-Milano S.p.A. (BIT: CPR); (we did not make any allowance in the case of Unilever N.V. (ENA: UNA) which was one

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of the first of our coverage universe to report). Other companies we have yet to make allowance for include Anheuser-Busch InBev SA/NV (ENA: ABI), Reckitt Benckiser Group PLC (LSE: RB/), British American Tobacco PLC (LSE: BATS), Beiersdorf AG (ETR: BEI) and Henkel AG & Co. KGaA (ETR: HEN3).

On 26th February Diageo (LSE: DGE) and Danone (EPA: BN) updated guidance allowing for the effect of COVID-19. Diageo quantified the impact in Asia (South Korea, Japan and Thailand were mentioned in addition to China) on sales and operating profit as £225m-325m and £140m-200m respectively: that’s approximately 3% and 4%. Danone put the loss of sales in calendar Q1 at €100m (1.6% for Q1, 0.4% for the year) largely relating to its Chinese water business. In addition, it pointed to delayed launches for its Mizone water brand and delay in registering new infant milk formula products as factors that could be expected to have an impact after Q1.

Unlike some other sectors, consumer staples companies tend to produce products relatively close to the point of sales. Thus while there’s no getting away from the fact that declines in consumption will impact the companies’ sales performance, we do not expect it to have a disproportionate effect on their supply chains unless conditions deteriorate significantly. As disruption spreads to South Korea and Italy it appears that we shall need to revisit our forecasts once again.

European Internet RBC Europe Limited Sherri Malek (Equity Analyst) +44 20 7653 4510; [email protected]

Within our coverage universe, internet apparel names have the potential to be most impacted, given they source products from China and Asia Pacific (directly and indirectly) and so are at risk of supply shortages or delays in delivery. Textile factories tend to be located in Southern China (away from the centre of the outbreak), however apparel brands also rely indirectly on fabric manufacturers based in China. We do not expect to see a sales impact on the Spring/Summer season, however if the situation deteriorates, product availability and therefore sales could be negatively impacted for Autumn/Winter, although we would expect this to be at least partially offset by reduced mark-down activity.

ASOS (LSE: ASC) – Overall, one-third of ASOS product is sourced from China, which is skewed to footwear and accessories. ASOS sources 25% of its own brand range, ASOS Design, from China, which represents 10% of Group sales. In addition, ASOS’ branded partners source a proportion of their product from factories in China, which tend to be located in Southern China. The factories in China from which ASOS sources own brand product are along the east coast and have begun to commence operations. ASOS built up stock ahead of Chinese New Year and therefore has reasonable stock cover. We believe this to be the case for its branded partners, also. ASOS has a reasonable amount of flexibility within its supplier base, and can source from elsewhere e.g. Europe.

Boohoo (LSE: BOO) – Approximately 40% of Boohoo’s product is sourced from China, directly and indirectly through its UK agents. Factories in China that supply Boohoo have begun to commence operations in the last week. Boohoo’s supply chain is also broad and diverse, in terms of number of suppliers and countries from which the company sources from.

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Zalando (XETRA: ZAL) – We estimate that 95% of Zalando’s product comes from its branded partners, which sources a varying proportion of product from China; overall, we estimate this to be one-third. Zalando’s own branded product, which represents the remaining 5%, is less than 45% sourced from China.

Delivery Hero (XETRA: DHER) – Delivery Hero operates in 9 countries in Asia (outside of China). The company has observed no notable impact on demand so far from COVID-19. Delivery Hero’s largest market is South Korea, which has experienced a recent spike in the number of new cases. The impact on food delivery should have a positive impact on demand, however a negative impact on supply if it reduces the availability of riders.

TeamViewer (XETRA: TMV) – The impact of COVID-19 is overall neutral for TeamViewer. The positive effect from increased remote access as employees stay at home is offset by the negative effect from the sales force not able to engage with its customers, particularly within Enterprise.

Auto Trader (LSE: AUTO), Rightmove (LSE: RMV), Ocado (LSE: OCDO), Scout24 (XETRA: G24), Just Eat Takeaway (LSE: JET), Moneysupermarket (LSE: MONY) and Goco Group (LSE: GOCO) should not see an impact from the COVID-19 as they do not currently operate in or source from Asia.

European Leisure RBC Europe Limited Julian Easthope (Equity Analyst) +44 20 7653 4064; [email protected]

Within our European Leisure coverage, the Hotels sector is far and away the most exposed to COVID-19. That said, the sector is used to dealing with events that disrupt travel patterns. Whether it is terrorist incidents or pandemics – the impact is typically short-term, potentially quite severe initially but usually with a quick recovery. In most cases, the incidents are location based with some collateral damage to nearby countries. Looking at history, SARS is the most obvious comparable: During the SARS epidemic, RevPAR data showed a major downturn in Q2 2003, some impact in Q3, with the industry starting to normalize in Q4, and a full recovery back to previous levels in 2004.

With that in mind, we believe this outbreak will have the greatest negative effect on the Asia performance of InterContinental Hotels Group PLC (LSE: IHG) in Q1, and to a lesser extent Accor SA (PAR: AC), but expect any impact to recover next year.

 IHG has 129k rooms out of 864k in China – 15%: The group made EBIT of $69m – 7.4% of group (pre overhead) in 2018. Around 16% of the rooms are franchised and 84% managed making them a little more operationally geared than the group average of 70% franchised. We recently cut $33m from 2020 forecasts to account for this but have also added it back in 2021 and made no changes to our PT. Our only issue with IHG is valuation and we retain the UP rating.  Accor has 69,000 rooms out of total 725,000 in China – 9.5%. In the 2018 accounts it stated that a 10% change in the CNY would impact EBITDA by €2.8m – this suggests the regions would have c €28m of EBITDA. This accounts for c4.3% EBITDA – although this is increasing with a strong pipeline. We have made no changes to the rating or estimates.

To reiterate, global travel is a secular growth business: None of the flu viruses – nor any of the major terrorist incidents appeared to have any long-lasting effect on global travel. We show long-

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term inbound tourism arrivals below. While SARS in 2003 had a modest impact, the biggest dip by far was the financial crisis in 2008.

Looking outside of Hotels, in Gaming, most of the revenues are generated through online sales and are quite defensive to knock-on impacts from the virus. Similarly, for the Gym and Cinema companies that we cover, there is zero direct exposure to Chinese markets, with revenues concentrated either entirely in Europe or Europe & North America. We do not expect COVID-19 to have any impact to these businesses, and we would only expect this to change in the event of a materially increased rate of infection in these regions.

Exhibit 8: International Tourist Arrivals (millions)

1500 Financial crisis 1000 SARS Iraq war

500

0

1983 1997 1950 1965 1975 1981 1985 1987 1989 1991 1993 1995 1999 2001 2003 2005 2007 2009 2014 2016 2018 Europe APAC Americas Middle East Africa

Source: World Tourism Council, RBC Capital Markets

US Leisure RBC Capital Markets, LLC Wes Golladay (Equity Analyst) (440) 715-2650; [email protected]

Hilton Worldwide Holdings (NYSE: HLT) – Direct exposure to China is 2.7% of adjusted EBITDA and there is an additional 0.7% of revenue tied to outbound travel from China. HLT guided for 2020 net unit growth of 6 – 7% and flat to 1% systemwide comparable RevPAR growth excluding the impact of COVID-19. Management estimated comparable RevPAR growth would be reduced by 100 bps assuming the outbreak lasts 3–6 months and recovery takes an additional 3–6 months for hotels that remain open. There were 33K rooms closed (~3.4% of all rooms) on February 11th, which was the day of the 4Q19 earnings call. Net unit growth could also be reduced by 0.5% due to construction delays. The full-year potential adjusted EBITDA impact was estimated to be between $25M and $50M or ~1.5% of forecasted adjusted EBITDA. HLT indicated the estimates were preliminary and the situation was still evolving.

Marriott International Inc. (MAR) – MAR maintained 2020 guidance of Worldwide RevPAR growth of 0-2% with N. America ~1%. The net unit growth guidance of 5.0-5.25% was also maintained. However, guidance was not updated for the coronavirus. Occupancy in the APAC region is currently low and MAR estimated fee income would be curtailed ~$25M per month relative to the base case should occupancy remain low in the region. For context, MAR expects ~$4B of gross fees under the base case. MAR did not quantify exposure for other regions. Room additions could also be delayed due to the coronavirus. The company will host an earnings call during the morning of February 27th.

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US Consumer Staples RBC Capital Markets, LLC Nik Modi (Equity Analyst) (212) 905-5993; [email protected]

While KO and EL were the only two names in our coverage universe to provide finite guidance on the impact of COVID-19, most others agreed there would be an impact, but it was too early to quantify. March quarter aside, annual guidance for most companies was still maintained. Realistically, no one really has much visibility on when the COVID-19 issue will subside, so we could see further revisions depending on what happens in the next few months (recent developments in South Korea and Italy could prolong the issue).

Estée Lauder (NYSE: EL) - Management revised guidance lower to account for the COVID-19 outbreak. Management pointed to a significant decline in air travel and consumer traffic in key shopping and tourist areas (travel retail outlets are expected to experience the greatest negative impact).

The Coca-Cola Company (NYSE: KO) - Unlike some other consumer companies whose comments left the door open to a prolonged COVID-19 impact, management noted they see the disruptions as temporary, at this stage. KO estimates an approximate 2-3 pt impact to unit case volume, 1-2 pt impact to organic revenue and 1-2 penny impact to EPS in 1Q. Importantly, management still expects to achieve FY’20 targets.

Procter & Gamble (NYSE: PG) - Procter & Gamble noted they would face material total company impacts on both top and bottom line pressure due to the COVID-19 outbreak, but reiterated guidance ranges. Similar to peers, they’ve noted a shift of demand to online, but also noted the challenges with delivery given that delivery labor and operators are limited. At CAGNY, they provided a bit more color than peers noting that 387 suppliers in China ship to them globally more than 9,000 various materials that impact 17,600 different products—and that each of the suppliers individually are facing their own challenges with resuming operations. We think this provides a glimpse into the possible impacts across global supply chains, but still creates uncertainty around trying to quantify those impacts.

Colgate-Palmolive (NYCE: CL) - Colgate-Palmolive told investors at CAGNY they expect a modest negative impact to 1Q numbers on both the top and bottom line due to the COVID-19 outbreak, though they noted it is still too early to assess the full-year impacts. The company told investors they are getting back up and running on their manufacturing and supply chain integration in China, as well as noting they already have robust contingency plans in place in the event of a prolonged impact from the virus.

Mondelez (NASDAQ: MDLZ) - Mondelez told investors at CAGNY that they expect impact on demand and margins in China due to COVID-19, but reiterated their current guidance was still the best they could provide “barring a more dramatic impact,” which they said they do not see at this point. They noted they have 4 plants in China which have reopened with most employees back at work, though some were not yet able to because of travel restrictions in place. Their distribution centers have also reopened and they have begun shipping back to clients, though not all of those clients are open. “The shelves are pretty empty,” they noted.

Newell Brands NASDAQ: NWL) - NWL suppliers are experiencing some disruption from slower start-up in the Chinese factories post Chinese New Year driven by more restricted travel in country as a result of COVID-19. The outlook assumes a 1pt top-line headwind from these issues in 1Q, mostly impacting Appliances & Cookware and Outdoor & Recreation.

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Spectrum Brands (NYSE: SPB) - A little bit of delay in supply chain. The bulk of suppliers restarted on 2/10. Management is expecting a minor impact to sales in the March quarter driven by a 1-2 week delay in the supply chain. APAC is 3% of sales.

General Mills (NYSE: GIS) - On 2/18 management said COVID-19 will have an impact on the upcoming quarter but noted it is too early to quantify. Initial response was positive because consumers cleared the shelves in-store. Now consumers aren’t leaving their homes so GIS is selling a lot more online. Logistics more challenging. China is 4% of total Company net sales.

US Hardlines/Broadlines Retail RBC Capital Markets, LLC Scot Ciccarelli (Equity Analyst) (212) 428-6402; [email protected]

Most of the companies in our sector have very little direct “selling exposure” outside of North America, with Walmart (NYSE: WMT), Costco (NASDAQ: COST) and Genuine Parts Company (NYSE: GPC) as the primary exceptions. Walmart, with its ~10% ownership of JD.com and ~400 Supercenters and Sam’s Club locations, has the most exposure (Costco only has one warehouse in Shanghai). However, every one of our companies has at least some supply chain risk. Most companies that have reported 4Q19 results already have declined to comment on the potential impact because the situation is just too fluid and hard to quantify since both the duration and breadth of the impact seems to be changing daily. For example, O’Reilly Automotive (NASDAQ: ORLY) and Advance Auto Parts (NYSE: AAP) indicated they have plenty of inventory and factory shutdowns would have to extended for months to start to generate a notable impact. However, auto parts is a slower turning SKU (so inventory is used up at a relatively slow pace), while other companies in faster-turning categories may feel more of an impact. We would think that companies with higher China/Asia sourcing exposure would be the most vulnerable, including Best Buy (NYSE: BBY) and Williams-Sonoma (NYSE: WSM) (top tier), followed by Dollar Tree (NASDAQ: DLTR) (more from the Dollar Tree banner), Five Below (NASDAQ: FIVE) and Dick’s Sporting Goods (NYSE: DKS) in the next tier.

Walmart (NYSE: WMT) – Walmart generates ~23% of their sales and ~16% of EBIT from their total International operations and operates in China through their JD.com partnership and ~400 Supercenters and Sam’s Club locations. While it is fair to assume that overall consumption/economic activity in China has declined since the concerns over COVID-19 started, we suspect a lot of sales shifted online given people’s hesitancy to go outdoors and be around a lot of other people (likely producing a share shift towards online shopping and we believe that JD is still the #2 e-commerce company in China). Supply chain concerns are likely more prevalent if we have extended shutdowns of manufacturing and assembly facilities, but ~55% of Walmart’s US sales are food/grocery, virtually all of which is domestically sourced. At the company’s recent Analyst Day, management stated that they are excluding any impact of the virus from their guidance but that it could amount to “a couple of cents negative impact in 1Q”.

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Restaurants RBC Capital Markets, LLC Christopher Carril (Equity Analyst) (617) 725-2109; [email protected]

Starbucks Corporation (NASDAQ: SBUX) – SBUX last provided an update re: COVID-19 on January 28th (with 1FQ20 earnings results). At the time, the company noted >50% of SBUX stores in China had been closed, with hours monitored/modified at remaining open stores. For context, SBUX currently has ~4,300 stores in China (all company-owned/operated), and China represents ~10% of global revenue and slightly higher than ~10% of business unit operating income. As a result of the outbreak, the company maintained previously provided FY20 guidance (which excludes any impact from COVID-19), and at the earliest expects to be able to assess impact to 2FQ/FY20 earnings by early March and will communicate any update at the latest with 2FQ earnings results (April 28th).

McDonald’s Corporation (NYSE: MCD) – MCD last provided an update re: COVID-19 on January 29th (with 4Q19 earnings results). At the time, the company noted it had closed all restaurants in the Hubei province (“several hundred”), but still had ~3,000 restaurants open in China. For context, China represents ~9% of MCD global restaurant count, ~4-5% of system- wide sales and ~3% of consolidated operating income.

Yum! Brands, Inc. (NYSE: YUM) – YUM last provided an update re: COVID-19 on February 6th (with 4Q19 earnings results). For context, 1 point of SSS growth in China = ~19 bps of comp growth and ~$2.9M in operating profit for consolidated YUM. With respect to earnings impact, YUM noted that COVID-19 and its impact on China “has a significant impact on us and our financial performance this year and ability to hit that [long-term] algorithm.” On February 5th, YUM’s publicly-traded franchisee in China (YUMC) reported its own 4Q19 earnings results, and noted at the time that >30% of its store base was closed, and that for its restaurants that remained open, same-store sales since the Chinese New Year holiday had declined 40-50% (adjusted for timing of the holiday).

Restaurant Brands International, Inc. (NYSE: QSR) – QSR noted on February 10th (with 4Q19 earnings results) that Burger King China accounted for ~2% of QSR consolidated system-wide sales. The company also noted in its 2019 10-K filing (February 21st) that “the coronavirus outbreak in early 2020 led to a temporary closure of a number of our franchised restaurants in China.”

Domino’s Pizza, Inc. (NYSE: DPZ) – DPZ noted on February 20th (with 4Q19 earnings results) that China “is still a relatively small part of our overall portfolio in terms of store count and also in terms of retail sales,” and that at the time, <20 stores were closed in the market.

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Energy Canadian Integrated Oil, Senior & Intermediate E&P RBC Dominion Securities Inc. Greg Pardy (Equity Analyst) (416) 842-7848; [email protected]

The full impact of the COVID-19 outbreak may not be known for months, but appears to resemble a giant pothole for energy markets amid curtailed demand conditions. This dynamic already appears reflected in WTI benchmark prices hovering around $50.

Volatility has been the name of the game for energy producers since 2014, which is why most companies generally budget for WTI in the $50-$55 range, and free cash flow (before dividends) neutrality around $50. Our cash flow estimates under our base outlook and futures prices can be found on a weekly basis in our Global Comparative Valuation Analysis.

Following Iran’s missile attack on Iraq in January, several producers in our coverage group took the opportunity to layer in oil hedges when WTI spiked briefly to $63. Based on our discussions, producers are not veering from their 2020 capital programs, with free cash flow and balance sheet strength in sharp focus.

Amongst our coverage, Husky Energy (TSX: HSE; Sector Perform) is the only one with production in China. The company’s Liwan field in the South China Sea accounts for 12% (178 mmcf/d of natural gas at a price of around $11.50/mcf, and 8,000 bbl/d of liquids priced off Brent) of our 2020 production estimate for Husky, but more importantly 22% of our cash flow estimate. The potential risk is that temporarily curtailed economic activity in China could weigh on its demand for natural gas, resulting in reduced production rates at Liwan. This gas is sold under contract, so any under-liftings would need to be made up at a future date.

Stock selection - From a Canadian integrated oil, senior and intermediate producer standpoint, we continue to favour companies that can deliver per share cash flow growth, supported by improving balance sheets and a track record of execution. Canadian Natural Resources (TSX: CNQ; Outperform) is our favorite stock overall, with Enerplus Corporation (TSX: ERF) our favorite amongst the intermediates. Suncor Energy (TSX: SU), Cenovus Energy (TSX: CVE), Ovintiv Inc. (NYSE: OVV), and Baytex Energy (TSX: BTE) round out our Outperform roster.

Bottom Line: Overall, 2020 producer cash flows may be more insulated from prevailing oil market conditions via hedging programs than the market may recognize at this juncture.

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Canadian Exploration & Production RBC Dominion Securities Inc. Luke Davis (Equity Analyst) (403) 299-5042; [email protected] Michael Harvey (Equity Analyst) (403) 299-6998; [email protected]

Canadian Exploration & Production companies are indirectly impacted by the COVID-19 outbreak, related to reduced demand for oil & gas globally that has negatively impacted the price of crude oil and liquids. Of note, our coverage group has no direct exposure to Asia.

In general, producers are better hedged in the first half of 2020 vs the back half. Most hedge books appear lighter in H2/20 driven by limited liquidity farther out in the curve, negatively impacting ability to layer in incremental hedge contracts at favourable pricing. A US$10/bbl reduction in oil prices (all else equal) reduces our CFPS estimates by 22%, on average. Most E&P budgets were set in the US$55/bbl range, suggesting that budgets could be tweaked downward should crude oil prices continue to fall.

Exhibit 9: Production Hedged and CFPS Sensitivities

2020 Hedged 2020 CFPS Sensitivity Juniors: < 25,000 boe/d Oil Gas $10/bbl $0.50/mcf Cardinal Energy CJ 6% 17% 46% 2% Crew Energy CR 21% 17% 20% 29% Delphi Energy DEE 51% 21% 10% 12% Leucrotta Exploration LXE 0% 0% 32% 29% Pipestone Energy PIPE 67% 34% 14% 11% Tamarack Valley Energy TVE 2% 0% 26% 5% Storm Resources SRX 17% 14% 15% 28% Average: < 25,000 boe/d 23% 15% 23% 16%

Intermediates: < 75,000 boe/d Oil Gas $10/bbl $0.50/mcf Advantage Oil & Gas AAV 4% 16% 12% 26% Athabasca Oil Corp. ATH 41% 0% 52% 7% Bonavista Energy BNP 31% 53% 12% 19% Kelt Exploration KEL 0% 0% 36% 10% NuVista Energy NVA 41% 45% 10% 7% Painted Pony Energy PONY 27% 14% 25% 86% TORC Oil & Gas TOG 0% 0% 29% 1% Whitecap Resources WCP 23% 13% 29% 2% Average: < 75,000 boe/d 21% 18% 26% 20%

Intermediates: > 75,000 boe/d Oil Gas $10/bbl $0.50/mcf ARC Resources ARX 39% 22% 11% 17% Birchcliff Energy BIR 0% 0% 19% 26% Crescent Point Energy CPG 43% 0% 14% 1% Peyto Exploration PEY 0% 16% 18% 28% Paramount Resources POU 11% 0% 30% 25% Tourmaline Oil TOU 11% 3% 20% 24% Seven Generations Energy VII 20% 24% 20% 6% Average: > 75,000 boe/d 18% 9% 19% 18%

Average 21% 14% 23% 18%

Royalty Companies Oil Gas $10/bbl $0.50/mcf Freehold Royalties FRU 0% 0% 19% 6% PrairieSky Royalty PSK 0% 0% 13% 5% Source: Company reports, RBC Capital Markets estimates

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Canadian Energy Infrastructure RBC Dominion Securities Inc. Robert Kwan (Equity Analyst) (604) 257-7611; [email protected]

Generally speaking, we expect Canadian regulated utility stocks to provide a “safe haven” for investors. From a business perspective, we believe that Canadian infrastructure companies, particularly regulated utilities, should have a relatively minimal direct impact from COVID-19.

From a defensive perspective, we would look to regulated utility stocks with Emera (TSX: EMA) and Fortis (TSX: FTS), and Algonquin Power (TSX: AQN), covered by Nelson Ng, as our Outperform rated names with Canadian Utilities (TSX: CU), covered by Maurice Choy, and Hydro One (TSX: H) also being defensive regulated utility choices.

For pipeline and midstream stocks, we view the businesses as generally defensive, but any negative impact that COVID-19 has on energy prices could drive weak investor sentiment.

Global Integrated Energy RBC Europe Limited Biraj Borkhataria, CFA +44 20 7029 7556; [email protected]

Other than early anecdotes, the integrated companies have not provided guidance on the impact of COVID-19 on the various business segments. That said, energy is a global sector, and China is the key demand driver for many products, including oil, gas, a variety of oil products and the chemicals industry. With all of these levers seeing either balanced supply-demand (oil) or oversupply (gas, chemicals), the economic slowdown in the country is likely to hit margins materially. Outside of oil prices, we expect LNG, and by extension European gas to be most impacted, while this also points to an extremely tough 2020 for the Chemicals market.

Impact on global LNG market - China is the key growth market for the LNG market over the short and medium-term, and the COVID-19 issue further exacerbates an oversupplied market. Our initial estimate is that this could impact LNG imports in China by ~12bcm in 2020 (or -13% below our current estimate), with the most likely alternative destination being Europe, given ample import infrastructure. In our view, this could lead to European gas storage hitting tank tops by early-to-mid summer, which would ultimately result in production shut-ins in order to balance the market. Last year, Norway’s Equinor (OSLO: EQNR), was the company that ceded market share in order to balance the market once storage was full, however we could also see LNG buyers utilize flexibility on contracts in order to purchase lower volumes, which in turn could result in LNG producers lowering production.

Impact on oil prices and refining margins – focus on jet fuel demand - As discussed by Mike Tran in Oil Strategy: The Artificial Intelligence Approach to Quantifying the COVID-19, the key impact of weakening Chinese activity is on jet fuel demand, and by extension middle distillates. There is not a significant amount of differentiation across the companies in our sector to middle- distillates, however this likely impacts those with greater exposure to Asia from a trading perspective, rather than the more focused, European refiners.

Impact on Chemicals - As China is one of the largest growth markets for Chemicals demand, a weakening market is only likely to exacerbate demand and margin concerns. ExxonMobil (NYSE: XOM) is the most exposed to the Chemicals market, followed by Royal Dutch Shell (LSE: RDSB), and Total (NXT PA: FP). We saw the market as oversupplied in both 2020 & 2021 before this

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Global Reference Guide to COVID-19 ("coronavirus")

issue, and therefore see this as an incremental problem to deal with. For reference, ExxonMobil’s Chemicals earnings consensus was $4bn for 2020 a year ago, and this now sits at ~$200m for the year.

Bottom line: The sector is facing a synchronized downturn across all of its business segments, and we see headwinds to consensus earnings estimates to the tune of ~20-25% based on current forward curve commodity prices. We would advise investors to sidestep the names with exposures to LNG & Chemicals (Royal Dutch Shell & ExxonMobil), and tactically focus on the names with the strongest balance sheets (Total, Chevron (NYSE: CVX), Repsol (SIBE: REP)).

European Utilities RBC Europe Limited Fernando Garcia (Equity Analyst) +44 20 7029 0267; [email protected] John Musk (Equity Analyst) +44 20 7029 0856; [email protected]

European utilities have been the standout performer in European markets year to date, benefiting from a combination of lower-for-longer yields, defensive growth characteristics and ESG attractions. The sector (SX6P) has delivered a total return of 11% YTD (to 25 Feb) versus the broader European market (SXXP), which is down 2.5%. We do not believe COVID-19 will derail this momentum, and it could enhance the relative attraction of the sector given there is very little direct impact on activities. There will be some exposure to weaker power prices driven by weaker underlying commodities (coal and gas), and at the margins there may be lower electricity and gas demand and some minor disruption to new components for generation, renewable and T&D assets.

Power Prices and other commodity exposure - merchant generation is an increasingly small part of the value chain within European Utilities with companies looking to focus more and more on network and renewable activities. We estimate, on a fully unhedged basis, that only ~20% of sector EBITDA is exposed to merchant power prices and other commodities such as gas and LNG. On top of this limited exposure, most utilities will hedge their commodity exposure on a rolling 2-3yr basis with the vast majority of 2020 exposure likely to already be locked in.

We note in particular that forward power prices in major markets such as the UK and Germany are down ~15% year to date, driven by falling underlying commodities. In particular gas prices have been a significant driver of this weakness with forward UK NBP and European TTF gas prices down 15-20% YTD. As outlined by our Global Integrated Energy colleagues elsewhere in this report, it is unlikely we will see a recovery in gas prices, and therefore power prices, in the near- term. Given this weak outlook on commodities we would continue to be cautious on the likes of Uniper (XETRA: UN01), Naturgy (MADRID: NTGY) and Centrica (LSE: CNA) within our coverage.

Demand - if there is a significant/prolonged impact from COVID-19 in Europe there is the potential for this to also impact power and gas demand. We note that the split of European gas and electricity demand differs with ~45% of gas demand from domestic sources and ~55% of gas demand from industrial and commercial (I&C) sources, whereas the split for electricity demand is far more weighted to I&C demand at ~70% with domestic demand at ~30%. Hence those companies with a greater exposure to electricity end-user sales could suffer relatively more if we see an industrial slowdown. However, given the relatively thin margins on I&C volumes, a drop in demand is unlikely to be a material mover on the bottom line. Furthermore, we note that the majority of regulated networks in Europe are remunerated on a capacity basis and lower volumes transported will have minimal impact.

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Global Reference Guide to COVID-19 ("coronavirus")

Bottom line: the direct impact on European Utilities from COVID-19 largely relates to lower commodity and power prices, but this is an increasingly less important part of the utility value chain in Europe (~20% of sector EBITDA). We expect any small negative lower commodities and power prices, will be more than outweighed by a defensive rotation into utilities.

Global Oilfield Services, Equipment and Drilling RBC Capital Markets, LLC Kurt Hallead; Co-Head of Global Energy Research, [email protected] Keith Mackey (Equity Analyst), (403) 299-6958; [email protected]

Oil service companies have not provided any specific indications of business interruption related to the COVID-19 outbreak. Most OFS companies have limited direct exposure to China with the exception of equipment manufacturers. In an effort to reduce risk to personnel, many companies have put travel bans into effect.

It appears that outside of the potential near-term impact on economic growth and therefore oil demand, the majority of the business risk will likely reside in each respective company’s global supply chain and the tangential ripple effect as it relates to equipment manufactured in China.

Global oil service companies (SLB, BKR, HAL): Limited direct business impact in China; potential indirect impact re: project timing; potential tangential supply chain impact.

Oilfield equipment manufacturing companies (FTI, NOV, WHD, SCL): Direct impact from China- based manufacturing operations; potential tangential supply chain impact.

Global Offshore and offshore service companies (DO, NE, OII, RIG, VAL): Potential indirect impact re: project timing; potential tangential supply chain impact.

Land drillers (HP, ESI, ICD, NBR, PDS, PTEN): Limited tangential supply chain impact.

Bottom line: While consensus expectation calls for US-related E&P spend to be down 10-15% vs 2019, international E&P spend is expected to increase by 5-7%. This growth rate could be at risk if project timing is pushed to the right.

The OIH is down 18% ytd while EBITDA revisions for 2020/21 are only down ~3%. One can infer from this discrepancy that investors believe street EBITDA will be revised down by another 15%.

Investor sentiment re: energy is the worst in 30 years and the sector has been stuck in a negative feedback loop – downward EBITDA revisions, relative underperformance, less money flow, lower index weightings – for the past five years.

From a valuation perspective, the OFS sector is trading at a 30% discount to the S&P but is generally in-line with its average multiple since 2006.

Our top relative long ideas:

 Large cap: Baker Hughes (NYSE: BKR), Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL)  Mid cap: Helmerich & Payne (NYSE: HP), TechnipFMC (NYSE: FTI), Cactus (NYSE: WHD)  Small cap: Precision Drilling (NYSE: PDS), CES Energy Solutions (TSX: CEU), Enerflex (TSX: EFX)

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Global Reference Guide to COVID-19 ("coronavirus")

US Energy Midstream RBC Capital Markets, LLC TJ Schultz (Equity Analyst) (512) 708-6385 [email protected] Elvira Scotto (Equity Analyst) (212) 905-5957; [email protected]

Midstream does not have a widespread direct impact from the COVID-19 outbreak, and we have seen limited disclosure from companies on direct cash flow impacts. However, similar to US E&P, most of the midstream impact likely to be felt through lower commodity prices that have an impact on volume outlooks. With that, midstream closer to the well head (gathering & processing) with volumetric exposure sit at elevated risk levels in our view (and this could carry through to some crude oil takeaway pipelines that, again, carry more volumetric risk). We see regulated pipelines with highly contracted cash flow as most insulated. Downstream, the impact has been a little more pronounced, as Asian demand markets for US product exports impact both current liftings from US ports, as well as the outlook to move forward with prospective growth projects (such as large scale offshore crude oil export projects). It is a little early to make a call on some of the projects still in development queue, but we would expect some softening on export volumes in 1H20. We have already seen some LNG off-takers cancel shipments (though we stress that LNG terminal owners such as Cheniere are still receiving tolling fees). In our coverage, the midstream names that are top of mind would be Genesis Energy, LP (NYSE: GEL) and Cheniere Energy LNG (NYSE: LNG). Genesis has some exposure through lower soda ash pricing as demand for end product may soften, though we think the stock has largely priced this in at current levels. Although Cheniere does not have material contracts with Chinese companies, as China and Asia slow LNG imports, LNG moves to an already saturated European market. Naturgy, a European utility, has already cancelled cargoes from Cheniere. Most of Cheniere's off-takers have the right to cancel cargoes with notice. That said, all the off-takers are still required to pay tolling fees, which represents the majority of Cheniere's margin and we believe provides downside protection. Midstream with more regulated and contracted cash flow appear most immune – TC Pipelines, LP (NYSE: TCP).

US Exploration & Production RBC Capital Markets, LLC Scott Hanold (Equity Analyst) (512) 708-6354; [email protected]

US Exploration & Production companies have not directly provided business related impact sensitivities related to the COVID-19 outbreak. Most of the exposure will be related to reduced demand for oil & gas globally that could significantly impact the price of the commodities.

Hedge books are strong for 2020, which reduces the financial impact of a commodity price downturn. A $10/bbl reduction in oil prices reduces our CFPS estimates by 15%, on average. Smaller cap stock are typically more hedged because of higher FCF breakeven points and higher financial leverage. Post dividend cash flow breakeven points are approximately $50/bbl.

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Exhibit 10: Production Hedged and CFPS Sensitivities

2020 Hedged 2020 CFPS Sensitivity Company Ticker Oil Nat Gas $10/bbl $0.50/Mcf Apache Corporation APA 0% 0% 15% 1% Concho Resources CXO 70% 47% 7% 0% ConocoPhillips COP 0% 0% 19% 1% Continental Resources CLR 0% 0% 19% 2% Devon Energy DVN 41% 17% 18% 4% Diamondback Energy FANG 48% 35% 15% 0% Ovintiv OVV 51% 76% NA NA EOG Resources EOG 0% 0% 21% 3% Marathon Oil Corp MRO 36% 3% 19% 2% Noble Energy NBL 60% 10% 13% 3% Pioneer Natural Res. PXD 53% 5% 16% 2% Large Cap Average 33% 18% 16% 2% Callon Petroleum CPE 59% 14% 16% 1% Centennial Resource Dev CDEV 0% 0% 27% 3% Denbury Resources DNR 55% 0% 21% 0% Earthstone Energy ESTE 67% 41% 8% 1% Matador Resources MTDR 31% 0% 24% 4% Oasis Petroleum OAS 72% 0% 13% 1% Parsley Energy PE 76% 24% 19% 1% SM Energy SM 80% 20% 10% 2% WPX Energy WPX 41% 0% 17% 2% Extraction Oil & Gas XOG 103% 45% 8% 3% SMid Cap Average 58% 14% 16% 2% EQT Corporation EQT 0% 89% 3% 11% Range Resources RRC 85% 65% 19% 15% Southwestern Energy SWN 83% 86% 8% 19% Montage Resources MR 58% 62% 13% 17% Natural Gas Average 57% 76% 11% 16%

Source: RBC Capital Markets Estimates & Company Reports

The majority of the US independents have little direct exposure to Asia. On average most provided budget scenarios using $50-55/bbl and $2.00-2.50/Mcf, which are both consistent with the current commodity price strong and the aforementioned price to support dividends.

Bottom Line: The market reaction to the US E&P equities related to commodity price impact for COVID-19 could be more extreme than the actual cash flow reductions given the hedge books. We think most US E&P companies are discounting a sub-$50/bbl oil price, which is below current commodity prices strips. Any activity adjustment to account for unhedged cash flow impact would likely occur around mid-year 2020. We expect US oil production to increase 550-600 Mb/d in 2020 but that could be reduced to 450-500 Mb/d if oil prices average below $50/bbl (WTI).

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US Refining RBC Capital Markets, LLC Brad Heffern (Equity Analyst) (512) 708-6354; [email protected]

US Refining companies have only provided vague responses around the COVID-19 epidemic thus far, mainly suggesting the obvious softening in Asian refined product demand. We note that none of the US refiners sells a meaningful amount of petroleum products into Asia, and we think the only meaningful direct exposure is likely to be in Phillips’ (NYSE: PSX) chemicals business.

The largest effect of the COVID-19 epidemic is likely to be weakness in distillate (diesel and jet) demand, particularly in Asia. This has already had a knock-on effect on distillate profitability across the globe, with New York Harbor ULSD cracks currently at only $11/bbl, versus the 4Q19 average of $19/bbl. At the same time, gasoline cracks are stronger than is typical for February, suggesting that gasoline demand remains robust and global refinery run cuts may be causing an undersupply in the gasoline market.

Exhibit 11: Distillate Yield

60%

50%

40%

30%

Distillate Yield Distillate 20%

10%

0% PBF MPC VLO HFC PSX DK PARR

Source: RBC Capital Markets Estimates & Company Reports

Par Pacific (NYSE: PARR) currently leads the group in both distillate yield and exposure to changes in the distillate crack. High-beta refiners like Delek (NYSE: DK) and PBF Energy (NYSE: PBF) are close in terms of sensitivity to the distillate crack, but we note that these refiners also have high sensitivity to gasoline as well. The other refiners do not have a high exposure to changes in distillate profitability.

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Exhibit 12: Sensitivity to $1/bbl Change in Distillate Crack

DK HFC MPC PARR PBF PSX VLO 0% 0%

-10% -2%

-20% -4% -30% -6% -40% -8% -50% -10%

EPS Sensitivity EPS -60% EBITDA EBITDA Sensitivity -70% -12% -80% -14% -90% -16%

EPS Sensitivity (Left Axis) EBITDA Sensitivity (Right Axis)

Source: RBC Capital Markets Estimates & Company Reports

Bottom Line: We see PARR as the only refiner with a true direct negative link to the COVID-19 epidemic, given the Hawaii refinery’s proximity to Asia as well as a group-leading distillate yield. After PARR, we do not see much differentiation in exposure, as higher gasoline cracks are offsetting the distillate weakness for the higher beta names, and sensitivity is relatively small for the other refiners.

US Power & Utilities RBC Capital Markets, LLC Shelby G. Tucker (Equity Analyst) (212) 428-6462; [email protected]

At the direct level, utilities should not be impacted by COVID-19. However, a second derivative impact of COVID-19 might be felt through industrial demand, which tends to be more sensitive to macroeconomic events. Utilities with greater exposure to the Rust Belt and/or the Southeast would likely be hit hardest. In our coverage, the utilities that are top of mind would be American Electric Power (NYSE: AEP), CMS Energy (NYSE: CMS), Entergy (NYSE: ETR), FirstEnergy (NYSE: FE), and Southern Co (NYSE: SO). On the flip side, utilities with decoupling mechanisms would be immune to this.

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Financials European Banks RBC Europe Limited Anke Reingen (Equity Analyst) +44 20 7029 0784; [email protected] Benjamin Toms (Equity Analyst) +44 20 7002 2258; [email protected]

European banks are geared to European economic trends (see Exhibit 13). In turn, Europe trades heavily with Asia and therefore COVID-19 has the potential to weigh negatively on the share prices of the banks in the region. However, the impact is likely to be more material for the banks in our coverage universe whose earnings depend more on Asia.

HSBC (LSE: HSBA) – In 2019 Asia accounted for 75% of HSBC’s adjusted profit before tax (excluding the corporate centre), of which 62% relates to Hong Kong and mainland China. As a result of the COVID-19 outbreak, the bank has lowered its 2020 expectations for economic growth in Asia. The bank mentioned the virus has already created significant disruption to staff, suppliers and customers. The impact is expected to be more severe in Q1 2020, with the bank estimating a decrease in profit before tax between $200m to $500m mainly due to higher loan losses. If the virus continues through 2020, loan losses could increase by $600m in 2020 vs 2019 (representing c.3% of Group 2020 PBT, RBCe). The bank noted that longer term there could be a significant decrease in revenue from lower lending and transaction volumes and from lower insurance manufacturing revenue, which may impact RWAs and the bank’s capital position.

Swiss Banks - Julius Baer (SWX: BAER), Credit Suisse (SWX: CSGN), UBS Group (SWX: UBSG) – Asia accounts for a material part of the earnings and earnings growth in Asia of the Swiss banks. When the banks reported FY 2019 results (CS was the latest on 13th Feb), they had not seen any impact on their operations in January but commented that it adds to uncertainty about the future outlook with CS specifically mentioning that it would take a more conservative approach on investments in Q1’20. In 2019 Asia accounted for an estimated 25% of earnings at JB, 18% at CS and 10% at UBS. In addition, a stronger Swiss Franc will hit earnings of CS and JB (UBS reports in USD).

German Banks – Commerzbank (XETRA: CBK), Deutsche Bank (XETRA: DBK) – The German economy is relatively more export orientated, with China representing 7% of exports in 2018. Therefore, GDP downgrades are likely to be felt here first compared to other EU economies. CBK commented there will be some negative effects of the outbreak of the virus in Q1 with a possible increase in loan losses but the bank believes it will probably be a temporary issue.

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Global Reference Guide to COVID-19 ("coronavirus")

Exhibit 13: EU banks share prices have been highly correlated with PMIs over time

200 65

180 60 98) - 160 55 140 120 50 100 45

80 40 PMI Composite 60 35 40

Share Performance (Rebased Aug (Rebased Performance Share 20 30

0 25

Jul-99 Jul-10

Jan-05 Jan-16

Jun-00 Jun-11

Oct-07 Oct-18

Apr-02 Apr-13

Feb-04 Sep-08 Feb-15 Sep-19

Dec-05 Dec-16

Aug-98 Aug-09

Nov-06 Nov-17

Mar-03 Mar-14

May-01 May-12

SX7P Index (LHS) Euro Area PMI (RHS) Source: Bloomberg, Haver

Capital markets are showing some indicators of more stressed levels, which might act as a lead indicator or directly impact earnings and capital ratios. The European investment banks including the French banks are likely to be impacted the most by these factors.

Interest rate expectations have been further pushed out in time and markets have started to factor in another rate cut in Europe. However, our economists would place much more emphasis on a fiscal response and this was also discussed by the German press (Die Zeit) highlighting that Germany might temporarily suspend the debt brake (26th February 2020).

Credit spreads have widened and in the past these have been a relatively reliable indicator of an increase in provisions mainly on the corporate side.

Higher equity market volatility, a flatter yield curve and wider credit spreads are generally less supportive for trading conditions in investment banking and could also lead to an increase in capital requirements.

Exhibit 14: Rate expectations continue to come down Exhibit 15: Higher market volatility and wider spreads since Feb

40 400 220 0.6

0.5 35 200 350 0.4 30

180 0.3 300 25

0.2 bps 160 % 20 250 SX7P Index SX7P 0.1

140 0.0 15

200 VIX Index VIX (points) -0.1 10 120 -0.2 150 5 100 -0.3

0 100

Jul-18 Jul-19

Jan-18 Jan-19 Jan-20

Jun-18 Jun-19

Oct-18 Oct-19

Apr-18 Apr-19

Feb-18 Sep-18 Feb-19 Sep-19 Feb-20

Dec-18 Dec-19

Aug-18 Aug-19

Nov-18 Nov-19

Mar-18 Mar-19

May-18 May-19

Jul-18 Jul-19

Jan-18 Jan-19 Jan-20

Jun-18 Jun-19

Oct-18 Oct-19

Apr-18 Apr-19

Sep-18 Feb-18 Feb-19 Sep-19 Feb-20

Dec-18 Dec-19

Aug-18 Aug-19

Nov-19 Nov-18

Mar-18 Mar-19

May-18 May-19 SX7P Index (LHS) Euribor Futures 2Yr-3M Forward (RHS) VIX Index (LHS) Itraxx Xover 5yr Corp (RHS)

Priced as of 26th February 2020 Priced as of 26th February 2020 Source: Bloomberg Source: Bloomberg

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Global Reference Guide to COVID-19 ("coronavirus")

US Banks RBC Capital Markets, LLC Jon Arfstrom (Equity Analyst) (612) 373-1785; [email protected] Gerard Cassidy (Equity Analyst) (207) 780-1554; [email protected] Steven Duong (Equity Analyst) (207) 780-1554; [email protected]

COVID-19 impacting yield curve – Thus far, we do not believe any of our banks have been directly impacted materially by COVID-19. However, we do believe the impact will come indirectly through the longer end of the yield curve as concerns over the impact drive investors to the safety of treasuries. Exhibit 16 plots the worldwide Google search trends for “coronavirus” plotted with the 10-yr treasury yield.

Exhibit 16: Worldwide Google trends search for “coronavirus” vs. 10-yr treasury yield

100 12/31/19 1/20/20 1/31/20 1.95 1.92 1.84 90 1.85 80 2/22/20 70 1.75 60

50 1.65 Yr Yr Yield (%)

40 - 1/31/20

1.55 10 30 1.51 20 1.45 2/24/20

Google Google Trends Index (100=Peak) 10 1/20/20 1.38 0 1.35

Worldwide Google Trends: "Coronavirus" 10-Yr Treasury Yield

As of February 24, 2020 Source: Google; US Department of Treasury

Long end yields have fallen considerably and faster than short end yields, which has inverted the yield curve further. Spot spreads as of February 24th between the 10-, 7-, and 5-yr treasuries vs. the 3-month T-Bill stand at -15, -23, and -32bps, respectively. If the yield curve remains at current levels through the quarter, implied average 1Q20 spreads would be -2, -10, and -19bps for the 10-, 7-, and 5-yr treasuries vs. the 3-month T-Bill, respectively. However, this implied yield curve remains less inverted than 2Q19 and 3Q19, which showed more dramatic yield curve inversions, as shown in Exhibit 17.

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Exhibit 17: Spreads of average yields between 5-, 7-, and 10-Yr treasuries from 3-Mo T-Bill

Avg QTD Implied Avg Avg 1Q19 Avg 2Q19 Avg 3Q19 Avg 4Q19 2/24/20 Spot 2/24/20 1Q20*

21 18 11 11 12 3 3 1

(2) (2) (7) (10) (13) (15) Spread(bps) (19) (23) (23) (23) (32) (32) (40)

3 Mo-10 Yr 3 Mo-7 Yr 3 Mo-5 Yr As of February 24, 2020 Source: US Department of Treasury

Impact to banks – With a further flattening to inverting yield curve, banks with the highest asset sensitivity would be likely to see the most NIM pressure. As a partial offset, many of these asset sensitive banks have hedging programs in place to mitigate the impact of lower rates. In terms of those names with less risk of NIM pressure, the few liability sensitive names we cover could see relatively less NIM pressure and could eventually see a benefit later in the year. We expect banks with mortgage-related and trading fee businesses to be able to offset some of the NIM pressures with their fee-generating potential. We believe 1Q20 mortgage activity could exceed the strong activity witnessed in 3Q19, driven by strong refinancing activity (see Exhibit 18). Another area that is likely to be impacted by COVID-19 is global travel. As a result, debit and credit card transactions could suffer due to the lower travel activity. Fortunately, the travel activity on the US remains healthy, which would have a greater impact on the payments activities of the US banks. At the present time, we do not see a material impact from COVID-19 on revenues of banks that have meaningful debit and credit card payment business, but this bears watching over the next 6–12 months. Below are lists of banks with the various exposures that would most likely be impacted if the current environment persists (sorted by market cap).

Asset-sensitive names (more NIM pressure): Bank of America Corporation (NYSE: BAC); PNC Financial Services Group, Inc. (NYSE: PNC); M&T Bank Corporation (NYSE: MTB); Citizens Financial Group, Inc. (NYSE: CFG); SVB Financial Group (NASDAQ: SIVB); Comerica Incorporated (NYSE: CMA); Synovus Financial Corp. (NYSE: SNV); Texas Capital Bancshares, Inc. (NASDAQ: TCBI); and Provident Financial Services, Inc. (NYSE: PFS)

Liability-sensitive names (least NIM pressure): New York Community Bancorp, Inc. (NYSE: NYCB); and Investors Bancorp, Inc. (NASDAQ: ISBC)

Mortgage banking, mortgage warehouse, and market trading exposure names: JPMorgan Chase & Co. (NYSE: JPM); Bank of America Corporation (NYSE: BAC); Citigroup Inc. (NYSE: C); Morgan Stanley (NYSE: MS); Goldman Sachs Group, Inc. (NYSE: GS); Truist Financial Corporation (NYSE: TFC); M&T Bank Corporation (NYSE: MTB); Fifth Third Bancorp (NASDAQ: FITB); BOK Financial Corporation (NASDAQ: BOKF); First Horizon National Corporation (NYSE: FHN); Sterling Bancorp (NYSE: STL); Valley National Bancorp (NASDAQ: VLY); Wintrust Financial

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Global Reference Guide to COVID-19 ("coronavirus")

Corporation (NASDAQ: WTFC); Texas Capital Bancshares, Inc. (NASDAQ: TCBI); and First Commonwealth Financial Corporation (NYSE: FCF)

High dividend yield names: U.S. Bancorp (NYSE: USB, 3.2% yield); Fifth Third Bancorp (NASDAQ: FITB, 3.4% yield); KeyCorp (NYSE: KEY, 3.9% yield); Citizens Financial Group, Inc. (NYSE: CFG, 4.0% yield); Regions Financial Corporation (NYSE: RF, 3.9% yield); Huntington Bancshares Incorporated (NASDAQ: HBAN, 4.4% yield); Comerica Incorporated (NYSE: CMA, 4.6% yield); New York Community Bancorp, Inc. (NYSE: NYCB, 5.9% yield); PacWest Bancorp (NASDAQ: PACW, 6.7% yield); Valley National Bancorp (NASDAQ: VLY, 4.2% yield); and Provident Financial Services, Inc. (NYSE: PFS, 4.1% yield)

Banks with Debit and Credit Card Payment Business: JPMorgan Chase & Co. (NYSE: JPM); Bank of America Corporation (NYSE: BAC); Wells Fargo & Company (NYSE: WFC); Citigroup Inc. (NYSE: C); and U.S. Bancorp (NYSE: USB)

Exhibit 18: MBA Market Composite and Refinancing Indices

The MBA Market Composite Index, a measure of mortgage loan application volume, recently reached its highest level since May 2013, surpassing 3Q19 highs.

The Market Composite Index was driven by strong refinancing activity as the Refinance Index surpassed its recent high in August 2019 to its highest level since June 2013 and is 183% above the year-ago week.

As of February 9, 2020 Source: Mortgage Bankers Association from Mortgage News Daily.

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Global Reference Guide to COVID-19 ("coronavirus")

The recent sell-off in the US equity markets is certainly unsettling for all investors. We believe that if this sell-off continues and turns into an outright bear market, the higher multiple growth oriented stocks are more vulnerable than value stocks, and we consider banks to be value stocks. Looking at the relative valuations of the banks to the S&P 500 on a P/E and P/B basis, see Exhibits 19 -20, we believe that investors could see the bank stocks as undervalued relative to the broader market. Furthermore, should a bear market develop similar to the “dot-com” bubble bursting back in 2001–2002, bank stocks are likely to be considered as the “safe havens” similar to the 2000–2002 period, see Exhibit 21. Though we take little joy in losing less money on a relative basis in a down market, history has shown that bank stocks with attractive dividend yields should outperform the premium priced growth stocks in a difficult market environment.

Exhibit 19: S&P Banks relative next-twelve-months price/earnings

June 1987 - December September 2008 - July 2010 110.0% 1987 data off chart data off chart

100.0% +1σ, 92%

90.0%

80.0% μ, 74%

70.0%

60.0%

-1σ, 57% 50.0%

40.0%

1989 1994 1980 1981 1982 1983 1984 1985 1986 1987 1988 1990 1991 1992 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1979 As of February 24, 2020 Source: S&P Global Market Intelligence; Factset Research Systems

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Global Reference Guide to COVID-19 ("coronavirus")

Exhibit 20: S&P Banks relative price/book

80.0%

70.0%

+2σ, 63.2%

60.0% +1σ, 54.8%

50.0% μ, 46.4%

40.0%

-1σ, 38.0%

30.0% -2σ, 29.6%

20.0%

1982 1998 2001 2017 1980 1981 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018 2019 1979 As of February 24, 2020 Source: S&P Global Market Intelligence; Factset Research Systems

Exhibit 21: Banks relative performance

60%

40%

20%

0%

-20%

-40%

-60% 2020 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD S&P 500 -7% 26% 4% 7% -2% 34% 20% 31% 27% 20% -10% -13% -23% 26% 9% 3% 14% 4% -38% 23% 13% 0% 13% 30% 11% -1% 10% 19% -6% 21% 29% S&P 500 Commercial Banks -33% 56% 26% 7% -9% 54% 37% 42% 4% -16% 15% -3% -4% 26% 11% -2% 12% -26% -40% -9% 20% -12% 22% 33% 13% -1% 21% 20% -18% 11% 26%

As of February 24, 2020 Source: US Department of Treasury

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Global Reference Guide to COVID-19 ("coronavirus")

Canadian Life Insurance RBC Dominion Securities Inc. Darko Mihelic, CFA (Equity Analyst) (416) 842-4128; [email protected]

Manulife Financial Corporation (TSX: MFC) – On the Q4/19 conference call, MFC indicated that it is too early to gauge the potential impact of COVID-19 at this time. We believe COVID- 19 and recent unrest in Hong Kong are potential headwinds to the Asia segment in the near term. We lowered our new business gain forecast for Asia in H1/20 by assuming a 50% reduction in sales in China and Hong Kong. We are currently forecasting modest 2020 earnings growth of 0.7% for the Asia segment. See our Q4/19 note “Near-term headwinds and some Q4 disappointments but valuation hard to ignore”.

Sun Life Financial Inc. (TSX: SLF) – On the Q4/19 conference call, SLF noted that they did not see COVID-19 having a material impact on Hong Kong and China insurance sales in January. However, looking forward they expect to see some slower sales and modestly higher claims. As such, we increased our strain estimate for Asia in H1/20 by assuming a 50% reduction in sales in China and Hong Kong. We are currently forecasting 2020 earnings growth of 15.5% for the Asia segment. See our Q4/19 note “Small downward EPS revision due to Asia”.

Exhibit 22: We lowered our earnings forecast for Asia by -3.7% and -8.2% in 2020 for MFC and SLF, respectively

Prior Estimates Current Estimates $MM 2020E 2020E %Change Asia - Core/Underlying Earnings MFC 2,098 2,019 -3.7% SLF 692 635 -8.2%

Total Core/Underlying Earnings MFC 6,108 5,939 -2.8% SLF 3,369 3,326 -1.3%

Core/Underlying EPS MFC $3.13 $3.04 -2.8% SLF $5.72 $5.65 -1.3% Note: Prior estimates are pre-Q4/19 reporting vs. current estimates are post-Q4/19 reporting. Source: RBC Capital Markets Estimates

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Global Reference Guide to COVID-19 ("coronavirus")

European Insurance RBC Europe Limited Gordon Aitken (Equity Analyst); +44 20 7002 2633; [email protected] Kamran Hossain (Equity Analyst); +44 20 7029 0847; [email protected] James Pearse (Equity Analyst); +44 20 7653 4894; [email protected] Anthony Yang (Senior Associate); +44 20 7002 2858; [email protected]

Life Negative impacts in the short term are possible due to reduced new business sales as agents are unable to physically meet clients. However we expect the impact will be lower than it was for SARS given the digital boom since, which should support online activities.

Positive in the medium term due to improved sales outlook of life and health insurance and critical illness cover. The COVID-19 outbreak has increased public awareness of the need for cover.

Non-Life There is little to no impact from COVID-19 to non-life focused companies in Europe. Many companies have some exposure to China, but there are few policies that would be impacted with these mainly being focused on event cancellation or contingency covers that would be written out of Lloyd’s. Business interruption covers in general would not be at risk as they require physical damage to become active and therefore would not apply.

Reinsurers The reinsurers in theory have the highest premium exposure to Chinese business but in practice this generally covers large Chinese motor insurance quota shares. With lower economic activity in China due to travel and other restrictions, this could actually be a positive for claims trends.

Exposures to China We set out on the next page the companies which are exposed to China insurance market.

We estimate the China exposures based on shares of FY18 group premiums written from China. Due to limited disclosures, the shares are estimated by multiplying FY18 premiums from JVs/branches in China to corresponding % ownership, and then divide by FY2018 group premiums.

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Exhibit 23: Companies exposed to the Chinese insurance market

Estimated Sector Stock Legal status Name Ownership (%) Business activity Main business lines % share by premiums

1. Personal traditional life Aviva Joint Venture Aviva-COFCO 50% L&H 2. Personal health 1.6% 3. Personal participating insurance 1. Participating insurance Prudential Joint Venture Citic Prudential 50% L&H 2. Traditional life 1.8% UK & 3. Unit linked European 1. Life Life Standard Life Joint Venture Heng An Standard Life 50% L&H 2. Health 4.6% Aberdeen* 3. Accidental injury 1. Health AEGON Joint Venture Aegon THTF 50% L&H 2. Traditional life 1.2% 3. Participating insurance 1. Participating insurance Ageas Insurance Ageas** Joint Venture 25% L&H 2. Health 32.0% International 3. Traditional life 1. Liability Jingdong Allianz 50% P&C 2. Accident injury 3. Enterprise property Allianz*** Joint Venture 0.3% 1. Participating insurance European Allianz China Life 51% L&H 2. Health composites 3. Traditional life 1. Motor Subsidiary**** AXA Tianping 100% P&C 2. Accident injury 3. Cargo AXA 2.3% 1. Traditional life Joint Venture ICBC AXA Life 27.5% L&H 2. Participating insurance 3. Health 1. Credit & Surety P&C 2. Motor & Liability Reinsurance Hannover Re Shanghai 3. Property Hannover Re Branch 100% 6.2% Branch 1. Health L&H 2. Life Reinsurance 3. Accident injury

P&C 1. Motor Reinsurance Munich Re Branch Munich Re Beijing Branch 100% 2.8% L&H 1. Life Reinsurance 2. Health European reinsurers 1. Motor P&C 2. Credit & Surety Reinsurance 3. Enterprise property SCOR Branch SCOR Beijing Branch 100% 5.0% 1. Health L&H 2. Life Reinsurance 3. Accident injury 1. Property & Liability P&C 2. Motor Reinsurance 3. Marine Swiss Re Branch Swiss Re Beijing Branch 100% 4.7% L&H 1. Health Reinsurance 2. Life

Source: company reports, RBC Capital Markets estimates * Heng An Standard Life is 4.6% of Adjusted profit before tax in 1H 2019. ** Ageas is based on FY19 gross inflows *** Allianz received official approval from CBIRC to start operations in China as a fully owned insurance company on 14 Nov 2019 **** on pro-forma basis. AXA Tianping consolidation completed on 13 Dec 2019

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Global Reference Guide to COVID-19 ("coronavirus")

US Insurance RBC Capital Markets, LLC Mark Dwelle (Equity Analyst) (804) 782-4008; [email protected]

Several weeks ago (Insurance Observations for the week of February 2) we wrote on the potential impacts from what is now known as COVID-19 on both the life and P&C insurance industry. So far we’d say there is nothing new to report.

P&C companies that have commented on the virus and potential impact have said they do not anticipate any material amount of claims from the event. We have commented previously that Event/Travel coverage and potentially some supply chain/business interruption coverage (to the extent it includes appropriately worded force majeure clauses) would be the most obvious vectors of loss. Traditional business interruption coverage doesn’t apply because it usually requires a physical loss to become active. Because of the extensive travel ban some force majeure coverages may apply, although even that may depend on the precise wording of the coverage.

Event and travel coverage could come into play to the extent of the various airline and cruise ship cancellations that are occurring (and may yet occur). Most individual claims are likely to be fairly small but the aggregate could amount to something more substantial depending on how long travel embargoes remain in effect. Oftentimes such coverage is limited to costs related to rebooking and we understand that airlines and tour operators are generally being flexible in accommodating travelers under the circumstance. We’d note also that personal accident coverage generally excludes epidemics.

Naturally if the virus were to come to more insurance penetrated markets like the US or Europe, the potential for claims would increase and there could be other coverages ranging from workers compensation to short-term disability that might come into play. For now that likelihood seems very low and we’re not viewing this as a P&C insurance event.

Deaths from the virus, while more severe than the common seasonal flu, have not really added meaningfully to the overall level of flu season mortality and China’s aggressive efforts to contain the spread of the virus via quarantine have so far been effective in preventing a more widespread pandemic. Said differently, while the number of deaths is clearly tragic, it pales in comparisons to the 250,000 to 500,000 deaths which the World Health Organization says characterizes the normal range of global deaths from flu season.

Accordingly for life insurers, unless the virus spreads more widely and the number of deaths increases significantly – to probably something on the order of 100s of thousands, the impact on life insurers is going to be manageable. Again, we’d note that life insurance penetration in China where nearly all of the deaths have occurred is well below what you’d find in more developed markets which also limits the implications for life insurers.

As noted with P&C insurers, should the virus spread to markets where life insurance penetration is higher and should the number of fatalities accelerate substantially the impacts could be different. For now we would expect the impact to be minimal.

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Global Reference Guide to COVID-19 ("coronavirus")

European Diversified Financials RBC Europe Limited Ben Bathurst (Equity Analyst); +44 20 7429 8910; [email protected] Mandeep Jagpal (AVP); +44 20 7002 2817; [email protected]

Wealth Management First order impact of the virus relates to how markets continue to react to developments. We would expect the sell-off seen in equities over the last few sessions to have weighed on FuM, though this will to some extent be dampened by the rally seen in government bonds. UK WMs mostly invest client assets in to UK and overseas equities (c.65-70%) with fixed income typically representing 10-20%, with the balance in alternatives and cash. Should lower FuM persist until next billing dates we would also expect the sell-off to impact fee income generation for the WM names, with all names under coverage equally exposed. In the event of elevated public panic or concern relating to the virus, investor sentiment could also feasibly be impacted, which could hit flows into the businesses. Again, we would expect equal exposure across the names we cover.

Market infrastructure and OTC CFD businesses Bouts of market volatility linked to global news events can lead to higher trading volumes at for the CFD businesses. We have seen a clear spike in volatility indices in recent days linked to news flow surrounding the virus (e.g. CBOE Vix index), though we would caution that it is also possible for markets to be too volatile for CFD customers to be comfortable to trade. Assuming conditions are conducive for trading we would see IG Group (LSE: IGG) and CMC Markets (LSE: CMCX) as potential beneficiaries. Similarly, should volatility prompt higher trading volumes on major exchanges or in the OTC markets, then Deutsche Boerse (XETRA: DB1) or TP ICAP (LSE: TCAP) stand to benefit.

Specialty lending sector We see little first order impact on this sub sector. Should an escalation of the virus prompt a recession in the UK, then we would expect higher impairment rates across all books of business, however we see this as a remove risk at this stage. Consumer Finance RBC Capital Markets, LLC Jon Arfstrom (Equity Analyst) (612) 373-1785; [email protected]

American Express Company (NYSE: AXP) – A significant portion of global billed business is tied to corporate travel and travel and entertainment (T&E), with 25% of US business related to T&E and an undisclosed amount for the international portion. Given the importance of travel and the airline industry in particular to American Express, a significant and prolonged slowdown in global travel from COVID-19 concerns could have an adverse near-term impact on the company’s revenues. In terms of international exposures, the company classifies Japan, Asia, and Australia (JAPA) as one market and this has comprised 8% to 9% of total revenues in recent years, while EMEA comprises closer to 10%, and Latin America, Canada and the Caribbean (classified as one market) was 6% to 7%.

Additionally, the company recently received approval to launch their network in China via a joint venture and is the first global company to be allowed to do so. While a lack of resolution on COVID-19 could drive delays in the timing of an eventual launch, this is viewed as a longer- term opportunity by the company and therefore should have minimal impact on near-term earnings estimates.

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Global Reference Guide to COVID-19 ("coronavirus")

US BDCs and Mortgage REITs RBC Capital Markets, LLC Kenneth Lee (Equity Analyst) (212) 905-5995; [email protected]

Business development companies (BDCs) – While there is no direct impact from COVID-19 on business development companies, we think the BDCs’ portfolio companies, which typically represent a wide cross-section of the economy, could see some potential revenue or cost impact broadly in-line with what some publicly traded companies have already announced. However, we would emphasize that as BDCs typically hold debt investments at the upper end of the capital structure of these portfolio companies, there would have to be very significant degradations in revenues and hence equity valuations of the portfolio companies before we could start seeing potential impairments within the debt.

Mortgage REITs – While there is no direct impact from COVID-19 on the mortgage REITs we cover, the potential for a 1) flattening yield curve (less positive carry), 2) increasing interest rate volatility (as mortgage REITs are effectively shorting prepayment optionality); and 3) lower interest rates, if it drives lower mortgage rates (which could drive up prepayments and thus accelerated premium amortization), due to economic concerns around COVID-19 can be, on the margin, a modest negative. Though, as partial offsets, we would note management teams have been dealing with a flattening yield curve (and our analysis shows economic returns have been resilient) and low interest rates for some time (portfolios and hedging have been adjusted to mitigate prepayment risks).

US Asset Managers – No direct impact from COVID-19, though, indirectly, as we view asset managers as essentially leveraged proxies to the markets, given the companies derive most of their revenues from investment advisory fees as a percentage of AUM, any significant decline in the equity markets from COVID-19 related concerns across the economy could negatively impact fee revenues and earnings. For Ameriprise Financial (NYSE: AMP), we would point out that there could be an indirect impact from COVID-19 to earnings and LTC GAAP reserves if interest rates declined significantly (short-term interest rate declines could impact cash sweep balance interest income; long-term interest rate declines could impact earnings within in-force variable annuity and fixed annuity books and, if sustained, could require modest LTC GAAP reserve strengthening).

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Global Reference Guide to COVID-19 ("coronavirus")

Healthcare US Biotechnology RBC Capital Markets, LLC Gregory Renza (Equity Analyst) (212) 858-7065; [email protected]

Inovio Pharmaceuticals, Inc. (NASDAQ: INO) – With a versatile DNA-based technology platform and history of rapid early stage vaccine advancement, INO remains active in the COVID-19 development race and continues to be the beneficiary of the global outbreak headlines. INO’s receipt of a $9M grant from the Coalition for Epidemic Preparedness Innovations (CEPI) on January 23 keeps the company and its capabilities top of mind throughout such fears, as was the case with past outbreaks such as H1N1 swine flu, MERS and Ebola. Though as this and other infectious diseases programs operate through non-dilutive sources of capital for INO, we remain cautious on the platform to provide sustainable support to shares (given the limits to monetizing a COVID-19 vaccine and INO’s past programs have yet to reach approval) and maintain our focus on the company’s later-stage program in HPV-driven diseases with the expectation that the company executes on their other more value-creating programs over 2020 and 2021. Still, this COVID-19 effort, aligning INO’s DNA platform to a now sizable public health imperative, remains worth watching with INO’s favorable history of moving early and quickly in this area offering a free source of share upside in the wake of such outbreaks but also corrective risk as fears alleviate. See our recent note here for more details.

Exhibit 24: INO Price Chart

Source: FactSet

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Global Reference Guide to COVID-19 ("coronavirus")

US Biotechnology Con’t RBC Capital Markets, LLC Brian Abrahams (Equity Analyst) (212) 858-7066; [email protected]

Gilead Sciences, Inc. (NASDAQ: GILD) – GILD’s pipeline anti-viral, remdesivir, has attracted investor attention due to its potential to treat COVID-19 following a case report published earlier this month in the NEJM. More recently, GILD has launched trials in China for the drug, though with patient recruitment, patent issues, and ultimate market opportunity for a pandemic drug remaining unclear, we do not view this as substantially monetizable – despite the recent stock uptick. On the flip side, GILD has recently been making a push into the Chinese market, with four drugs approved for reimbursement, though we expect COVID-19 will likely delay material revenue from these agents; this likely pushes out a potential driver of some growth, though we do not believe there are significant market expectations for a China contribution. For more details, see our note.

Sarepta Therapeutics, Inc.; Biogen Inc. (NASDAQ: SRPT, NASDAQ: BIIB) – Both SRPT (with partner Roche) and BIIB have laid out plans to expand their DMD and SMA drugs, respectively, to the Chinese market. We anticipate that COVID-19 may be a headwind for launch and expansion into the Chinese market, though do not believe there were significant expectations for near-term revenue impact.

Merus N.V.; Incyte Corporation (NASDAQ: MRUS, NASDAQ: INCY) – MRUS (with Betta Pharmaceuticals) and INCY (with Innovent Biologics, Inc and Zai Labs) both have partnered license agreement with Chinese companies and we anticipate potential incremental negatives on these partnerships due to factory conditions and a pause on FDA inspections in the country – though we note neither of these deals have a significant material impact on either company.

BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX) – Recall that BCRX has two anti-viral molecules, an approved influenza drug and an early stage broad spectrum antiviral, in addition to their lead clinical programs in HAE and factor D inhibition. Despite no company commentary on COVID-19, BCRX shares have a history of spiking during pandemic fears, likely due to their anti-viral programs, though we do not see a clear path forward for a commercial opportunity in COVID-19.

Exhibit 25: BCRX Price Chart

MERS

SARS Swine Flu Ebola

Source: FactSet

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Global Reference Guide to COVID-19 ("coronavirus")

US Biotechnology Con’t RBC Capital Markets, LLC Kennen MacKay (Equity Analyst) (212) 905-5980; [email protected]

Regeneron (NASDAQ: REGN) – REGN initiated plans to work with HHS to develop potential antibody-based treatment to 2019-nCoV utilizing the company’s well validated antibody development technology. We note REGN antibody-development technology has proven to be well suited for rapid development of therapies to counter spreading outbreak situations with prior clinical success developing a highly effective anti-Ebola treatment (REGN-EB3) via the same technology platform. While REGN’s development timelines are as-of-yet unclear, we note that REGN developed the 3-antibody cocktail comprising the REGN-EB3 treatment in only 6 months in response to the 2014 Ebola outbreak and progressed to the clinical stage within a year. While we anticipate REGN’s leading scientific knowledge, resources, and platform will enable the company to effectively design a 2019-nCoV treatment, this remains upside to our modelling assumptions and we do not assign any material value to this putative therapy.

US Pharmaceuticals RBC Capital Markets, LLC Randall Stanicky (Equity Analyst) (212) 618-3266; [email protected]

While our companies have not been front and center on announcing plans to develop therapies or quantify impact, we provide our thoughts on potential COVID-19 impact to our Large-Cap and Specialty Pharmaceuticals coverage. Ultimately the future outcome is unclear, but we provide our takeaways: (i) We see potential risk to PFE/MYL via Upjohn exposure and we anticipate additional color during MYL’s 4Q earnings call on 2/27; (ii) While MRK's growth in China has been strong, management sees no change to mid- to-long term view on opportunities in China; (iii) ABBV has donated a supply of Aluvia, an HIV therapy, to the Chinese health authorities as an experimental option – we do not consider this to be a meaningful contributor to future sales.

AbbVie Inc. (NYSE: ABBV) – ABBV has donated Aluvia (lopinavir/ritonavir), a protease inhibitor originally developed for HIV, to the Chinese health authorities as an experimental option. Beyond this, strategy around development and monetization are not provided and we do not consider this to be a meaningful contributor to the company’s future sales. From a supply chain and manufacturing stance, management has mentioned minimal business exposure to China with enough supply chain redundancy globally, which should reduce dependence on facilities in China.

Allergan plc (NYSE: AGN) – No verbal comments have been provided on COVID-19 impact. Notably, risks from COVID-19 were provided in the company's 2019 10-K filing, which are manufacturing and supply chain related. Noted in the 10-K, certain raw materials manufactured in China are involved with the product and commercialization of products including Ubrelvy and Coolsculpting. Lastly, revenues from China contributed ~2% to total sales in 2019.

Pfizer Inc. (NYSE: PFE) – In 2019, growth in China was driven by Viagra, Celebrex, and Lipitor, which are Upjohn products. Upjohn is in the process of a Reverse Morris Trust transaction with MYL (deal expected to close in mid-2020). Beyond Upjohn, we do not anticipate significant impact to PFE's core products and operations.

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Global Reference Guide to COVID-19 ("coronavirus")

Mylan N.V. (NASDAQ: MYL) and Upjohn – The combined company (Viatris) 2020 pro forma sales are estimated to receive 40% of revenues from China. Additionally, Viatris will house one of its three global centers in Shanghai. Considering the size of exposure, we expect this to be a potential focus during MYL’s fourth quarter 2019 earnings call on 2/27.

Merck & Co., Inc (NYSE: MRK) – Despite growth in China from KEYTRUDA, GARDASIL, LYNPARZA, and LENVIMA, management noted no change to their mid-to-long term view on the opportunities in China. Revenues from China contributed ~8% of sales in 2019.

US Healthcare Services RBC Capital Markets, LLC Frank Morgan (Equity Analyst) (615) 672-1331; [email protected]

Our provider and payor coverage universe has minimal direct exposure to China, the initial source of the COVID-19 outbreak. Specifically, Fresenius Medical (NYSE: FMS), is the only company with direct operational exposure to China, where they have a manufacturing facility. The balance of our provider coverage universe is in US operation only. None of our companies have reported cases in the US. As such, none of our companies have issued earnings warnings or quantified the impact. That said, the CDC is indicating the American public should be preparing for some disruption associated with the virus.

For US hospitals, the companies are making preparation; they have dealt with EBOLA, SARS and MERS in the past. They have heightened awareness for symptomatic presentation at their emergency departments, with attention on where patients have travelled, and prepared for isolation of patients if needed. They are also assessing each hospital’s supply inventories as well as the inventories in their supply chain with Group Purchasing Organizations (GPOs) in preparation for potential higher utilization. They are also educating their clinicians (MD, nurses, etc.) on the potential threat.

At this point, it is impossible to project the impact, since we don’t know how much it could spread. Anything short of a pandemic is likely manageable. It would likely drive higher ER volumes as well as some conversion to inpatient admissions to hospitals. The young (more likely to be commercial or perhaps CHIPS insured) and the elderly (mostly Medicare and Medicaid) are the most vulnerable to the virus. Should the virus spread, it could impact census at skilled nursing facilities or assisted living facilities as this would require a hospital admission for treatment. Dialysis providers would be less sensitive to volume/ census decline since ESRD patients face death absent dialysis.

On the managed care side, the overwhelming majority of their business is US-based: Cigna (NYSE: CI) has 4% international revenue (with largest exposure to S. Korea); UnitedHealth (NYSE: UNH) has 4% global exposure (mostly in S. America) while CVS’s AET international exposure is only 2% of revenue. Neither Humana (NYSE: HUM) nor Anthem (NYSE: ANTM) have international underwriting exposure. International exposure aside, should the virus spread into the US, it would likely lead to increased utilization by MCO members, which would increase medical benefits expense. We estimate that a blended average expense would be $12,000 per encounter, which is the average hospital reimbursement. If Medical benefit costs increased, we would expect to see commensurate increases in premiums upon policy renewal next year.

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US Life Science Tools & Diagnostics RBC Capital Markets, LLC Anton Hie (Equity Analyst) (615) 372-1321; [email protected]

Avantor, Inc. (NYSE: AVTR) – In recent quarters, AVTR has been investing additional capital in its AMEA region (Asia, Middle-East and Africa), including China, in order to address the strong demand it is experiencing from customers in the region, particularly in expanded bioproduction capabilities. The region delivered strong organic topline growth of 15% in FY19 and management is forecasting high single-digit growth in FY20.

That being said, the company remains under-indexed relative to other regions, with AMEA representing less than 7% of revenue – and we estimate less than 3% coming from China at this time.

Management has recently noted that its VWR subsidiary has seen some uptick in global demand for cleanroom supplies and personal protective equipment, but otherwise has not experienced any significant impact to its business in China or elsewhere from COVID-19.

With its global production capabilities and customers, AVTR could experience some disruption if the virus becomes more widespread throughout the world, for instance into Europe, which represents ~35% of total revenue, or the Americas, ~59%. In anticipation of any potential acceleration in the virus’ spread to other regions, AVTR has established a formal structure to manage key workstreams and ensure it is able to address any supply chain concerns, as well as the health and safety of its associates.

Canadian Healthcare RBC Dominion Securities Inc. Douglas Miehm (Equity Analyst) (416) 842-7823; [email protected]

Bausch Health Companies (NYSE: BHC; TSX: BHC) – Bausch Health Companies projects a ~$50MM top line hit in its 2020 guidance with most of this impact flowing through Q1/20 financial results. This equates to <1% of revenue at the midpoint of 2020 revenue guidance ($8.65B-$8.85B). Management has also indicated that this is a preliminary estimate given the dynamic nature of the situation. The company has exposure to China through its Bausch and Lomb and International Rx business. Here, as per management commentary, some physicians have cautioned against the use of contact lenses as a means to prevent the transmission/spread of the virus. Elsewhere, the company also suggested that a drop-off in procedures in its surgical and aesthetics businesses could lead to pent-up demand in subsequent quarters. Turning to the supply chain, BHC only sources API for non-core products from China. Finally, two plants (vision care and ophthalmology) that were closed restarted production last week (extent of delay unclear).

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Global Reference Guide to COVID-19 ("coronavirus")

EU Midcap Healthcare RBC Europe Limited Zoe Karamanoli (Equity Analyst) +44 20 7429 8978; [email protected] Charles Weston (Equity Analyst) +44 20 7429 8425; [email protected]

Abcam (LSE: ABC) – Generating c.16% of revenues from China, Abcam’s IR has confirmed that it has seen disruption to its orders in the country due to COVID-19, although this may partially be offset by increased research activity in the country into the virus, necessitating Abcam’s research antibodies. A one-quarter fall in demand for two months, say, would knock around 0.5ppts from Abcam’s revenue growth, which is within the range of period-to-period volatility. We would expect most investors to look through this impact, although we note that the stock is trading near multi-year high earnings multiples (both absolute and relative). Abcam’s key China manufacturing facility, making much of its RabMAbs, is almost 500 miles away from Wuhan and over 300 miles from the outskirts of Hubei province – coupled with the long shelf- life of antibodies, we do not expect stock-related issues.

Convatec (LSE: CTEC) – Convatec has cited China as a driver of growth, particularly in Ostomy, where it has been taking market share, and Advanced Wound Care divisions. However, it generates 7.7% of revenue from its APAC region, so a small disruption in demand in China should not have a meaningful impact on sales.

Dechra (LSE: DPH) – Dechra has no direct or indirect revenue from China, however it is sourcing from China the Active Pharmaceutical Ingredient (API) for two of its Food animal products. Dechra, unlike most other animal pharma companies, has only 13% of its Group revenue coming from FAP products; China is the sole manufacturer of these APIs (doxycycline and amoxicillin). Dechra has confirmed that it has enough stock until the end of June 2020 but if the outbreak continues this will cause a shortage not just for Dechra but any other animal pharma company that is using these ingredients.

It is worth nothing that a number of pharma companies globally have announced that they will start developing a vaccine, but it is likely to take some time to come to market. There are a few companies globally that have seen significant share price appreciation due to diagnostic tests for COVID-19 that are under development.

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Global Reference Guide to COVID-19 ("coronavirus")

Industrials US Autos & Auto Parts RBC Capital Markets, LLC Joseph Spak, CFA (Equity Analyst) (212) 428-2364; [email protected]

Given China’s importance to the global automotive industry, both in terms of vehicle production (China accounted for ~28% of 2019 global light vehicle production) as well as its contribution to the global supply chain, COVID-19 is having a significant impact across our coverage. While some production has restarted, the pace of the ramp-up is slow. This is largely due to widespread labor shortages as a result of the double quarantine (14-day quarantine before being allowed to leave designated city followed by another 14-day quarantine upon returning to their area of work) many migrant workers are facing as they return to their province of work following the extended Chinese New Year holiday. Further, even those plants that have re-opened are likely to operate at lower than normal productivity levels initially as a result of extra precautions.

The situation clearly remains fluid, but the longer it lasts the more likely the repercussions to production in other regions are as buffer inventory stock is depleted. The initial effects of this have already become evident with Hyundai announcing downtime in South Korea (has since resumed) and FCA halting production in Serbia because of part shortages (expected to restart on 2/27), to name two examples. Additionally, Toyota recently warned that its Japanese operations could be impacted beginning in early March as the COVID-19 situation progresses. While visibility is limited, at this point we’d peg the total lost 1Q20 units at around ~1.5mm, which would bring total China LVP down ~-7% y/y in 2020. If the delays persist through March, the total hit to 1Q20 production could be ~2.2mm+ units, which would bring total 2020 China LVP down more than ~-8% y/y.

As production continues to ramp up, we expect the COVID-19 situation to pivot from a supply issue to a demand issue. COVID-19 could result in lower consumer confidence. For now, we don’t expect much material recovery of lost 1Q20 production/demand over the course of the year. That being said, we would raise the probability of government incentives/stimulus once the virus is contained.

Adient plc (NYSE: ADNT; 34% of FY19 sales from China including share of unconsolidated China sales) – Relative to the FY20 guidance ADNT gave on 1/31, the company now expects adj. EBITDA to track towards the low end of the prior outlook range ($870–$910mm); within that figure, equity income range lowered by ~$60mm to $175–$185mm from $235–$245mm prior. From a cadence perspective, ~2/3 of the equity income guidance cut in F2Q as the company now expects $0 in F2Q20 vs. prior commentary of ~$35–40mm. For FY20, China COVID-19 headwind expected to be ~$70mm (~$60mm from equity income, ~$10mm from consolidated China operations). Additionally, ADNT expects China production volumes to be down ~70% in February and ~40% in March. The company highlighted that despite some customer plants restarting operations, certain plants are not expected to restart until March or later, many cities remain on lockdown, travel restrictions are preventing employees from returning to work, and truck driver shortages have caused “significant logistical issues.” While management does foresee gradual improvement in production volumes, ADNT does not expect to reach full production rate until after June.

American Axle & Manufacturing Holdings (NYSE: AXL; 5% of 2019 sales from China) – AXL guided 2020 China production down -3% to -5% y/y and expects a -$25mm revenue impact

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from COVID-19 in 1Q20. This assumed the majority of its plants came back online on 2/10 with the final facility expected to have been up and running on 2/15.

Amphenol Corporation (NYSE: APH; ~28% of 2019 sales from China; ~19% of 2019 sales from auto, of which we estimate Asia Pacific represents ~30%) – APH announced that it doesn’t expect to meet its 1Q20 sales and adj. EPS guidance ranges (issued on 1/22) given a slower than-anticipated return to normal business conditions as a result of limited availability of workforce, supplier constraints, and lower demand from customers in China. As of 2/24, all of APH’s China operations had re-opened and >60% of its employees in the region had returned to work.

Aptiv PLC (NYSE: APTV; 18% of 2019 sales from China) – APTV initially guided 1Q20 China production down -15% y/y, which assumed production shutdowns through 2/9 and an estimated $50mm/$20mm revenue/operating impact from COVID-19 in 1Q20. Given production delays are likely to extend through February with a slower than anticipated ramp, APTV now expects an incremental ~$150–$200mm/~$60–$80mm revenue/operating income impact in 1Q20.

BorgWarner Inc. (NYSE: BWA; 18% of 2019 sales from China) – BWA guided 2020 China production down -1% to -5% y/y, which incorporated known shutdowns as of 2/13. $35mm is their totality of China weekly revenue, but there’s sensitivity if disruption spreads beyond the region.

General Motors Company (NYSE: GM; 18% of 2019 total EBIT from China) – GM noted on 2/5 that the COVID-19 outbreak is likely to put further pressure on China’s economy. Prior to the outbreak, the company expected the industry to be slightly down y/y in 2020, but GM now expects additional near-term volume impacts. In turn, GM expects 1Q20 China equity income to be “meaningfully lower.”

Lear Corp (NYSE: LEA; 18% of 2019 sales from China including share of unconsolidated China sales) – LEA had previously guided 2020 China industry production down -2% y/y. However, management noted that ~4–5 weeks of lost production in 1Q20 is already confirmed at this point, which was not contemplated in initial CY20 guidance. On a weekly basis, the company had expected to generate ~$45mm in China revenues per week. So, in 1Q20, now expecting sales to be ~$200mm lower than initial internal expectations. The company also noted a higher variable margin than usual given some cost absorption, so likely a ~$50mm operating income headwind (25% decrementals). Though, the company still is comfortable with the midpoint of its CY20 guidance range given offsets in other regions.

Sensata Technologies Holding plc (NYSE: ST; 59% of 2019 sales from auto; estimated ~18% China exposure within auto) – ST guided 2020 China production down -6% y/y. The company included a -$40mm/-$20mm revenue/operating income impact from COVID-19 in 1Q20 with minimal expected recovery over the course of the year. This assumed ~3 weeks of lost production (~450k–500k/week) with its factories coming back online by 2/17 (management noted on 2/19 that all of its plants are up and running).

Tesla, Inc. (NASDAQ: TSLA) – The company had expected a 1–1.5-week delay in the ramp of Shanghai-built Model 3s due to a government required factory shutdown and noted the delay may “slightly impact profitability for the quarter.” Tesla appears to have been able to resume production on 2/10 with the help of government assistance. Tesla has indicated that current Shanghai capacity is 150k units; we had been modeling ~111k units in Shanghai this year, but back-half weighted, so perhaps not a significant change needed to our model. This could however be further impacted if Tesla’s suppliers remain impacted. Deliveries, on the other

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hand, do appear to be more impacted and an executive for the company cited on Weibo, "the proposed delivery in early February will be delayed."

Tenneco Inc. (NYSE: TEN; 13% of 2018 sales from China) – Management guided enterprise revenues to $16.7–$17.1bn (-4% to -2% y/y), of which ~$3.0bn substrate, so VA revenues $13.7–$14.1bn (-5% to -3% y/y). Underlying guidance, management expects global LV production -4% y/y, with China -6% y/y. Notably, management is assuming in guidance that the company will lose 4 weeks of production in China in 1Q20 driven by the COVID-19 impact, which is expected to reduce VA revenue by -$150mm and EBITDA by -$50mm (low-end 2020 guidance assumes no recovery of volumes, high-end assumes full recovery).

Visteon Corporation (NASDAQ: VC; 25% of 2019 sales from China including exports) – The company’s 2020 guidance and global LVP assumption (-3% y/y) excludes any impact from COVID-19. However, VC noted 1Q20 revenue impact is likely to be ~$60mm at ~35% decrementals which appears to contemplate ~4 weeks of shutdowns and key customers reaching full capacity by end of March. It seems impact could bleed into 2Q20 as full supplier capacity isn’t expected until April (VC’s suppliers currently operating at ~50% capacity).

Exhibit 26: China sales exposure

40%

35% 34%

30%

25% 22%

20% 18% 18% 18% 18% 18% 18%

14% 15% 13% 11% 10% 7% 7% 6% 5% 5% 4%

0% ADNT** VC ALV DLPH LEA** VNE BWA APTV GTX TEN ST* DAN TEL* APH* AXL MTOR

*Estimated China automotive exposure as % of total sales; **Includes share of unconsolidated China sales Source: Company reports, RBC Capital Markets estimates

Please see below for our previous notes on COVID-19:

ADNT - Updated guidance to reflect current COVID-19 expectations APH - COVID-19 weighs on 1Q20 guidance APTV - Reduces 1Q20 guidance on COVID19; read-through for rest of our coverage Road & Spak: Japan Inc. & BEVs; coronavirus update Autos: Coronavirus risk rising

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European Autos RBC Europe Limited Tom Narayan (Equity Analyst) +44 20 7429 8594; [email protected]

Suppliers – Given significant exposure to China, a scenario where Q1/20 China production falls - 35%, would lead to downgrades of -5–6% to our Q1/20 and H1/20 EPS estimates for Continental AG (XETRA: CON), Valeo SA (NXT PA: FR) and Faurecia (NXT PA: EO) (each with ~15% China revenue exposure). Assuming a recovery in H2/20, FY downgrades would be limited to -2–3%. Importantly, most of our suppliers’ China production is for domestic consumption. At its annual results call on Feb 17, Faurecia management said that it only exports 7% of its China sales. Moreover, all of its plants that are exporting, have restarted. We believe the China export exposure for the European suppliers is likely in a similar 5–10% level for our suppliers under coverage.

OEMs – For the OEMs, on a unit sales basis (the carmakers account for their China vehicle sales in equity income given the requirement that they sell through JVs), Volkswagen AG (XETRA: VOW) has the greatest exposure with 40%, followed by Bayerische Motoren Werke Aktiengesellschaft (XETRA: BMW) and Daimler AG (XETRA: DAI). The Renault-Nissan (NXT PA: RNO) alliance has 16% exposure. Peugeot SA (NXT PA: UG) with only 3% exposure is the least exposed to China in our entire European Autos coverage (includes suppliers). We would expect equity income to be negatively impacted in Q1/20 notably for the three German automakers. Historical precedent of recent external events like COVID-19, however, lead us to believe that the automakers should be able to make up lost sales within a matter of months. Moreover, the Chinese authorities are considering incentives that could spur demand. If we run a scenario where Q1/10 China vehicle sales are down 35% for VW and those sales do not return in 2020, we could see ~20% downside to Q1/20 EPS, and down mid-single digits for 2020 EPS. For BMW, we could see similar downsides to numbers given the lack of trucks exposure. For Daimler, we would expect ~10% downside to Q1/20 EPS and down low single digits due to the sizeable trucks business (mostly North America and Europe). Finally for Renault, through Nissan, we could expect to see high-single digit percent downside to Q1/20 EPS and down low-single digits to 2020 EPS. For PSA, the impacts would be in the very low-single digits.

Exhibit 27: China sales exposure

45% 40% 40% 35% 30% 30% 27% 25%

20% 16% 15% 14% 15% 13% 10% 5% 3% 0%

*Measured as % of total unit sales; **Measured as % of total revenues Source: Company reports, RBC Capital Markets estimates, LMC Automotive

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Canadian Automotive & Diversified Industrials RBC Dominion Securities Inc. Steve Arthur, CFA (Equity Analyst) (416) 842-7844; [email protected]

Magna International (NYSE: MGA; TSX: MG) – Magna (and the auto group) faces two layers of uncertainty. First, auto sales and production in China, and second, the potential impact on the global auto supply chain if production and shipment of components in China are curtailed for an extended period. Magna’s sales in China are ~$400–500MM quarterly from operations at 55 plants. With Q4 results, Magna stated that it is “too early to tell” on potential impact, and maintained their 2020E outlook. To capture some impact, our forecast has been reduced by ~$200MM in China in H1/20E (see our note).

Linamar (TSX: LNR) – Linamar has a relatively small footprint in China, with five facilities in China generating ~5% of total sales. We expect the direct impact on revenue in China to have a modest impact on Linamar, though clearly that could grow over time if the global supply chain sees greater impact. We expect more commentary from Linamar on their Chinese operations with Q4/19 results on March 11.

Martinrea (TSX: MRE) – Martinrea has the lowest direct exposure to China, with under 2% of sales coming from its two plants in the country. Of course, Martinrea would face greater impact from any global production reductions resulting from supply chain shortages, along with negative sentiment weighing on the group.

CAE Inc. (NYSE: CAE; TSX: CAE) – CAE’s global footprint for its pilot training network is a key strategic advantage, and that includes operations in China and throughout Asia. China accounted for 7% of revenue last FY, with training locations in 4 Chinese cities (Beijing, Guangzhou, Hong Kong and Shanghai). We expect resiliency in this business – airlines that have been facing pilot shortages for many years are unlikely to reduce pilots or training activity for a ‘short-term’ issue, though there will undoubtedly be near-term turbulence with training in the region.

BRP Inc. (NASDAQ: DOOO; TSX: DOO) – BRP has a very small dealer footprint (and therefore revenue base) in China – we believe under 1%, with no production facilities in the region. Any impact will be indirect – global macro slowdown and concerns can clearly impact sales of discretionary items.

Neo Performance Materials (TSX: NEO) – Neo has very substantial direct exposure to China, with 4 of its largest plants located in eastern China—all in areas where COVID-19 activity has been reported. While these facilities are reportedly back online (to some extent), they are still dealing with extensive freight issues and worsening conditions in key end markets. There are clearly many unknowns, but we have attempted to capture some impact with forecast reduction of ~20% for H1/2020E, reflected in our recent note.

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European Industrials RBC Europe Limited Mark Fielding (Equity Analyst) 020-7002-2128; [email protected] Sebastian Kuenne (Equity Analyst) 020-7429-8932; [email protected] Wasi Rizvi (Equity Analyst) 020-7653-4591; [email protected]

Please see our recent note assessing the impact of COVID-19 on the global industrials sector.

China is reopening after its extended shutdown, but not at full capacity and with COVID-19 cases continuing to grow, the outlook remains uncertain. Company comments in the European Industrials sector are generally limited to “monitoring” / “too early.” SARS had limited impact in our sector, but China was a much smaller industrial end market at that time. On average our coverage has 11% of sales in China. The current extended shutdown is unlikely to impact FY EBIT by more than 1–2% on average. However, knock-on impacts on specific end markets and wider supply chains must be monitored. We identify companies across our global industrial coverage where we see more potential impact and provide a comment for each company.

ABB (SWX: ABBN; 15% sales exposure to China) – Activity resumed on February 10, in-line with the plan communicated with Q4 results. ABB expects a slower ramp-up than usual owing to delayed returns of employees from travel restrictions and quarantine. The direct exposure to China is ~15% of revenue. The indirect impact is more difficult to predict. The CFO recently flagged that he considers ABB to be in a good position as ABB is generally “in-region, for- region” across China, US and Europe. But – as we expect is the case for most of the sector – there will be pockets of the supply chain that rely on China.

Alfa Laval (STO: ALFA; 13%) – The company view is that it is “under the same conditions as everybody else” with two weeks of production shut-downs and it believes that delays “can be regained.” They noted that they are “dependent on Chinese suppliers and logistic supply chain” and are monitoring the situation. We think that Alfa Laval will have only minor issues with its supply chain. However, we expect the company to generate c.SEK1.2bn scrubber sales in Q1, many of those in Chinese shipyards. There is a risk of significant delays that push Q1 sales into Q2 or even Q3.

Atlas Copco (STO: ATCOA; 18%) – Management is “following the development of the coronavirus” (CEO Rahmstroem at the Q4 call). Production restarted Monday after two weeks of closure. IR Daniel Althoff told us that management runs daily meetings to assess the situation. As the end market and supply chain can be affected by the outbreak, the company “checks for alternative ways for its supply chain.” ATCOA does not source main components from China and thus expects no major disruption of its global production.

Bodycote (LSE: BOY; 3%) – Given that Bodycote is more of a services business, and has a limited exposure to China in sales terms, the direct impact should be very limited. However, with Automotive representing c25% of group sales, there may be knock on impacts from any related weakness in the auto sector or impacts in the European auto supply chain.

Bucher Industries (SWX: BUCN; 5%) – Three of Bucher’s 5 divisions are affected by the extended New Year break in China: Emhart Glass, Hydraulics and Municipal. Bucher’s Chinese production exposure is c15% for Emhart Glass and 10% for Hydraulics. Municipal has a production plant in Wuhan and an after-sales location in Shanghai. 100 staff are affected. The main plant remains closed until the end of February at least. Emhart Glass has a facility in Zibo with c800 staff. Hydraulics has facilities in Suzhou and Wuxi with c.400 staff. The plants produce mainly for the local market and do not supply Europe. Supply chain: There is not much

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reliance on Chinese supplies in the overall Bucher group. The one exception is Emhart Glass, where Wuhan makes components for other plants, but none seem to be core components.

Coats (LSE: COA; 10%) – Out of Coats’ c.45 facilities, they have 4 in China and a c.10% sales exposure to the country. They believe that their global footprint, and the fluid A&F supply chain, much like with trade wars, is seeing the periphery China markets picking up volumes as they move from China. The risk in our view is that wider Asian manufacturing is the core of the textiles sector supply globally (with countries such as Cambodia, Bangladesh, Vietnam, Pakistan being important textile producers). As such, any expansion in the virus from here could be a significant negative if it spreads across Asia as it would impact global demand for Coats.

GEA Group (XETRA: G1A; 9%) – According to the company, COVID-19 is not a theme yet and the company does not have production exposure in Wuhan. Its main plants are located in Tianjin, Shanghai and Shijazhuang. It is “not clear what will happen in coming weeks,” but there is a risk that the service activities will see some slowdown as it is heavily travel-reliant. GEA has generally a very broad supply chain and does not source core components from China. Chinese suppliers mainly provide equipment for products to be sold in the Chinese market. What also helps is the fact that GEA’s products have a comparatively low electronics content.

Hexagon (STO: HEXAB; 12%) – In terms of direct impact, Q1 in China is back-end loaded for Hexagon, with March the most important month. Management flagged on the Q4 analyst call that the supply chain is largely regionalised, so they do not expect a major indirect impact. However, for certain components Hexagon is searching for alternate suppliers.

IMI (LSE: IMI; 7%) – Most of what IMI sells in China is made in China. They do have some supply chain exposure in China, but it is relatively small. They are monitoring the situation and may provide further details at their full-year results on 28 February.

KONE (HEL: KNEBV; 25%) – The company’s guidance assumes that work resumes Feb 10, with the one-week delay quantified as having a “couple of tens of million” impact on EBIT. KONE is an exporter out of China, with more than half of its elevators delivered from its Kunshan (near Shanghai) factory, with the majority within China. An extended shutdown could therefore result in some new installation delays in China and beyond.

Legrand (NXT PA: LR; 6%) – Legrand uses electronic components in its manufacturing, some of which are likely to be sole-sourced from China by either Legrand or its suppliers. We note that during 2018 Legrand saw an impact from component shortages when manufacturers tried to diversify their supply chains away from China on the threat of tariffs. On its Q4 2019 analyst call, Legrand management stated that it was very difficult to assess the precise impact and that an extended disruption could lead to some shortages in a couple of products. To mitigate this, they are building safety stock, booking some capacity in ships and looking at alternative sourcing.

Melrose (LSE: MRO; 9%) – Melrose are watching the situation and intend to update at their FY results. Their exposure to China includes their auto JV in Driveline. Given they have close to 50% of group sales into the automotive sector there is likely to be a headwind from lower Chinese auto markets. They also export from China in both Ergotron and Nortek Security (we estimate c5% of group sales) and as such may be disrupted from a supply chain basis. The Aerospace business should not have any significant direct impacts, although longer term China is a major customer for the Aerospace sector and reduced flight activity could be an issue if it was prolonged.

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Morgan Advanced (LSE: MGAM; 10%) – Morgan indicated with its FY results that the impact on sales will be relatively small at £7m (<1%) based on current events, but the profit impact will be larger at £3.5m (c3% of EBITA). Most of what Morgan sells in China is made in China and generally as a group they produce the majority of products locally. Therefore the primary impact in the scenario of a prolonged shutdown in China would be the loss of the local revenues in the Chinese market. Morgan have a reasonably fragmented supply chain, without reliance on any individual key suppliers. However, if the shutdown extended beyond a further 4–6 weeks, there may be some impact outside China from some primary materials that are predominately mined/sourced in China (this would also be true for Morgan’s competitors), but Morgan expect this to have a smaller impact than the direct impact of lost sales in the China market.

Oerlikon (SWX: OERL; 20%) – Among the higher direct China sales exposures owing to Manmade Fibers which is 30–35% China, while Surface Solutions is 10–15%. Management receive daily updates from the China Country President. Overall, production slowly started to ramp up again on Monday 10 February. Regarding supply security, Oerlikon is largely its “own supplier,” both in SS (powders, machinery) and MMF. For MMF, nearly all machinery and spare parts are sourced from Oerlikon’s European plants. The company has a coating centre in Wuhan (currently still closed).

Rational (XETRA: RAA; 5%) – Rational exports ovens to China from Germany and France. It has no production or service team in China. Rational does not source directly from Chinese suppliers, but acknowledges the exposure in the 2nd line and has been in contact with its (mainly German-based) suppliers to discuss indirect exposure. Management says “supply risks might develop in coming weeks” and “the company’s head of purchasing focuses 100% on China” at this stage. So far the company has not noticed a change in investment activity from tourist-related clients (hotel, restaurants, cruise ships) and “if it does, it might create pent-up demand.”

RHI Magnesita (LSE: RHIM; 5%) – Despite a small % of sales in China on a relative basis, RHIM could be one of the most impacted and there are a lot of moving parts. China is the leading global steel production market. If Chinese steel production were to decline it would have a negative direct sales impact. However, it could see production rise in Europe and the US (which are larger markets for RHIM) as Chinese exports decline, and potentially China even imports steel. There is also an impact on the supply chain. The largest source of Magnesite (the primary raw material in ceramic refectories for steel production) is China – a prolonged shutdown or just reduction in output could see raw material prices rise. This would be helpful to RHIM who are vertically integrated and have their own Magnesite production outside of China.

Rotork (LSE: ROR; 18%) – A high % of sales in China makes Rotork one of the more exposed names, although Q1 is always seasonally quiet for the business as a whole lessening any immediate impact. Generally Rotork is an assembler more than manufacturer so there is risk on the supply chain in China and globally. Rotork’s peer and competitor Emerson has offered some detail on its China supply chain and Rotork may be similar. The more coastal nature of the industry in China could reduce near-term impact according to Emerson. Outside of China, while Rotork sources globally we do not expect major disruption in the majority of its supply chain, which we believe remains more local. However, in common with other process automation businesses, there is exposure to the electronics sector for its controls and this will remain an area to watch.

Sandvik (STO: SAND; 7%) – No major production disruptions or delays in orders and deliveries have been reported to management so far. Sandvik has some local production (SMS is producing in Shanghai, Langfang and Wuxi). Sandvik does not source key components from

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China. The company did not adjust its inventory management in the wake of COVID-19. Interestingly, management just returned from a North America roadshow and indicated only muted investor interest in COVID-19 outbreak.

Schindler (SWX: SCHP; 16%) – Meaningful direct impact. Like KONE, Schindler uses its large Chinese manufacturing facility (in Shanghai) to supply other regions. An extended shutdown could therefore result in some new installation delays.

Schneider Electric (NXT PA: SU; 13%) – Schneider was one of the companies which called out component inflation and shortages during 2018 when China tariffs were becoming an issue. We expect that a prolonged shutdown in China could again cause some inflationary pressure or product shortages for Schneider.

Siemens (XETRA: SIE; 10%) – In terms of direct impact the divisions most affected would be Digital Industries and Healthineers. It has built a crisis team that is looking at purchasing and finding potential alternate suppliers for components. We see indirect impacts as most likely at Healthineers, Smart Infrastructure (electronic components) and Siemens Gamesa. We note in particular that China is the main source of global supply of rare earth metals. These are crucial in the production of Healthineers’ imaging scanners. The company has not yet seen any impact on supply. But we expect that a prolonged shutdown in China could impact production. Similarly, rare earth metals are used in the magnets used in wind turbines, hence SGRE could see some inflation/production disruption.

SKF (STO: SKFB; 16%) – The end market exposure in China is similar to that of the group with c.1/3 automotive and 2/3 industrial. SKF does produce in China mainly for local customers but also exports to the US (includes bearings for Agriculture equipment, and wheel bearings for trucks and trailers). The plants started ramping-up on Monday after 2 weeks closure with “minor issues.” The majority of admin staff still works from home for the time being. None of its employees are directly affected by the virus currently.

Smiths (LSE: SMIN; 5%) – Smiths have a relatively small sales exposure to China (it is a targeted area for expansion) and we see them as one of the less disrupted companies at this point.

Spirax Sarco (LSE: SPX; 10%) – 85% of what Spirax sell in China, they make there. They have a purchasing team in China that purchases c.£5m of materials for other Steam companies and Watson Marlow source approximately 10% of their components from China.

TT Electronics (LSE: TTG; 25%) – TT has 2 manufacturing facilities in China (Suzhou and Dongguan) supporting its significant revenue exposure. China represents just under 20% of the global employees of the group with c. 900 employees in China (and c. 1,400 in Asia). The factories in China were closed as usual for Chinese New Year. The company is still assessing the implications to their supply chain and planned customer delivery and putting in place measures to mitigate impact as required, but it is too early to estimate any short-term impact that may be experienced.

VAT Group (SWX: VACN; 5%) – Small direct sales exposure to China but VAT’s main clients TEL, AMAT and Lam Research have a higher China exposure. VAT does not have any component production in China and only has a small number of Chinese suppliers. Those supply only VAT’s Malaysian plant and not to the main facility in Haag, Switzerland. In preparation for the Chinese New Year supply interruption, VAT has built component inventories in Malaysia. We think this should allow a production buffer for several weeks (Malaysia still only runs at c.25% of its capacity due to general market weakness). Overall, management remains confident on this year’s outlook. Semi equipment OEMs still indicate positive investment momentum in

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Q1/Q2 and even if Q1 is “a bit weaker in the sale-through”, such push-outs might lead to better sales later in the year, according to the company.

Vesuvius (LSE: VSVN; 8%) – Despite a smaller than average % of sales in China on a relative basis, Vesuvius (in common with RHIM) could be one of the most impacted and there are a lot of moving parts. China is the leading global steel production market. If Chinese steel production were to decline it would have a negative direct sales impact. However, it could see production rise in Europe and the US (which are larger markets for Vesuvius) as Chinese exports decline, and potentially China even imports steel. There is also an impact on the supply chain. The largest source of Magnesite (the primary raw material in ceramic refectories for steel production) is China – a prolonged shutdown or just reduction in output could see raw material prices rise. This could restrict production over time at Vesuvius (relative to Vertically integrated peer RHIM), although if it was just a price rise impact, then we would expect it to be passed on to customers. A final issue for Vesuvius is their exposure in foundry to automotive production and any impacts on that supply chain. Be helpful to RHIM who are vertically integrated and have their own Magnesite production outside of China.

Wartsila (HEL: WRT1V; 10%) – Wartsila has a China revenue exposure of around 10%, selling marine engines, propulsion systems and services to ship builders via the regional shipyards and selling on-shore power generators to municipalities and industrial plants. The exposure is closer to c.12% if we include Wartsila’s share in three JVs in Shanghai with CSSC and SMERDI for 4-stroke engine assembly, automation, voyage solutions and medium-speed power generators and the JV with CME in Zhenjiang (propulsion technology). In the Marine business Wartsila also locally manufactures propulsion components, seals and bearings in Wuxi and Suzhou. The company does not single-source crucial components in China and the Chinese supply chain mainly supports Wartsila’s local JVs.

Weir (LSE: WEIR; 5%) – Weir indicated limited impacts on their overall expectations at this time at their full-year results, although noting there is uncertainty. China sales are a mix of locally manufactured and manufactured in other regions. Esco and Minerals both have some manufacturing in China which is primarily for export and there is wider supply chain exposure to China. However, on a relative basis we would see Weir’s manufacturing and direct sales as one of the less impacted. However, there is a wider potential impact if there is a knock-on effect of lower activity in the mining sector. Overall, our Mining research team expect activity to be maintained at this time, but it will depend on how the process evolves. If there was a period of sustained weakness, it could impact larger capex projects.

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Exhibit 28: European Industrials by % of sales to China

35%

30%

Oerlikon, KONE and TT 25% Electronics have the 20% highest direct exposure to 15% China. 10%

5%

0%

Source: Company filings, RBC Capital Markets estimates

US Chemicals and Packaging RBC Capital Markets, LLC Arun Viswanathan (Equity Analyst) (212) 301-1611; [email protected]

Graphic Packaging (NYSE: GPK) – little to no exposure, although Starbucks and McDonalds are large customers and have exposure to mainland China, possible 1–3% volumes reductions in FY20.

Berry Global (NYSE: BERY) – No China exposure

Axalta Coatings Systems (NYSE: AXTA) – AXTA has ~11% in annual revenues tied to mainland China. The company is also highly levered to EM economies, which it looks to for long-term growth. In connection with the general macro sluggishness, we expect COVID-19 to negatively impact volume growth in Q1, due to lower refinish and vehicle production rates. With that said, AXTA should offset softer volumes with favourable price/cost.

Sherwin-Williams Company (NYSE: SHW) – SHW derives ~5% of revenues from mainland China and is ~10% exposed to the APAC region. While we see COVID-19 negatively impacting volumes in H1/20 we do not see material impact to SHW FY guidance, (~80% of total sales is highly correlated to the US housing and the US consumer end-markets).

PPG Industries (NYSE: PPG) – PPG revenue exposure from mainland China/APAC is ~4%/17%. We do not see a material impact to our FY20 estimates. However, while we do not see supply- chain disruptions and material volume declines for PPG in H1/20, there is potential for negative spill-over effect from the slowdown in China within general industrial, (assuming the virus headwinds linger for several quarters). This spill-over effect could extend the industrial recession and ultimately hurt PPG, causing a ~1–2% reduction in top-line sales.

RPM International (NYSE: RPM) – No China exposure. Possible spill-over effect could depress general industrial production and PMI’s which would hurt RPM.

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Crown Holdings (NYSE: CCK) – CCK derives ~9% of its total sales from APAC. COVID-19 will likely have little direct impact on CCK. However, CCK has ~20% of sales tied to industrial production, which could be negatively impacted if the Chinese slowdown spills over into other economies. Further, the longer and wider the virus spreads, the more likely consumers will avoid trips to the grocery stores to buy food and beverage cans in neighbouring counties.

Ball Corp. (NYSE: BLL) – The company has significantly reduced its exposure to mainland China. We do not expect any material disruption to our FY20 estimates for BLL.

Ardagh Group (NYSE: ARD) – Less than ~5% exposure APAC/China. Do not expect any material changes to ARD estimates in FY20, (ARD reports Q4/19 tomorrow).

Owens-Illinois (NYSE: OI) – OI has ~8% of its sales from mainland China. We expect ~1–2% headwind due to reduced volumes.

Sealed Air (NYSE: SEE) – SEE derives ~8%/~15% of totals sales from China/APAC. We see COVID-19 potentially affecting industrial production and lower general economic activity. In addition, SEE Food Care segment was negatively impacted in Q4 due to COVID-19 and we expect this trend to continue as long as the virus is active. This could negatively impact SEE FY20 estimates by ~1–3%.

Silgan Holdings (NASDAQ: SLGN) – Minimal exposure to China/APAC.

GrafTech (NYSE: EAF) – Minimal exposure to China/APAC, but will get caught up in increased industrial production slowdown.

Huntsman (NYSE: HUN) – HUN estimates that the COVID-19 impact in Southeast Asia on Q1/20 earnings will be ~$10–15M each month (mostly in February and March with ~90% impact on polyurethanes). Assuming the $800M annual EBITDA for HUN, we believe the virus impact is ~1–3% a month.

DOW Inc. (NYSE: DOW) – Given that DOW was one of the first companies to report this earnings season, management did not provide a detailed commentary on COVID-19 impact. That said, given that China contributes to over 16% of revenue, we believe DOW could also see supply disruptions and logistics challenges this quarter as some peers have acknowledged. Assuming a similar lsd% impact (1–3%), we believe DOW’s Q1/20 EBITDA could see $33– $100M impact.

DuPont (NYSE: DD) – While management did not quantify the impact from COVID-19, DD acknowledged it is likely a near-term headwind. Namely, DD noted that some of its 13 production sites were down in China during the height of the virus containment efforts, but all are now back online. Still, DD anticipates some challenges with supply chain disruptions (logistics and staffing), in addition to uncertainty in regards to customer demand rebound. That said, we believe DD may see a small positive offset from increased sales of protective materials (e.g., hazardous materials suits). Given HUN’s commentary on 1–3% impact, we believe DD’s Q1/20 EBITDA could see ~$24–72M headwind.

Westlake (NYSE: WLK) – Although WLK did not provide a quantified impact, they did acknowledge there has been some disruption in demand and supply chain logistics. While too early to accurately assess the impact, our initial thoughts point to low-single-digit % EBITDA headwind per month for most of our companies with exposure to China. Assuming a 1–3% impact, we believe WLK’s Q1/20 EBITDA could see ~$7–20M headwind. Coronavirus impact sounding some alarms; Maintain SP

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Celanese (NYSE: CE) – While CE reported that operations have remained stable on the earnings call, management expects a prolonged event could dampen demand as well as supply. While CE noted the impact was too early to quantify, given that most of the products produced in China services customers in China, we think CE could also see a 1–3% EBITDA impact. Assuming this, we believe CE’s Q1/20 EBITDA could see $10–$30M headwind.

Chemours (NYSE: CC) – CC management team noted that COVID-19 hasn’t made any supply disruptions as Fluoropolymer production and TiO2 production are sold locally. While management notes the virus impact has been too early to tell, given the peer’s assessment on demand challenges and CC’s exposure to China (~10%), we believe CC could also see 1–3% EBITDA impact in Q1/20. Assuming this, we believe CC’s Q1/20 EBITDA could see $5–$15M headwind.

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Canadian Chemicals RBC Dominion Securities Inc. Nelson Ng (Equity Analyst) (604) 257-7617; [email protected]

Methanex (NASDAQ: MEOH) – China is a significant producer, consumer and importer of methanol, and COVID-19 has led to logistics restrictions, and facilities producing and consuming methanol are operating at reduced rates. A prolonged slowdown in Chinese manufacturing activity would negatively impact methanol demand and prices in the region. Methanex sells ~50% of its methanol in Asia, including China, South Korea and Japan, and is the largest supplier to South Korea. Management noted on their Q4/19 earnings conference call on January 30th that the extended business closures announced by the Chinese government beyond the Lunar New Year holidays would have a negative impact on methanol demand. However, it is too early to forecast how this will impact Q1/20 results or the global methanol industry as a whole in 2020.

Since the outbreak, IHS reported a decline in methanol pricing in China (down ~10% from January 24, 2020). MTO operating rates also declined but remain at a relatively healthy rate of 74% (down from 84% in on January 24, 2020). Overall, we think that the COVID-19 impact will largely be sentiment driven, and have a negative impact to Methanex’s Q1/20 results (weaker methanol pricing). Longer term, we don’t expect the virus to have a material impact to Methanex. We note that Methanex’s largest shareholder acquired ~373,000 shares in February (up to February 25).

Chemtrade Logistics (TSX: CHE-U) – The North East Asia spot price for caustic soda drives Chemtrade’s realized price on its caustic soda, which is produced (with chlorine) in their North Vancouver facility. COVID-19 has negatively impacted operating rates for the Asian chlor-alkali industry, which produces chlorine and caustic soda in the same process. NE Asia caustic soda prices fell in the beginning of the year, but recent reports are showing higher caustic soda prices due to limited supply in the market. The company noted on the Q4/19 conference call that they cannot predict how the virus will ultimately affect economic activity and caustic pricing for the balance of the year, but results will be strongly influenced by the North East Asia spot price for caustic soda in the last month of each quarter.

Australian Transport Infrastructure Royal Bank of Canada - Sydney Branch James Nevin (Equity Analyst) +61 2 9033 3271; [email protected]

Sydney Airport (ASX: SYD) – ~11% of Sydney Airports international passenger numbers are to/from China and this represents ~4% of total annual passengers. At its 20th February financial results, SYD did not provide its usual dividend guidance for the year due to the uncertainty around passenger volumes and the impact on earnings and cash flows. While COVID-19 is different to SARS, and Chinese passenger volumes are vastly different to that time (Australia had 190k short-term Chinese visitor arrivals in 2002 vs >1.4m in 2019), SYD has seen that the impact to international passenger volumes in the early stages is similar to that seen during SARS. During the height of SARS, SYD’s international passengers dropped by 10–20% for a period of four months before recovering (see Exhibit 29).

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Exhibit 29: SYD year on year traffic growth during SARS period

2002 vs 2003 international pax 2002 vs 2003 YoY% - SYD change in annual international pax 1000 900 10.0% 800 5.0% 700

600 0.0% pax '000 500 -5.0% 400

300 -10.0% 200 100 -15.0% 0 -20.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2002 2003 YoY % Source: Company reports

We have modelled a similar magnitude impact for SYD in 1HFY20 with international/domestic pax -10%/-3% before a recovery and will adjust this as we get more information on the spread and impact of COVID-19. The passenger volume impact reduces our FY20E EBITDA by ~5%.

Exhibit 30: Passenger volume growth – actual historical and RBCe

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

-10.0%

-12.0% 1H 2018A 2H 2018A 1H 2019A 2H 2019A 1H 2020E 2H 2020E 1H 2021E 2H 2021E Domestic YoY% International YoY% Source: Company reports, RBC Capital Market estimates

Canadian Airlines and Aerospace RBC Dominion Securities Inc. Walter Spracklin (Equity Analyst); (416)-842-7877; [email protected]

Air Canada (TSX: AC) – Impact: High. During Q4/19 results, management guided for Q1 to be roughly ~$200MM lower Y/Y, however, we point out this is mostly due to the grounding of the 737 MAX, with only a partial impact from COVID-19. Looking at traffic, we note China makes up roughly 6% while Hong Kong makes up ~3%. Management has mentioned that they intend to redeploy some lost capacity into the Atlantic division, but it remains to be seen how seamless this transition will be – and may create an oversupply situation in those markets.

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Chorus Aviation (TSX: CHR) – Impact: Low. We remind investors that the CPA with Air Canada is essentially fixed fee, and can be viewed as more of a “take-or-pay” business. While the growing regional leasing business is more cyclical, we note that none of the lessees operate in China. Further, if COVID-19 has a global economic impact, CHR may actually benefit – airlines will look at the benefits of leasing versus acquiring to maintain operational flexibility. Overall we see little downside risk for Chorus related to COVID-19.

Bombardier (TSX: BBD.B) – Impact: Low. The company did not disclose any exposure to COVID-19 during Q4 results, or the recent strategic announcement (sale of BT). While BBD has some rail operations in China, revenues there are minimal, and we see very limited direct exposure to COVID-19. There will however likely be indirect exposure if COVID-19 causes global economic growth to weaken, as the Business jet segment is fairly cyclical.

Rails, Canadian Trucking and Diversified Industrials RBC Dominion Securities Inc. Walter Spracklin (Equity Analyst); (416)-842-7877; [email protected]

Canadian National Rail (TSX: CNR) – Impact: Medium. CN noted that the impact from COVID- 19 is unknown but that its full-year outlook remains unchanged. Management believes that the impact will be timing related and that any lost volumes in Q1 will likely be pushed into Q2 and Q3.

Canadian Pacific Rail (TSX/NYSE: CP) – Impact: Medium. CP stated recently that it is unsure what the exact impact from the virus will be, but believes that any impact to volumes in Q1 will be shifted into the second and third quarters. International intermodal made up 9% of 2018 revenue and our view is that CP’s organic opportunities (i.e., intermodal, crude by rail, grain, and potash) will offset any COVID-19 impacts.

CSX Corp. (NASDAQ: CSX) – Impact: Medium. CSX has not seen an impact from COVID-19 at this point, however, they will be watching for an impact particularly to their international intermodal business. CSX notes that “a lot of [their] business” is domestic and that nothing has changed in terms of their full-year outlook.

Norfolk Southern Corporation (NYSE: NSC) – Impact: Medium. While NSC has not commented publicly on the virus, our view is that the impact to NSC would be similar to that of CSX. We would expect that the company’s international intermodal business would be affected reflecting factory shutdowns in China but that its business is less exposed to China vs. peers that operate terminals on the West coast.

Union Pacific Corporation (NYSE: UNP) – Impact: Medium. There is no definite answer to the impact of COVID-19 yet, although UNP is likely to be more affected compared to the US east coast rails (CSX and NSC) reflecting UNP’s west coast terminal infrastructure. We note that 31% of UNP’s 2018 revenue was premium and that international carloads accounted for 38% of premium volumes – therefore international revenue likely accounted for 10-15% of 2018 revenue. While not all international intermodal revenue is tied to China, our view is that this portion of revenue will be most impacted by a decrease in Chinese industrial activity tied to the virus.

Cargojet (TSX: CJT) – Impact: Medium. During Q4 results, management disclosed that the interline business will likely remain under pressure throughout Q1 due to the impact from

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COVID-19. However, we note interline is a small percentage of the overall business (<10%). Otherwise, management expects the ACMI, charter and eCommerce businesses to be mostly unaffected.

Mullen Group (TSX: MTL) – Impact: Low. Management has not commented on the potential impact from COVID-19, but our view is that the impact is likely to be low. MTL’s Trucking and Logistics business is mostly domestic and Oilfield Services is likely to provide insulation to any COVID-19 impact.

Westshore Terminals Investment Corporation (TSX: WTE) – Impact: Low. Westshore ships the majority of its coal to Asia, and while China accounts for only 8% of total exports, Korea and Japan make up 40% and 21% of exports respectively. We note that both Korea and, to a lesser extent, Japan are dealing with COVID-19 outbreaks of their own and although the impact to industrial activity from the virus is unknown, any material slowdown would likely affect coal consumption. However, we note that most of Westshore’s capacity is contracted through take or pay agreements, thereby limiting any potential impact.

Exhibit 31: Westshore Terminals Shipments by Destination

Westshore Terminals Shipments by Destination 2018 Tonnes % Korea 12,164 40 Japan 6,490 21 India 2,708 9 Europe 2,677 9 China 2,551 8 S. America 1,539 5 Taiwan 1,314 4 Vietnam 793 3 Other 228 1

Total 30,464 100 Source: Company reports

CCL Industries (TSX: CCL.B) – Impact: Medium. During Q4 results, management guided for the continuation of depressed revenue trends into Q1, mostly the result of COVID-19. The three segments with exposure in China are CCL Label, CCL Design and Checkpoint. In aggregate, CCL operates roughly 17 operations with 3,500 employees in China. Annual revenues for domestic consumption in China were roughly $400MM, with another $400MM in export production, so the total exposure to China in terms of supply chain dynamics and domestic market is ~$800MM. This equates to roughly 15% of total 2019 revenues.

IPL Plastics (TSXL IPLP) – Impact: Low. IPLP operates primarily in North America and Europe, but customers are located across the globe. The most recently disclosed geographic revenues show exposure to mainland China is less than 2% of revenue (with ~70% in North America). We therefore classify COVID-19 exposure as ‘Low’.

Winpak (TSX: WPK) – Impact: Low. We forecast very little direct impact to WPK’s business from COVID-19, as the company operates facilities in Canada, US and Mexico only. While there may be some indirect customer sales exposure to Asia, we expect it is minimal but will listen for more disclosure when the company reports Q4 results March 3rd.

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Intertape Polymer (TSX: ITP) – Impact: Low. ITP operates manufacturing locations throughout North America and Europe, however customers can be located globally. As per the most recent disclosure, roughly 2% of revenues come from mainland China. Overall, roughly 80% of revenues come from the US, so we would classify the exposure to COVID-19 as relatively low.

Andlauer Healthcare Group (TSX: AND) – Impact: None. AND operates primarily in Canada and we do not believe that COVID-19 will have any negative impact on AND’s business. In fact if there were to be an impact, our view is that the virus would positively affect revenues as transportation of healthcare related products could potentially increase.

Stella Jones (TSX: SJ) – Impact: None. We do not expect any impact to SJ’s business from COVID-19. We do not believe that any large utility or Class 1 rail would alter its capex spend due to the virus and therefore believe that any impact to SJ will be immaterial.

Waste RBC Dominion Securities Inc. Walter Spracklin (Equity Analyst); (416)-842-7877; [email protected]

Waste Sector (NYSE: RSG, TSX/NYSE: WCN, and NYSE: WM) – We see the three waste companies under our coverage as being largely unaffected by COVID-19, and would classify the overall impact as low for the group. There was no commentary on the subject during the companies’ Q4/19 results and conference calls, and none of the majors generate revenues or have operating infrastructure in China or other areas meaningfully affected by the virus. By and large (and relative to other names in our coverage), we see the waste majors as well- insulated from COVID-19-related impacts.

However, we could see an indirect impact on the sector through two different avenues. One being lower OCC/recycled commodity pricing caused by a deterioration in demand from China and other Asian countries. That said, current demand levels are already at historically suppressed levels and we see further declines as having a relatively muted impact given the success the waste majors have had in transitioning customers over to fee-for-service contracts. The other avenue pertains to a broader global economic slowdown that impacts economic activity in the US and Canada. Though waste companies are typically considered more defensive and are late-cyclical in nature, we acknowledge that they do have sensitivity to the broader macro environment and should a global slowdown occur, would understandably be impacted.

US Building Products RBC Capital Markets, LLC Michael Dahl (Equity Analyst) (212) 618-3251; [email protected] Within our coverage, our building products sector has modest exposure to the evolving COVID- 19 impacts, with some product categories more meaningfully exposed but in aggregate likely on the lower end of the spectrum relative to other more global sectors. In general, we’d view the homebuilders as relative net beneficiaries given their 100% domestic exposure and positive impact of falling bond yields on mortgage rates/affordability. That said, clearly the situation is fluid and expanding outbreaks including in the US would represent risk to estimates. Our sense is that most companies have not accounted for any material impact to

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operations in guidance thus far given either timing of calls (prior to some of the recent breakouts) or lack of clarity on direct and supply chain impacts. An emerging risk from a supply chain standpoint could be on transportation costs, as those with large China/Asia based supply chains may face shipping delays and potentially increased ocean/air freight charges if production and shipping delays result in tight inventories beginning in 2Q (inventory should be sufficient to last into spring given what’s already on hand/on water). This is a potential meaningful derivative impact we’ll watch as the spring progresses. Below we note exposures and relevant company commentary to date.

Building Products Fortune Brands Home & Security (NYSE: FBHS) – Management noted that it is closely monitoring the outbreak and does not anticipate a material impact on the business. Moen China is continuing to grow profitability at a DD rate, by targeting expansion in Tier 1 and 2 cities – channels are still working well and the company expects to continue to take share.

Note that a significant part of the Plumbing supply chain is in China – ~35% of sales and ~52% of EBIT come from Plumbing.

~18% of Plumbing sales also come from China (translating to 6% of total sales). China growth has been and is projected to continue to be a meaningful driver of the Plumbing business, as guidance assumes this business will continue to grow at a mid-teens rate. We see this as a risk to guidance.

Masco Corporation (NYSE: MAS) – China = 3% of revenues, but plays an important role in the supply chain.

Kichler business faces significant supply chain risk, at ~5% of sales and almost 100% of the supply chain in China. A significant part of the plumbing supply chain is in China – ~60% of both sales and operating income come from Plumbing.

Management commented that no employees have been infected by the virus. Starting to ramp up production again after the holiday, but slowly (representing approximately a 1-week delay from expectations). Seeing a similar dynamic with its Chinese suppliers. The situation is fluid, but not expecting there to be a material impact.

Mohawk Industries (NYSE: MHK) – China = 80–90% of US LVT imports

Management commented that LVT production following the holiday has been slower to start up again, but that inventory build provides some cushion to the uncertainty. While the industry as a whole has the potential for slower service due to the virus, this could help MHK to ramp its domestic LVT production if competitors are more constrained. Competitive ceramic supply has already been shifting from China to other countries post the recent anti-dumping ruling.

Within Global Ceramic, MHK and the industry have significant production in Italy that could be impacted as the virus spreads there.

Whirlpool (NYSE: WHR) – China = ~4% of sales

Management commented that is does not expect the virus to be a major impact. Domestically, Chinese sales are not a big part of the business, so a drop-off here would not be such a headwind. WHR’s Chinese production largely serves Asian and European markets (vs. American – which is 80% produced in the US), though the expanding global impacts could have an effect here in our view (EMEA accounts for 22% of sales and Asia accounts for 8%). On

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components, there is a 3–4 day delay from the holiday but WHR feels well covered and noted it is only single sourcing very few components.

WHR’s 10K noted that the virus could impact domestic and international sales, supply chain, and delivery of products.

Owens Corning (NYSE: OC) – China = ~10% of OC’s Composites business and ~3% of total sales.

Management noted that the virus could have a modest impact on Insulation and Composites segments in 1Q, based on delayed plant start-ups and limited sales. This is included in the company’s 1Q outlook.

Masonite International (NYSE: DOOR) – 10K noted that the virus could interrupt operations.

JELD-WEN Holdings (NYSE: JELD) – Australasia segment represents 13% of sales and 18% of Adj. EBITDA.

Homebuilders – Given the impact on rates, US housing would be an indirect beneficiary (to the extent that we don’t see an outbreak here).

US Multi-Industry & Electrical Equipment RBC Capital Markets, LLC Deane Dray (Equity Analyst) (212) 428-6465; [email protected]

Most US Multi-Industry companies are not yet factoring COVID-19-related disruptions in 2020 guidance. We note that the vast majority of US Multi-Industry companies declined to incorporate any explicit headwinds from COVID-19 supply chain disruptions in their 2020 guidance, arguing that it was still too early to accurately size during 4Q19 earnings. We believe that the COVID-19 fallout is the most underappreciated risk overhang on our sector. Within our coverage, only EMR, XYL, and FTV explicitly sized the revenue and/or EPS impact of COVID- 19 in their 1Q20 guidance assumptions. As a result, these companies, along with GE and FLS, have stated that their 2020 earnings mix will be more back-end-weighted. The companies with the highest China exposures are DHR, FLOW, MMM, EMR, and GTES. In terms of potential offsets, MMM should see a modest boost to sales of its respirators, with the N95 variant currently among the most sought-after masks in Asia. MMM has stated that it is increasing production to keep up with demand. And Danaher announced on Feb-10 that its Cepheid business is working with the FDA to secure approval for a rapid COVID-19 diagnostic test being designed that can deliver results in roughly 30 minutes.

Companies with the highest China exposures: Danaher (NYSE: DHR; 13% China exposure) – Danaher’s 2020 guidance framework currently does not incorporate any impact from COVID-19. The company’s Cepheid and IDT business units are engaging with public entities like the CDC to design products that can detect the virus. Cepheid announced on Feb-10 that it is developing an automated, rapid molecular test that can deliver point-of-care results in roughly 30 minutes. Once finalized, Cepheid intends to work with the FDA to secure regulatory approval and make the test available globally.

SPX FLOW (NYSE: FLOW; 12% China exposure) – SPX FLOW is baking in a two-week shipment delay in China for 1Q20. China facilities were reopened on Feb-10, but with only ~35% of the staff present. The company expects to reach ~75% capacity over the next several weeks.

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3M (NYSE: MMM; 11% China exposure) – 3M did not provide specifics on the potential operating headwind from COVID-19 during its Jan-28 earnings call. However, the company expects China revenues to be down Y/Y in 1Q20 due to declines in auto build rates. 3M is also the market-leading manufacturer of respiratory protection products, including the N95 respirator, which is in high demand by consumers to protect against the virus. 3M is increasing production of these masks to meet worldwide demand.

Emerson (NYSE: EMR; 11% China exposure) – COVID-19 disruptions are expected to pressure F2Q (calendar 1Q) revenues by $75–$100 mil, half of which should be recovered within the year. As of Feb. 12, 33 of 36 key Emerson facilities in China were operational in some capacity. That said, they were operating at only 20%–40% of their full output. Emerson expects the Chinese government to invest in a stimulus program later in 2020.

Gates (NYSE: GTES; 11% China exposure) – Gates is assuming modest, but unspecified headwinds related to COVID-19, and nothing more than delayed factory openings until Feb. 10. Much of this exposure is tied to Chinese auto production.

Fortive (NYSE: FTV; 8% China exposure) – Fortive’s 1Q20 guidance includes a 2c potential headwind from disruptions due to the COVID-19 outbreak. The 2c headwind bakes in factories being shut down through Feb. 10 and expectations that customers ramp back more slowly than normal. That said, management expects to recoup this headwind as the year plays out.

US Industrial Machinery RBC Capital Markets, LLC Seth Weber, CFA (Equity Analyst) (212) 618-7545; [email protected]

RBC published a global take on the impact of COVID-19 on capital goods companies on February 14: Global Capital Goods

Industrial Machinery companies mostly noted they are monitoring the ongoing situation in China but did not give definitive impacts to expected earnings; however, the biggest risk is to the supply chain rather than revenue. For those who gave more specific comments on impacts:

Deere & Company (NYSE: DE) – Deere noted it will spend an extra $40m in expedited shipping to ensure parts availability, impacting Q2 profitability, but maintained its FY guidance.

Cummins (NYSE: CMI) – Cummins noted it anticipates a supply chain disruption in Q1 but believes any adverse impact can be made up over the remainder of the year.

Terex (NYSE: TEX) – Terex guided $25–30m revenue and $5–10m OI impact in Q1 from COVID- 19. It expects any 1H shortfall will be made up in 2H.

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Exhibit 32: Company Exposure and Commentary

Ticker % Revenue in China Comments No concrete answers at this point. Have own factories in China that supply the local market and the Global Series tractor into a number of regions around the world. Also make components in China factories that go into assembled AGCO 9% (APAC) equipment in Brazil and Europe. Could cause some disruptions to getting parts to other factories, impacting delivery times. Have production levels secured through mid-March. Can't really handicap impact to supply chain but have been working with suppliers to ensure appropriate delivery of ALSN 5% parts Monitoring for impact, expect China construction sales to be flat to down 5% with the market down something CAT 5-10% similar Expect supply chain disruption in Q1 related to coronavirus. Have significant operations in Hubei, including manufacturing and technical facilities. Expecting to open facilities between Feb 10-14 depending on province CMI 10% location. If that happens as planned, think impact will be relatively modest and could possibly be made up over remainder of year. Forecast China excavators -25% y/y in 2020 and HD/MD truck -10% y/y; China represented ~$2.3b of 2019 revenue, consolidated and JV sales with eliminations totaled $5.5b 10% (APAC, Africa, More impacts supply chain, will spend extra $40m in F2Q20 for expedited shipping to get parts; China is 10-15% of DE Middle East) roadbuilding sales HEES NMF HRI NMF Possibility of further spread could lead to longer-than-expected plant shutdown; source parts for developing MTW NMF markets and EU tower cranes; have minimal extra inventory since run lean NAV NMF Planning on coming back from CNY as scheduled. Will have people work from home in Shanghai until reopened OSK <5% there. Prior to outbreak, China Access had been source of strength (off a low base), reflecting increased adoption and evolving rental channel PCAR NMF Source a relatively small amount of components from China as PCAR a just-in-time producer Expect AWP 1Q rev/earnings to be lower by $25-30m/$5-10m, but made up for in 2H, resulting in no material TEX 13% (APAC) impact for the full year URI NMF N/A Source: Company reports, RBC Capital Markets

European Business Services RBC Europe Limited Andrew Brooke (Equity Analyst) +44 20 7002 2262; [email protected] Kate Somerville (Equity Analyst) +44 20 7653 4648; [email protected]

Hays (LSE: HAS) – Hays has 3% of its fee income in China. In its recent H1 results Hays reported a sharp slowdown in China and noted that COVID-19 is materially impacting trading and is likely to continue across all of Q3 at a minimum. In addition, if customer supply chains are impacted for a prolonged period this may adversely impact the rest of its operations, especially in Europe.

PageGroup (LSE: PAGE) – PageGroup has 7% of its fee income in Greater China so will be directly impacted by the shutdown from COVID-19. In addition, if customer supply chains are impacted for a prolonged period this may adversely impact the rest of its operations, especially in Europe.

Adecco (SWX: ADEN) – Adecco is somewhat more sheltered from the impact of COVID-19 than some of the other staffers since it does generate a meaningful proportion of its fee income from China (c2% of group fee income from Asia). However, if customer supply chains are impacted for a prolonged period this may adversely impact the rest of its operations, especially in Europe and North America.

Randstad (NXT AM: RAND) – China is a relatively small business for Randstad and at its recent results it noted that most of its staff are working from home. Management said that there hasn’t been any fallout for them. However, if customer supply chains are impacted for a prolonged period this may adversely impact the rest of its operations, especially in Europe and North America.

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Electrocomponents (LSE: ECM) – Electrocomponents has c7% of its revenues in Greater China which will likely be impacted by COVID-19. In addition, if wider global supply chains are impacted as a result of this disruption, this could impact other areas of its business. In the recent statement management stated that it is monitoring the situation but it is too early to say what the impact will be on the business, but at the moment the impact has been minimal.

Intertek (LSE: ITRK) – c19% of Intertek’s revenues come from China so we expect that the recent disruption caused by COVID-19 would have impacted its performance in the quarter as it closed is operations. In addition, if customer supply chains are impacted for a prolonged period this may adversely impact the rest of its operations globally.

Bureau Veritas (NXT PA: BVI) – c16% of BV’s revenues come from China so we expect that the recent disruption caused by COVID-19 would have impacted its performance in the quarter. In addition, if customer supply chains are impacted for a prolonged period this may adversely impact the rest of its operations globally.

SGS (SWX: SGSN) – c15% of SGS’s revenues come from China and at its recent FY19 results management were unable to give a full impact statement but noted the shutdown in China will have an impact on its February performance (due to one less week of activities). However, if the virus continues this may impact its Chinese operations further and if customer supply chains are adversely impacted, this could also impact the rest of its operations globally.

European Transport Infrastructure RBC Europe Limited Stephanie D’Ath (Equity Analyst) (852) 2848-1390; [email protected]

Within European transport infrastructure it is likely that only Airports could be significantly impacted by COVID-19 (at this point), with toll-road concessions and contracting having less exposure to China traffic / materials sourcing in China.

We look here at (1) the exposure to Asia / Chinese travelers for covered airports, (2) airline travel bans so far, (3) the impact from SARS and COVID-19 versus SARS so far, (4) management comments on COVID-19 impact so far and (5) potential impact on 2020 traffic and earnings.

(1) Fraport AG Frankfurt Airport Services Worldwide (Xetra: FRA) is the most exposed to Chinese / Asian travelers, followed by Flughafen Zurich AG / Zurich Airport (SWX: FHZN), Aeroports de Paris SA (EPA: ADP), London Heathrow (owned by Ferrovial, S.A. – BME: FER) and Flughafen Wien AG / Vienna Airport (WBO: FLU). Aena SME, S.A. (BME: AENA) and London Gatwick (owned by Vinci SA – EPA: DG) are the least exposed (ANA Aeroportos de Portugal is not exposed either). Chinese represent c1/4 of Asian traffic for the above airports.

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Exhibit 33: % of total seat count to/from China (2019) Exhibit 34: % passengers departing to Asia (2019)

Chinese as % traffic % Pax departing to Asia

3.0% 10% 2.5% 8% 2.0% 1.5% 6% 1.0% 4% 0.5% 2% 0.0% 0% Frankfurt Zurich ADP Vienna AENA Airport Airport

Source: AOG Source: Company data

(2) Travel restrictions / bans and suspended European airline service to / from China are currently in place for 1-2 months: from early February until between the end of February and the end of Mar (for most of them). Please see the below for a summary of these restrictions (sourced from CH Aviation & Gatechecked):

 Lufthansa (LH, Frankfurt Int'l), Swiss (LX, Zurich), and Austrian Airlines (OS, Vienna): The Lufthansa group has cancelled flights to Beijing and Shanghai until February 29, 2020 while flights to Nanjing, Shenyang and Qingdao are suspended until March 28, 2020.  KLM Royal Dutch Airlines (KL, Amsterdam Schiphol) and Air France (AF, Paris CDG): Air France-KLM group has suspended all flights to mainland China from February 3 to March 15 and the Wuhan service until March 28.  Finnair (AY, Helsinki Vantaa): has suspended its Helsinki to Beijing Capital and Shanghai Pudong routes from February 6 to 29 and its routes to Guangzhou, Beijing Daxing Int'l, and Nanjing from February 6 to March 29.  British Airways (BA, London Heathrow): has suspended all flights to mainland China until April 1.  Iberia (IB, Madrid Barajas): has suspended flights from January 31 until March 1.  All Italian airlines have been temporarily banned from flying to China as part of a preventative measure put in place by the Italian government. There is no word yet as to when the decree will be discontinued.

(3) During the SARS epidemic of 2003, there was strong passenger growth decline in Asia and to a lesser extend in Europe; Tourism (in mn of arrivals) was down -9% in AsiaPac but up +2% in Europe in 2003. Aeroports de Paris passenger growth declined -1.2% in 2003, Fraport -0.2% and Zurich Airport -5.1% (AENA +4% and Vienna airport +7%), but we do not have the historical SARS impact isolated. We note that comps in early 2003 were easy (post Dot-com bubble crash) and it is difficult to isolate SARS from macro and economic backdrop and whether the rebound was visible just after SARS.

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Exhibit 35: ADP traffic growth during SARS Exhibit 36: Fraport traffic growth during SARS

ADP traffic Frankfurt traffic

20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5%

-10% -10%

Jul-03

Jul-03

Jan-03

Jan-03

Jun-02 Jun-04

Jun-02 Jun-04

Oct-02 Oct-04

Oct-02 Oct-04

Apr-02 Apr-04

Apr-02 Apr-04

Feb-02 Feb-04 Sep-03

Feb-02 Sep-03 Feb-04

Dec-02 Dec-04

Dec-02 Dec-04

Aug-02 Aug-04

Aug-02 Aug-04

Nov-03

Nov-03

Mar-03

Mar-03

May-03

May-03

Total 2001 Total 2003 Total

Total 2001 Total 2003 Total

yoy traffic 2Y stack traffic growth Series2 Series3

Source: Company data Source: Company data

The COVID-19 number of cases and death is by far higher than SARS (despite a lower mortality rate). We would expect the impact to be more important on air traffic.

 COVID-19: at least 76k cases, 2.1k deaths, <3% mortality rate, since Dec 2019  SARS: 8.1k cases, 774 deaths, mortality rate c10%, between Nov 2002 and Jul 2003 or 8 months

(4) Management comment on traffic impact from COVID-19 so far:

 13 February – Fraport: In January, international passenger volumes still grew +3% but were starting to be impacted near the end of the month.  11 February – Heathrow (5% of Ferrovial equity value): January passengers from AsiaPac contracted 3.9% due to the COVID-19.  10 February – Aeroports de Paris management FY19 conference call comment on COVID- 19: Paris accounted for 108m total passengers, of which 2m were from China. This equates to 2% of aviation sales but 15% of retail sales. Jan-Feb-Mar are small months, and if flights start again in April, can likely absorb impact on the margin. Mgmt. factors in 10 days of disturbance in their guidance (snow, strike, volcano, virus etc). If impact lasts longer than April it would impact FY traffic objectives. Based on SARS, traffic surge after the virus faded out the net impact. Outside Paris not much exposure in Chile, Turkey or Jordan to Chinese passengers. Paris has 13 destinations with Greater China, a lot of connections, and Paris was actually the 1st city to link Wuhan to Europe. So far they’ve seen 10k passenger impact in 2 weeks, which is a 30% traffic decline from China, but have seen no retail impact for now. Total impact could be something like 2m Chinese passengers * 3 month low season / 12 * 30% decline (based on first 2 weeks).  5 February – Vinci management comment during FY results call on COVID-19: Chinese passengers account for c5.5% of 255m passengers; impact heaviest on Cambodia and Japan mostly, with little exposure to China in terms of contracting.

(5) We estimate the impact on FY traffic to be at least 2 low season months of Chinese traffic decline at 30% or a max of 10bps headwind on FY20 traffic for the most exposed airports (Fraport, LHR, ADP) and at worst a traffic headwind of 50% decline in Asian traffic for 6 months’ worth on average resulting in a 150bps traffic hit (assuming repercussions on Asia traffic and

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drop in forward bookings). Every month of extra impact is in our view a potential 5bps+ headwind on traffic.

What does this mean in terms of earnings? We estimate bottom line earnings hit is 2x to 3x more important than traffic hit (depending on retail sales % from Chinese /Asians). On average we would thus expect at least 20bps and at most 3–4% earnings downgrade for FY20. This is however increased to a mid-single digit earnings downgrade for the most exposed airports in the most pessimistic scenario (Fraport, Aeroports de Paris, and London Heathrow).

Exhibit 37: Traffic impact based on different scenarios

FY20 traffic impact: China FY20 traffic impact: Asia China % Asia % China as % 2 months 6 months 12 months 2 months 6 months 12 months traffic traffic Asia traffic -30% -60% -90% -10% -15% -30% Frankfurt 2.4% 10.3% 23.4% -0.12% -0.72% -2.16% -0.2% -0.8% -1.5% ADP 2.1% 6.5% 32.4% -0.11% -0.63% -1.89% -0.1% -0.5% -1.0% LHR 2.1% 14.1% 14.9% -0.11% -0.63% -1.89% -0.2% -1.1% -2.1% ADR 1.3% 3.7% 35.2% -0.07% -0.39% -1.17% -0.1% -0.3% -0.6% Vienna Airport 1.1% 4.6% 24.0% -0.06% -0.33% -0.99% -0.1% -0.3% -0.7% Zurich Airport 1.0% 7.5% 13.3% -0.05% -0.30% -0.90% -0.1% -0.6% -1.1% AENA 0.2% 0.4% 57.0% -0.01% -0.07% -0.22% 0.0% 0.0% -0.1% LGW 0.2% 1.3% 18.8% -0.01% -0.07% -0.22% 0.0% -0.1% -0.2% Average 1.3% 6.0% 23% -0.1% -0.4% -1.2% -0.1% -0.5% -0.9%

Median 1.2% 5.5% 24% -0.1% -0.4% -1.1% -0.1% -0.4% -0.8% Source: RBC Capital Markets estimates

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Information Technology Enterprise Hardware RBC Capital Markets, LLC Robert Muller, CFA (Equity Analyst) (212) 905-5816; [email protected]

Apple, Inc. (NASDAQ: AAPL) – On February 17, AAPL announced that it no longer expects to meet its revenue guidance for F2Q20, citing a slower return to normal conditions than previously expected. AAPL noted that: (1) iPhone supply will be constrained during the quarter. While its facilities have reopened, management notes that they are ramping more slowly than initially expected, which will impact revenue worldwide. (2) Demand in China has been weaker than expected alongside company-owned and third-party store closures. In addition, other open stores have operated with reduced hours. Apple had already provided a wider than usual revenue range to account for potential supply and demand disruptions, and the update provides additional warning. While we view the situation as temporary and our longer-term outlook is unchanged, the ultimate impact is still very much unknown. Moreover, we believe it’s likely that supply disruptions may simply push the sales into F3Q20. In addition to this, we note that other major phone suppliers (Samsung, Google) are likely facing the same issues.

Jabil, Inc. (JBL) – On February 25, JBL announced that it expects the COVID-19 outbreak will negatively impact 2FQ20 relative to prior guidance, which we view as unsurprising as the guidance was issued in mid-December, before the outbreak. JBL did not attempt to quantify the impact but noted that its manufacturing plants are running at 65–70% capacity while product demand remains largely unchanged. The current impact to JBL primarily relates to (1) getting workers back to the factories, as certain travel restrictions are preventing workers from arriving back on site, and (2) there could be problems related to sourcing key materials i.e. maybe 90–95% of the product supplies are delivered, but there could be delays on the final 5– 10%. Jabil is a major Apple supplier with ~22% of its FY19 revenue coming from Apple.

Apple (AAPL) warns of likely miss to revenue guidance; coronavirus impact worse than initially forecast

JBL Management Meeting Takeaways

Canadian Technology RBC Dominion Securities Inc. Paul Treiber (Equity Analyst) (416) 842-7811; [email protected]

Celestica (NYSE: CLS, TSX: CLS) – We believe that Celestica is the most exposed company in our coverage universe to potential supply related disruptions from COVID-19. Celestica has two facilities in China in Suzhou and Songshan Lake that manufacture products accounting for approx. $1B in annual revenue (~17% of TTM revenue). Additionally, we believe that a large portion of components used at Celestica’s other manufacturing plants are sourced from manufacturing plants based in China. Management downplayed the potential impact of COVID-19 on the company and indicated that COVID-19 would not have a “huge” impact on its business, based on its assessment as of its Q4/FY19 conference call on January 29. Celestica’s facilities in China (Suzhou and Songshan Lake) are not near the epicentre of COVID- 19 in Wuhan. Additionally, the majority of Celestica’s production in China is dual-sourced

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within Celestica’s network and revenues are skewed towards the end of Celestica’s quarter, which help mitigate the potential impact of COVID-19. Celestica also has contingency plans in place should the situation in China deteriorate.

Sierra Wireless (NASDAQ: SWIR, TSX: SW) – We believe that Sierra Wireless is the 2nd most exposed company in our coverage universe to potential supply related disruptions from COVID-19. Sierra has two contract manufacturing facilities, one in China and one in Vietnam. Additionally, we believe that a large proportion of components for Sierra’s products are sourced from manufacturing facilities based in China. Sierra disclosed on its Q4/FY19 conference call on February 13 that it has not factored in the potential impact of COVID-19 into its FY20 guidance. Management indicated that its factory in China re-opened the week of February 10 following Chinese New Year, though getting workers to the factory has been slow. Asia-Pacific represents ~37% of Sierra’s TTM revenue, which represents shipments to OEMs based in Asia-Pacific for end market sales primarily in North America and Western Europe.

Shopify (NYSE: SHOP, TSX: SHOP) – Shopify is not directly exposed to China. International accounts for only 15% of Shopify’s TTM revenue, and China is likely to represent an immaterial portion of Shopify’s revenue. However, a portion of products sold by Shopify’s merchants are likely manufactured and sourced from China. Potential supply related disruptions from the COVID-19 could lead to stockouts and lack of product inventory at Shopify’s merchants, which if not resolved, could impair Shopify’s GMV growth. Management disclosed on its Q4/FY19 conference call on February 12 that COVID-19 has not had a material impact on Shopify’s overall GMV to date. Management indicated that it does not have enough information as of the conference call on February 12 to estimate the potential impact COVID-19 would have on supply chains or production velocity.

Descartes Systems (NASDAQ: DSGX, TSX: DSG) – Descartes is not directly exposed to China. Asia Pacific only accounts for 4% of Descartes’ TTM revenue. However, potential supply- related disruptions from COVID-19 on global trade would weigh on transaction volumes on the company’s Global Logistics Network (GLN) along with the company’s organic growth. We estimate that Descartes’ GLN accounts for approx. 15–20% of total revenue, which is dependent on global trade volumes, subject to quarterly minimums.

Kinaxis (TSX: KXS) – According to our discussions with management, Kinaxis does not have any customers that are headquartered in China. The company has global customers that may have operations in China, though these customers are likely to use Kinaxis’ software to help mitigate the impact of the supply disruption from COVID-19. In the long term, supply disruptions related to COVID-19 may be a positive catalyst for increased demand for Kinaxis’ software, which allows companies to more rapidly respond to supply and demand disruptions.

The remainder of our companies in our coverage universe do not have material operations, sales or suppliers in China.

Australian Technology RBC Capital Markets (Sydney Branch) Garry Sherriff (Analyst) +61 2 9033 3022; [email protected]

Altium (ASX: ALU) – High level of risk. China is a key end market and growth driver for Altium, representing ~15% of group revenue. The work-from-home situation in large parts of China risks reducing the use of Altium Designer desktop solution if users are unable to retrieve their

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computer from the office. We estimate ~80% of users in China have “on premise” software that cannot be accessed remotely. We are perhaps more concerned about the secondary indirect effects from lower electronic manufacturing output growth in 2020, which may impact new user adds, not just in China but in ALU’s global markets. Potential new users may delay their purchase plans given electronic manufacturing disruptions in China, which may result in less usage of existing ALU software and/or delaying new subscriptions.

Altium warned in 1H20 result last week that due to COVID-19 and its Octopart segment underperforming, the FY20 result is likely to land at the lower end of revenue and margin guidance. We recently reduced Altium to Sector Perform from Outperform, driven by our COVID-19 concerns. See ALU: 1H20 – Another Coronavirus Victim.

Appen (ASX: APX) – Low-medium level of risk. Appen is exposed to the technology budgets of the largest global tech players with Appen’s top 5 customers representing ~90% of revenue. Appen has a small presence in China and immaterial revenue from the region. We remain cautious on indirect impacts from a broader slowdown in economic activity. Appen may be impacted indirectly by negative shifts in consumer/business confidence and this may flow through to customer technology budgets. Appen guided at its CY19 results this week that it expects negligible COVID-19 impacts on CY20 group revenue and earnings based on currently available information. See: APX: Beats CY19 Guidance + RBCe at Top End of CY20 Guidance Range.

ELMO Software (ASX: ELO) – Low level of risk. ELMO provides HR and payroll solutions to small-medium enterprises in Australia. We believe ELMO has relatively low risk from COVID- 19 relative to other Australian technology companies we cover. The only concern would be around whether customers delay their purchasing decisions should consumer/business sentiment trend negative from ongoing COVID-19 concerns. See: ELO: 1H20 - Churn Up - Margins Down - Minor FY20 Upgrade on Small Acquisition.

Hansen (ASX: HSN) – Low level of risk. Hansen provides customer care and billing software to the utility and energy infrastructure industries globally. We believe Hansen has relatively low risk from COVID-19 relative to other Australian technology companies we cover. Hansen is a defensive play given its core customers are in defensive end markets. Hansen is due to report its 1H20 results on Friday 28 February.

Infomedia (ASX: IFM) – Medium level of risk. Infomedia is exposed to the global auto parts supply chain and has ~30% of its revenue in APAC, making IFM a higher potential risk relative to other Australian technology companies in our coverage universe. Lower auto part manufacturing and/or auto sales generally may impact new contract wins automotive brands and dealerships. Infomedia’s growth is driven by new contracts with large global auto manufacturers and dealers. New deals may be delayed by the broader uncertainty on the global economic environment and consumer confidence impacts on auto demand. Infomedia has not guided to any COVID-19 impacts and reports 1H20 results on the 27th of February.

Nearmap (ASX: NEA) – Low level of risk. Nearmap provides subscription based aerial imagery mapping services in the cloud to businesses across multiple industries – government, insurance, construction, engineering, solar, utilities, etc. We believe Nearmap has relatively low direct risk from Coronavirus relative to other Australian technology companies we cover. However we are alert to the potential of new subscription adds being impacted should consumer and business sentiment turn negative, which may see delays to purchasing decisions. Nearmap reported its 1H20 results on Wednesday 19 February. We take management's comments on face value that end markets of insurance, construction, engineering, solar, are not impacted from coronavirus. Note other software names we cover

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have flagged indirect headwinds, though not in those sectors. See: NEA: 1H20 - Reiterates Guidance - New Deals Signed - Flagged Solid Q3 Start.

Pro Medicus (ASX: PME) – Low level of risk. Pro Medicus is more resilient from COVID-19 impacts compared to most of our Australian technology coverage universe. PME has high levels of underwritten, long term recurring revenue as contracts are typically 5–7 years in length with guaranteed minimum values, paid quarterly in advance. PME has no Asian exposure. The risk to Pro Medicus may be indirect if hospital customers delay making purchasing decisions as they focus on COVID-19 treatment demands. Pro Medicus did not flag any COVID-19 impacts at its recent 1H20 results. See: PME: 1H20 – Solid Beats Across the Board

Pushpay (ASX: PPH) – Low level of risk. Pushpay’s donation, communications and administration software for the US faith sector has no APAC exposure, insulating it from COVID-19 impacts relative to other Australian technology coverage. Pushpay may even derive an indirect benefit from COVID-19 if increased levels of concern and compassion lead to greater donations through Pushpay’s platform. Pushpay has a 31-March year end and will report its FY20 results in May.

Xero (ASX: XRO) – Low level of risk. We believe Xero is relatively resilient to COVID-19 relative to other Australian technology companies as small-medium businesses are unlikely to revert back to paper and pencil or Microsoft Excel to manage their business. XRO’s financial accounting software is cloud-based, provides real-time invoicing, staff payments and tax assessments which are business critical for SMEs. The relatively low average price of ~$30/month sees high recurring revenue ~99%. The risk is more to do if higher levels of SMEs go out of business should COVID-19 lead to material negative shift in consumer and business sentiment.

Communications Infrastructure RBC Capital Markets, LLC Jonathan Atkin (Equity Analyst) (415) 633-8589; [email protected]

GDS Holding Ltd. (NASDAQ: GDS) – GDS’ entire operations are in mainland China. We have heard positive indications about the impacts of the virus on usage of video and remote- working applications, which in turn could provide a boost to IT intensity that benefits datacenter demand. That said, even if the demand impacts are neutral to positive, it remains an open question of whether equipment delivery or the rate of customer move-ins has been adversely affected. Thus far, the company has not commented. Some discussions with industry contacts have suggested that customer deployments into Chinese datacenters have kept pace, but these comments have not referenced GDS specifically.

Internet RBC Capital Markets, LLC Mark Mahaney (Equity Analyst) (415) 633-8608; [email protected]

Of the companies we cover, those that are most likely to be materially impacted are (in order):

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Alibaba Group (NYSE: BABA) – BABA is directly exposed to China and has already called out material supply/delivery issues because of quarantines. In Strong Fundamentals but nCoV Headwinds we materially cut March quarter estimates, though only lowered long-term estimates modestly, with the long-term Outperform thesis intact.

Booking Holdings (NASDAQ: BKNG) – BKNG called out that a little over 20% of their Room Nights are in APAC and guided to a (10%) – (5%) Y/Y decline in Q1, citing an accelerating impact from COVID-19 through the end of February in the region and noting a more recent and modest impact to European travel.

Expedia Group (NASDAQ: EXPE) – ~5–15% of its travel bookings include an Asia component. The company has already reduced March quarter profit outlook by approx. 25% because of COVID-19 impact. EXPE called for EBITDA to be down “substantially” in Q1 from large Vrbo losses, ramping cloud costs, ongoing operational headwinds & $30–40MM impact from COVID-19. We view the Coronavirus as a real risk to travel, with EXPE even citing softness outside APAC, and we view the extent and duration of this risk as an unknowable.

Amazon.com (NASDAQ: AMZN) – Amazon has extensive retail supply chain in China which is likely getting negatively impacted. Duration of virus will determine materiality.

eBay (NASDAQ: EBAY) – EBAY has significant exposure to China retail supply network.

Uber Technologies (NYSE: UBER) – UBER has little exposure directly in China, but it does have exposure to global travel – 15% of UBER rides involve airport.

Lyft (NASDAQ: LYFT) – LYFT is less impacted than UBER, but there is still the potential for future impact. Currently, LYFT is exclusively North American.

Payments, Processors & IT Services RBC Capital Markets, LLC Daniel Perlin (Equity Analyst) (410) 625-6130; [email protected]

Mastercard (NYSE: MA) & Visa (NYSE: V) – We believe the slowdown in global travel, given concerns around the impact of COVID-19, will continue to depress near-term cross-border payment volumes for both Mastercard & Visa. In an 8-K, Mastercard updated its Q1/20 and FY20 net revenue outlook based on the impact of COVID-19. In the release, the company indicated that cross-border travel, and to a lesser extent cross-border ecommerce growth, is being impacted by COVID-19. MA now expects that if the trends it has seen recently were to continue through the end of the quarter, it would expect revenue growth for Q1/20 to be 9%-10% on a currency-neutral basis, excluding acquisitions, or ~2ppt-3ppt lower than discussed during its Q4/19 earnings call. The release also indicated that if the impact is limited to the first quarter only, MA expects that its annual 2020 revenue growth rate would be at the low end of the low- teens range, on a currency neutral basis, excluding acquisitions. The company anticipates providing additional updates on its first-quarter earnings call. Although Visa has yet to update its guidance, we would not be surprised if the company released a similar response in the coming days, as Visa’s exposure would not be too dissimilar to Mastercard’s. We would note that Visa does have a larger exposure to US in/outbound travel relative to Mastercard and given the ongoing strength in the US dollar could already be absorbing weakness in volumes as international travelers could be favoring lower cost European destinations.

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Semiconductors RBC Capital Markets, LLC Mitch Steves (Equity Analyst) (415) 633-8535; [email protected]

Nvidia (NASDAQ: NVDA): The Company stated that they have taken forward quarter (Apr-qtr) down by $100M to reflect the impact. We think this is a fair estimate and is reflected in estimates.

 Advanced Micro Devices (NASDAQ: AMD): Peer AMD stated they are monitoring the impact and guided conservatively in our opinion. That said without explicit numbers it is unclear how Mar-qtr will be impacted (likely quantified on next earnings call).

Applied Materials (NASDAQ: AMAT): The Company stated that they have taken forward quarter (Apr-qtr) down by $300M to reflect the impact. We think this is a fair estimate and is reflected in estimates.

 Lam Research (NASDAQ: LRCX): Peer LRCX, stated their guidance included a COVID-19 impact but did not quantify. Since they reported in January, note February could lead to slightly lower numbers (but not material to long-term story)

Analog Devices (NASDAQ: ADI): The Company stated that they have taken forward quarter (Apr-qtr) down by $70M to reflect the impact. We think this is a fair estimate and is reflected in estimates.

Qualcomm (NASDAQ: QCOM): The Company stated that they anticipate lower units partially impacted by the COVID-19 as it relates to smartphone shipments.

Broadly: Companies in the semiconductor sector have taken numbers down for the March/April quarters and believe that 2020 (full year) will not be severely impacted.

Software RBC Capital Markets, LLC Alex Zukin (Equity Analyst) (415) 633-8659; [email protected]

In general the software space has low direct exposure to China. We’d highlight the WORK, ZM, SMAR, DBX group as potentially benefitting from COVID-19, if it benefits the greater remote work trend. We note that we are hosting a special event to discuss the future of work with the CEOs of ZM and WORK April 15th.

Zoom Video (NASDAQ: ZM) – Direct revenue exposure to China is small, but the stock has strengthened as the virus has spread, as it benefits from more workers working remotely.

Oracle (NYSE: ORCL) – Among the highest exposures in our group to China, probably mid- single digits as % of total revenue, and its sales approach generally requires a lot of direct contact, so sales in the geography could be impacted.

PROS (NYSE: PRO) – Low China exposure, but in that region is especially exposed to the travel industry. However, it doesn’t have any data centers in China yet, so doesn’t offer its SaaS products there; exposure is largely the legacy on-prem side of the business. Globally, license

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revenue is <1% of consensus 2020E total revenue, and maintenance recurring revenue is unlikely to be impacted much.

Adobe (NASDAQ: ADBE) – Low China exposure. Still early in process of moving that region to Cloud, so it could be impacted. It users often work remotely, which may mitigate the issue somewhat.

Microsoft (NASDAQ: MSFT) – Low China exposure, and has largely moved Office to the Cloud, and the key growth engine people look to is Azure. Gave a wider guidance range than normal for its More Personal Computing segment (PCs, 36% of FY19 revenue) given the situation in China.

SAP (NYSE: SAP) – Low China exposure. Asia has been a weak area recently due to trade issues, this could compound it.

Coupa (NASDAQ: COUP) – Low direct China exposure. Customers’ supply chains often heavily involve China. However, situation could be a benefit if they can help customers identify alternatives.

Twilio (NYSE: TWLO) – Low China exposure, but with a usage-based revenue model it could be impacted more significantly than others.

Zendesk (NYSE: ZEN) – Low China exposure. Indirect impact could be from fact that much of its customer base is direct-to-consumer and uses China/Asia for sourcing.

Software Cont’d RBC Capital Markets, LLC Matt Hedberg (Equity Analyst) (612) 313-1293; [email protected]

Software companies with the highest revenue exposure to the APAC region include Cloudflare (NYSE: NET) at 20%, VMware (NYSE: VMW) at 20%, F5 Networks (NASDQQ: FFIV) at 20%, Fortinet (NASDAQ: FTNT) at 20% and Autodesk (NASDAQ: ADSK) at 19%.

Software companies with the lowest revenue exposure to the APAC region include Real Page (NASDAQ: RP) at 0%, SolarWinds (NYSE: SWI) at 4%, Rapid7 (NASDAQ: RPD) at 5% Proofpoint (NASDAQ: PFPT) at 7% and NetScout (NASDAQ: NTCT) at 7%.

Design-centric software names such as ADSK, Altair Engineering (NASDAQ: ALTR), ANSYS (NASDAQ: ANSS) and PTC (NASDAQ: PTC) could be impacted by general factory or manufacturing slow-down.

Companies that source hardware/commodity hardware such as Check Point (NASDAQ: CHKP), Commvault (NASDAQ: CVLT), FFIV, FTNT, NTCT, Nutanix (NASDAQ: NTNX) and Palo Alto Networks (NYSE: PANW) could be susceptible to any potential supply chain issues that may arise. Interestingly, we’ve heard from several companies that have been using the tariff situation as an opportunity to diversify or even repatriate some manufacturing components or processes.

Qualys (NASDAQ: QLYS) has a significant R&D operations in India, which has thus far largely avoided infection, but geographic-wise is closer to China than the operations of most software companies.

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Materials North American Base Metals RBC Dominion Securities Inc. Sam Crittenden (Equity Analyst) (416) 842-7886; [email protected] Industrial mining equities and commodities could remain under pressure in the near term as the market digests the impact of COVID-19 outbreak. We recently lowered our near-term base metals and iron ore price forecasts which took our 2020 EBITDA estimates down by ~20%. See details on the commodity price changes here.

For context, if China were to lose one month of copper consumption in 2020 it would equate to roughly 1Mt or 4% of global consumption for the year. Clearly, it remains difficult to quantify the impact across different end uses as consumer goods and infrastructure spending could respond differently depending on consumer confidence, the forms of government stimulus, etc.

Our updated estimates reflect 3% lower copper consumption in 2020 offset by 1.5% lower production resulting in a 600kt swing from our prior supply/demand estimate that pushes the market into surplus. We believe the market was in deficit in 2019 and could return there in the second half of this year but the issue is any excess inventory that builds in the first half of the year makes the market less tight than previously thought. The chart below shows the impact this additional inventory could have in terms of weeks of consumption. We lowered our 2020 copper price estimate to $2.70/lb from $3.00/lb. We see risk to prices in 2021–2023 with recently sanctioned supply expected to come online but we have left our estimates unchanged at $2.75/lb given uncertainty around the lasting impact from this outbreak.

Our preferred names remain: Lundin Mining (TSX: LUN) for growing production and FCF, First Quantum (TSX: FM) which could re-rate as Cobre Panama ramps up, Ivanhoe Mines (TSX: IVN) which continues to create value at the Kamoa-Kakula project and also has significant exposure to PGM's which remain a bright spot in the metals space (Platreef is 27% of our NAV estimate), and Teck Resources (TSX: TECK’B) which remains undervalued relative to peers.

Exhibit 38: Lost consumption in China could weigh on prices if inventories build

7.5 $5.00 Demand destruction this year could push inventories back $4.50 above the critical level Forecast $4.00 5.0 $3.50 $3.00

$2.50

Copper Price (US$/lb) Price Copper weeks of of consumption weeks

- 2.5 $2.00 $1.50

$1.00 Inventory Inventory 0.0 $0.50 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Weeks of consumption NEW Weeks of consumption OLD Critical Level (LS) LME Prices Source: Wood Mackenzie, RBC Capital Markets estimates, Bloomberg, ICSG

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European Diversified Metals and Mining RBC Europe Limited Tyler Broda (Equity Analyst) +44 20 7653 4866; [email protected]

The impact from COVID-19 on underlying commodities demand remains a very real threat to the sector with China, and by extension, Asia, accounting for a majority share of total consumption of main commodities like iron ore (81%), coking coal (71%), copper (66%).

Although there are already signs from the CCP and the PBOC that substantial financial support and stimulus will be provided to the Chinese economy, this will come with a lag. In addition, China was consuming record levels of steel and other commodities in 2019, in part because of +10% growth rates in property construction. We remain wary of a scenario whereby we (a) pass through a demand gap phase that sees inventories build, followed by (b) lower normalised growth, even with stimulus helping to support. Following these inventory builds, the recovery in growth is also likely to occur into commodity markets which have ample stocks, meaning the resulting price impact may still be a negative in the medium term.

Each commodity is different in the sense that domestic Chinese production is also being curtailed and there are different domestic capacities. This has thus far assisted iron ore (link), coking and thermal coal prices, however the demand implications, especially over the medium term once workers have returned to the mines are likely to outweigh this near-term offset.

Value chain disruption is also likely to shift demand for metals away from China and Asia, with Europe a likely beneficiary. The other apparent impact that could have negative implications for the sector is the rising US dollar. This would pressure metals demand ex-US and add to the pressures facing China and Asia.

We have reduced 2020 EBITDA forecasts by an average of 8%. See here for a summary on our thoughts from 11 February – Diversified Metals and Mining: Coronavirus to put sector under pressure. We expect all of our diversified mining coverage will be impacted.

Rio Tinto (LSE: RIO) – With iron ore accounting for ~75% of 2020 EBITDA and the shares trading at a 32% premium to peers, and our expectations of a normalising iron ore market over the next two years, we see Rio Tinto as relatively highly exposed to a weaker Chinese demand environment.

Antofagasta (LSE: ANTO) – As capex rises at Antofagasta over the coming 3 years, lower copper prices have a more measurable impact on free cash flows. We see potential for Antofagasta’s equity value to compress over the coming 12 months, especially in a lower copper price environment.

Anglo American (LSE: AAL) – Although more challenging commodity markets are likely to impact all diversified miners, the structural shortage in Palladium, with Anglo American having yet to price in the recent move, should provide a relative earnings buffer in a company trading at a 26% discount to the sector. We rate Anglo as Top Pick.

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Fertilizers RBC Dominion Securities Inc. Andrew Wong (Equity Analyst) (416) 842-4830; [email protected]

We see some potential indirect impacts on fertilizer markets from COVID-19.

Nitrogen – Nitrogen prices are heavily influenced by the cost curve and marginal producer costs. The primary input for nitrogen production is natural gas (outside of China) and coal (~70–80% of China). COVID-19 has had a negative impact on energy prices, including international nat gas and coal prices, which lowers marginal producer costs and limits nitrogen price upside.

Phosphate – China is the world’s largest phosphate producer and is one of the major exporters. Approximately 30–35% of China’s phosphate production is in Hubei province, which includes the city of Wuhan where COVID-19 originated. Phosphate production in Hubei was being shut down, which provided support to phosphate prices, but production has been ordered to re-start in mid-February – situation remains uncertain as demand may also be impacted and producers in other provinces could raise production to compensate.

Potash – China is a large potash importer. China’s annual contracts with suppliers help set benchmark prices and provide baseload demand. COVID-19 has resulted in more difficult logistics in China, resulting in a slower draw-down of elevated potash inventories, which has delayed potash contract discussions and put downward pressure on the global potash market.

CF Industries (NYSE: CF) – CF is a pure-play nitrogen producer.

Mosaic (NYSE: MOS) – Mosaic produces phosphate (~30% EBITDA) and potash (~40% EBITDA).

Nutrien (NYSE/TSX: NTR) – Nutrien produces nitrogen (~30% EBITDA), potash (~30% EBITDA), and phosphate (~10% EBITDA).

Paper, Packaging, & Forest Products RBC Dominion Securities Inc. Paul C. Quinn (Equity Analyst) (604) 257-7048; [email protected]

We expect that COVID-19 will have the largest impact on pulp and timber markets, with smaller impacts on lumber and containerboard. China is a major buyer of market pulp and timber, and an economic slowdown would negatively affect demand and pricing. China is a key export market for North American lumber producers; we expect that the loss of the market will result in additional volumes in the North American market and could lead European exports to the United States. In containerboard, economic weakness would reduce demand.

Domtar Corp. (NYSE: UFS) – Management expects that COVID-19 will have a limited impact on demand for its pulp due to its higher exposure to tissue, baby diapers, and adult incontinence. The primary risk for Domtar is around getting its product to customers.

International Paper Co. (NYSE: IP) – The company does not expect that financial results will be significantly and adversely impacted by COVID-19. International Paper primarily sells absorbent pulp, which tends to go into less discretionary products. The company’s Ilim joint venture sells market pulp for packaging, which could be impacted by a slowdown in demand.

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Mercer International, Inc. (NASDAQ: MERC) – Mercer had expected pulp markets to rebound given a number of positive factors; however, the outbreak has added a new variable to the global economic outlook which increases uncertainty. Management noted that the primary risk relates to quarantine actions and logistics, which could impact supply chains. In China, some papermakers have decided not to honour previous orders done at higher prices, given that Suzano is holding prices flat for the quarter.

Rayonier, Inc. (NYSE: RYN) – According to management, COVID-19 has significantly curtailed manufacturing and construction activity in China, which is expected to limit log demand. The largest impact will be on its New Zealand operations, which exports about two-thirds of its volume to China.

West Fraser Timber Co. Ltd. (TSX: WFT) – The company noted that COVID-19 appears to be slowing paper production in China, which will likely result in pulp markets softening in the near term. An economic slowdown could also reduce demand for wood products in China.

Weyerhaeuser Co. (NYSE: WY) – Management expects that export demand from the Pacific Northwest will be choppy for a while until the impact of COVID-19 has been quantified. The company has worked to develop additional US customers in the meantime.

Exhibit 39: Forest Product companies by % of sales to China or Asia (most recent annual)

61%

Canfor Pulp, Canfor, and 31% 30% Mercer have the highest 17% 14% 13% 12% direct exposure to China. 6% 4% 3% 3% 2% 1%

CFX MERC CFP RYAM WEF WFT UFS CFF OSB IFP WY IP WRK (Asia) (China) (Asia) (China) (China) (China) (Asia) (China) (Asia) (Asia) (China) (Asia) (China)

Source: Company filings, RBC Capital Markets

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Real Estate European Real Estate RBC Europe Limited Julian Livingston-Booth (Equity Analyst) +44 20 7002 2790; [email protected]

Hammerson (LSE: HMSO) – We expect very limited impact from COVID-19 on our European real estate coverage. Hammerson is the main exception due to its exposure to premium retail outlets. Both the nature of the visitors to these outlets and the lease structures mean COVID- 19 is likely to have some negative impact on Hammerson’s rental income.

Firstly, premium retail outlets, which contribute c.21% of Hammerson’s adjusted earnings, target the growing shopping-tourism market. Asian tourists have historically been significant contributors to brand sales at its outlets. By way of example, Chinese visitors accounted for 9% of Value Retail’s total sales in 2019. Secondly, a large proportion of Hammerson’s rents from its outlets are linked directly to tenant sales, meaning any reduction in Chinese tourism is likely to result in lower rental income and profits from this part of Hammerson’s business.

US REITs RBC Capital Markets, LLC Michael Carroll (Equity Analyst) (440) 715-2649; [email protected] Wes Golladay (Equity Analyst) (440) 715-2650; [email protected]

The US REIT industry should not be meaningfully impacted by the current outbreak of the COVID-19 as it stands today. However, real estate by its very nature is a support industry, and the space could see an indirect impact if the virus meaningfully disrupts the global economy and supply chains. The tenants at each asset will likely see the brunt of the weakness, and if the outbreak is viewed as a temporary disruption, real estate owners should be largely sheltered. We believe issues could arise if the outbreak becomes much more widespread placing significant financial stress on individual tenants and on large segments of the global economy. We believe the individual REIT sectors that are more directly exposed to the operations of the underlying assets or would be more acutely impacted by a global economic slowdown would be affected first. Specifically, we believe the lodging REITs are more at risk, and to a lesser extent, the industrial, retail and healthcare REITs could see pressure if the outbreak significantly worsens.

 Lodging: We view the lodging REITs as most exposed to the COVID-19. We expect international travel to decline, which would impact the gateway markets the most. For 2018, guests to the US from China totaled three million, which ranked third amongst all overseas countries traveling to the States (NTTO). We see all markets being impacted to some degree and note that a few group events have already been cancelled. Leisure and business travel would also likely materially decline should the number of COVID-19 cases in the US increase materially.  Healthcare: We believe the healthcare REITs with sizable seniors housing portfolios could see pressure if the COVID-19 meaningfully impacts the elderly population. These communities tend to see weaker occupancy trends during the winter months due to higher activity of the influenza virus. We believe these communities would be similarly impacted if the COVID-19 becomes more widespread. If the virus becomes a problem, it could impact the existing residents at these facilities. Additionally, operators could be

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forced to quarantine assets if the virus is active inside a facility or outside in the general community.  Industrial: We believe the industrial REITs could face modest headwinds if the outbreak noticeably weakens the global economy or slows retailers and logistic companies’ expansion plans. Demand has historically been levered to domestic consumption and global trade, and will generally pull back if the economy turns. However, the strong on- going secular tailwinds, e-commerce growth and retailers’ need to modernize their respective supply chains, could offset some of this potential weakness. That said, tenants could potentially elect to slow down their respective expansion plans if the outbreak becomes a big enough issue and is no longer viewed as a temporary problem.

Retail: Exposure to COVID-19 would be indirect as the virus could disrupt the retailer’s business by slowing store traffic or delaying inventory shipments from other countries. In this scenario, retail REITs could see delays in store openings, or in more severe instances, smaller tenants could potentially go out of business. Given that portfolios for companies under coverage are primarily in the U.S., the REITs have seen minimal impact. Simon Property’s international locations account for ~9% of NOI. On the 4Q19 call, SPG indicated its premiere locations in the U.S. could be temporarily impacted by lower inbound international travel.

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Additional Disclosures RBC Capital Markets is acting as Agent to Algonquin Power & Utilities Corp., in connection with their At-The-Market Equity Program, announced on March 1, 2019.

RBC Capital Markets acted as exclusive financial advisor to Crescent Point Energy on the sale of certain natural gas infrastructure assets to Steel Reef Infrastructure, announced on November 14, 2019.

RBC Capital Markets acted as exclusive financial advisor to Emera Inc. on the sale of its interest in Emera Maine to ENMAX Corporation, as announced on March 25, 2019.

RBC Capital Markets is acting as Agent for the ATM Program of Emera Inc., announced on July 11, 2019.

Michael Tran is a member of the advisory board of Orbital Insight.

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Contributing Authors

RBC Capital Markets, LLC RBCCM Global Research (Global Research) (416) 842-7800 [email protected] Brian Abrahams (Analyst) (212) 858-7066 [email protected] Jon G. Arfstrom (Analyst) (612) 373-1785 [email protected] Jonathan Atkin (Analyst) (415) 633-8589 [email protected] Lori Calvasina (Head of U.S. Equity Strategy) (212) 618-7634 [email protected] Christopher Carril (Analyst) (617) 725-2109 [email protected] Michael Carroll (Analyst) (440) 715-2649 [email protected] Gerard Cassidy (Analyst) (207) 780-1554 [email protected] Scot Ciccarelli (Analyst) (212) 428-6402 [email protected] Deane Dray (Analyst) (212) 428-6465 [email protected] Steven Duong (Analyst) (207) 780-1554 [email protected] Mark A. Dwelle (Analyst) (804) 782-4008 [email protected] Kate Fitzsimons (Analyst) (212) 428-6550 [email protected] Wes Golladay (Analyst) (440) 715-2650 [email protected] Kurt Hallead (Co-Head Global Energy Research) (512) 708-6356 [email protected] Scott Hanold (Analyst) (512) 708-6354 [email protected] Brad Heffern (Analyst) (512) 708-6311 [email protected] Mark S.F. Mahaney (Analyst) (415) 633-8608 [email protected] Nik Modi (Analyst) (212) 905-5993 [email protected] Robert Muller (Analyst) (212) 905-5816 [email protected] Daniel R. Perlin (Analyst) (410) 625-6130 [email protected] Tom Porcelli (Chief US Economist) (212) 618-7788 [email protected] Gregory Renza (Analyst) (212) 858-7065 [email protected] Joseph Spak (Analyst) (212) 428-2364 [email protected] Mitch Steves (Analyst) (415) 633-8535 [email protected] Michael Tran (Commodity Strategist) (212) 266-4020 [email protected] Arun Viswanathan (Analyst) (212) 301-1611 [email protected] Seth Weber (Analyst) (212) 618-7545 [email protected]

RBC Europe Limited Gordon Aitken (Analyst) +44 20 7002 2633 [email protected] Ben Bathurst (Analyst) +44 20 7429 8910 [email protected] Biraj Borkhataria (Analyst) +442070297556 [email protected] Tyler Broda (Analyst) +44 20 7653 4866 [email protected] Andrew Brooke (Analyst) +44 20 7002 2262 [email protected] Richard Chamberlain (Analyst) +442074298092 [email protected] Piral Dadhania (Analyst) +44 20 7429 8644 [email protected] Julian Easthope (Analyst) +44 20 7653 4064 [email protected] James Edwardes Jones (Analyst) +442070022101 [email protected] Mark Fielding (Analyst) +44 20 7002 2128 [email protected] Kamran Hossain (Analyst) +44 20 7029 0847 [email protected] Mandeep Jagpal (Analyst) +44 20 7002 2817 [email protected] Zoe Karamanoli (Analyst) +44 0 20 7429 8978 [email protected] Cathal Kennedy (European Economist) +44 20 7029 0133 [email protected] Sebastian Kuenne (Analyst) +44 20 7429 8932 [email protected] Julian Livingston-Booth (Analyst) +44 20 7002 2790 julian.livingston- [email protected] Sherri Malek (Analyst) +44 0 20 7653 4510 [email protected] Tom Narayan (Analyst) +44 20 7429 8594 [email protected]

February 27, 2020 88 Global Reference Guide to COVID-19 ("coronavirus")

James Pearse (Analyst) +44 20 7653 4894 [email protected] Anke Reingen (Analyst) +44 20 7029 0784 [email protected] Wasi Rizvi (Analyst) +44 20 7653 4591 [email protected] Peter Schaffrik (Global Macro Strategist) +44 20 7029 7076 [email protected] Kate Somerville (Analyst) +44 20 7653 4648 [email protected] Benjamin Toms (Analyst) +44 20 7002 2258 [email protected] Charles Weston (Analyst) +44 20 7429 8425 [email protected]

RBC Dominion Securities Inc. Steve Arthur (Analyst) (416) 842-7844 [email protected] Sam Crittenden (Analyst) (416) 842-7886 [email protected] Luke Davis (Analyst) (403) 299-5042 [email protected] Michael Harvey (Analyst) (403) 299-6998 [email protected] Douglas Miehm (Analyst) (416) 842-7823 [email protected] Darko Mihelic (Analyst) (416) 842-4128 [email protected] Irene Nattel (Analyst) (514) 878-7262 [email protected] Nelson Ng (Analyst) (604) 257-7617 [email protected] Greg Pardy (Co-Head Global Energy Research) (416) 842-7848 [email protected] Paul C. Quinn (Analyst) (604) 257-7048 [email protected] Walter Spracklin (Analyst) (416) 842-7877 [email protected] Paul Treiber (Analyst) (416) 842-7811 [email protected] Andrew D. Wong (Analyst) (416) 842-7830 [email protected]

Royal Bank of Canada - Hong Kong Branch Stephanie D'Ath (Analyst) +852 2848 1390 [email protected]

Royal Bank of Canada - Sydney Branch James Nevin (Analyst) +61 2 9033 3271 [email protected] Su-Lin Ong (Head of Australian and New Zealand FIC Strategy)+612 9033 3088 [email protected] Garry Sherriff (Analyst) +61 2 9033 3022 [email protected]

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Companies mentioned 3M Company (NYSE: MMM US; $148.96; Sector Perform) ABB Ltd (SWX: ABBN SW; CHF22.31; Sector Perform) AbbVie Inc. (NYSE: ABBV US; $88.41; Sector Perform) Abcam PLC (LSE: ABC LN; GBp1,180.00; Sector Perform) Abercrombie & Fitch Co. (NYSE: ANF US; $13.70; Sector Perform) AB SKF (STO: SKFB SS; SEK179.50; Outperform) Accor SA (NXT PA: AC FP; €34.56; Outperform) Adecco Group AG (SWX: ADEN SW; CHF54.98; Outperform) adidas AG (XETRA: ADS GR; €259.60; Outperform) Adient Public Limited Company (NYSE: ADNT US; $25.27; Sector Perform) Adobe Inc. (NASDAQ: ADBE US; $351.34; Outperform) Advance Auto Parts, Inc. (NYSE: AAP US; $134.54; Outperform) Advanced Micro Devices, Inc. (NASDAQ: AMD US; $47.49; Outperform) Advantage Oil & Gas Ltd. (TSX: AAV CN; C$2.11; Sector Perform) Aegon N.V. (NXT AM: AGN NA; €3.42; Sector Perform) Aena SME, S.A. (MADRID: AENA SM; €154.00; Underperform) Aeroports de Paris SA (NXT PA: ADP FP; €149.40; Outperform) Ageas SA/NV (BRU: AGS BB; €45.20; Sector Perform) Air Canada (TSX: AC CN; C$34.92; Outperform) Alfa Laval AB (STO: ALFA SS; SEK229.00; Outperform) Algonquin Power & Utilities Corp. (NYSE: AQN US; $16.17; Outperform) Alibaba Group Holding Limited (NYSE: BABA US; $208.74; Outperform) Alimentation Couche-Tard Inc. (TSX: ATD/B CN; C$42.58; Outperform) Allergan Public Limited Company (NYSE: AGN US; $193.19; Sector Perform) Allianz SE (XETRA: ALV GR; €213.10; Underperform) Altair Engineering Inc. (NASDAQ: ALTR US; $34.80; Sector Perform) Altium Limited (ASX: ALU AU; AUD31.14; Sector Perform) Amazon.com, Inc. (NASDAQ: AMZN US; $1,979.59; Outperform) American Axle & Manufacturing Holdings, Inc. (NYSE: AXL US; $6.38; Outperform) American Electric Power Company, Inc. (NYSE: AEP US; $97.43; Outperform) American Express Company (NYSE: AXP US; $118.50; Sector Perform) Amphenol Corporation (NYSE: APH US; $95.67; Sector Perform) Analog Devices, Inc. (NASDAQ: ADI US; $114.84; Outperform) Andlauer Healthcare Group Inc. (TSX: AND CN; C$24.00; Outperform) Anglo American plc (LSE: AAL LN; GBp1,944.40; Top Pick) Anheuser-Busch InBev SA/NV (BRU: ABI BB; €61.89; Sector Perform) ANSYS, Inc. (NASDAQ: ANSS US; $270.19; Sector Perform) Anthem, Inc. (NYSE: ANTM US; $268.15; Outperform) Antofagasta PLC (LSE: ANTO LN; GBp810.00; Underperform) Apache Corporation (NYSE: APA US; $24.43; Sector Perform) Appen Limited (ASX: APX AU; AUD21.99; Outperform) Apple Inc. (NASDAQ: AAPL US; $292.65; Outperform) Applied Materials, Inc. (NASDAQ: AMAT US; $59.81; Outperform) Aptiv PLC (NYSE: APTV US; $81.10; Outperform) ARC Resources Ltd. (TSX: ARX CN; C$6.26; Outperform) Ardagh Group S.A. (NYSE: ARD US; $18.46; Outperform) Aritzia Inc. (TSX: ATZ CN; C$23.26; Outperform) ASOS plc (LSE: ASC LN; GBp3,073.00; Outperform) Associated British Foods plc (LSE: ABF LN; GBp2,416.00; Sector Perform) Athabasca Oil Corporation (TSX: ATH CN; C$0.36; Sector Perform; Speculative Risk)

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Atlas Copco AB (STO: ATCOA SS; SEK349.50; Sector Perform) Autodesk, Inc. (NASDAQ: ADSK US; $190.67; Outperform) Auto Trader Group PLC (LSE: AUTO LN; GBp540.40; Sector Perform) Avantor Inc (NYSE: AVTR US; $16.32; Outperform) Aviva PLC (LSE: AV/ LN; GBp379.90; Top Pick) AXA SA (NXT PA: CS FP; €22.56; Outperform) B&M European Value Retail S.A. (LSE: BME LN; GBp333.60; Outperform) Baker Hughes Company (NYSE: BKR US; $17.76; Outperform) Ball Corporation (NYSE: BLL US; $75.67; Outperform) Bank of America Corporation (NYSE: BAC US; $30.63; Outperform) Bausch Health Companies Inc. (NYSE: BHC US; $24.44; Sector Perform) Bayerische Motoren Werke Aktiengesellschaft (XETRA: BMW GR; €61.09; Sector Perform) Baytex Energy Corp. (TSX: BTE CN; C$1.27; Outperform) Beiersdorf AG (XETRA: BEI GR; €98.60; Sector Perform) Berry Global Group, Inc. (NYSE: BERY US; $38.89; Outperform) Best Buy Co., Inc. (NYSE: BBY US; $82.18; Sector Perform) BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX US; $2.53; Sector Perform; Speculative Risk) Biogen Inc. (NASDAQ: BIIB US; $327.45; Sector Perform) Birchcliff Energy Ltd. (TSX: BIR CN; C$1.54; Outperform) Bodycote plc (LSE: BOY LN; GBp798.00; Sector Perform) BOK Financial Corporation (NASDAQ: BOKF US; $77.19; Sector Perform) Bombardier Inc. (TSX: BBD/B CN; C$1.19; Outperform; Speculative Risk) Bonavista Energy Corporation (TSX: BNP CN; C$0.37; Sector Perform) boohoo Group PLC (LSE: BOO LN; GBp304.00; Underperform) Booking Holdings Inc. (NASDAQ: BKNG US; $1,678.20; Outperform) BorgWarner Inc. (NYSE: BWA US; $30.21; Sector Perform) British American Tobacco p.l.c. (LSE: BATS LN; GBp3,219.50; Sector Perform) Bucher Industries AG (SWX: BUCN SW; CHF315.60; Sector Perform) Burberry Group PLC (LSE: BRBY LN; GBp1,751.50; Underperform) Bureau Veritas (NXT PA: BVI FP; €23.84; Sector Perform) Burlington Stores, Inc. (NYSE: BURL US; $233.97; Outperform) Cactus, Inc. (NYSE: WHD US; $25.51; Outperform) Callon Petroleum Company (NYSE: CPE US; $2.23; Outperform) Canadian National Railway Company (TSX: CNR CN; C$117.77; Sector Perform) Canadian Natural Resources Limited (TSX: CNQ CN; C$35.76; Outperform) Canadian Pacific Railway Limited (TSX: CP CN; C$341.50; Outperform) Canadian Tire Corporation, Limited (TSX: CTC/A CN; C$139.61; Outperform) Canadian Utilities Limited (TSX: CU CN; C$41.54; Sector Perform) Capital Power Corporation (TSX: CPX CN; C$37.49; Sector Perform) Cardinal Energy Ltd. (TSX: CJ CN; C$2.00; Sector Perform) Cargojet Inc. (TSX: CJT CN; C$104.60; Outperform) Carlsberg A/S (CSE: CARLB DC; DKK940.80; Outperform) Casey's General Stores, Inc. (NASDAQ: CASY US; $174.05; Underperform) CCL Industries Inc. (TSX: CCL/B CN; C$43.31; Outperform) Celanese Corporation (NYSE: CE US; $96.87; Outperform) Celestica Inc. (NYSE: CLS US; $6.93; Sector Perform) Cenovus Energy Inc. (TSX: CVE CN; C$10.55; Outperform) Centennial Resource Development, Inc. (NASDAQ: CDEV US; $2.30; Outperform) Centrica plc (LSE: CNA LN; GBp76.70; Sector Perform) CES Energy Solutions Corp. (TSX: CEU CN; C$1.95; Outperform) CF Industries Holdings, Inc. (NYSE: CF US; $37.06; Sector Perform) Check Point Software Technologies Ltd. (NASDAQ: CHKP US; $103.66; Sector Perform) Chemtrade Logistics Income Fund (TSX: CHE-U CN; C$8.79; Sector Perform)

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Cheniere Energy, Inc. (AMEX: LNG US; $48.27; Outperform) Chevron Corporation (NYSE: CVX US; $98.04; Sector Perform) Chorus Aviation Inc. (TSX: CHR CN; C$6.60; Outperform) Cigna Corporation (NYSE: CI US; $188.92; Outperform) Citigroup Inc. (NYSE: C US; $68.18; Outperform) Citizens Financial Group, Inc. (NYSE: CFG US; $33.69; Outperform) Cloudflare, Inc. (NYSE: NET US; $22.11; Outperform) CMC Markets PLC (LSE: CMCX LN; GBp155.00; Outperform; Speculative Risk) CMS Energy Corporation (NYSE: CMS US; $66.44; Sector Perform) Coats Group PLC (LSE: COA LN; GBp65.65; Outperform) Colgate-Palmolive Company (NYSE: CL US; $72.92; Outperform) Comerica Incorporated (NYSE: CMA US; $55.74; Outperform) Commerzbank Aktiengesellschaft (XETRA: CBK GR; €5.68; Sector Perform; Speculative Risk) Commvault Systems, Inc. (NASDAQ: CVLT US; $44.43; Sector Perform) ConocoPhillips (NYSE: COP US; $51.17; Sector Perform) Continental AG (XETRA: CON GR; €103.92; Sector Perform) Continental Resources, Inc. (NYSE: CLR US; $20.78; Outperform) ConvaTec Group PLC (LSE: CTEC LN; GBp208.40; Sector Perform) Costco Wholesale Corporation (NASDAQ: COST US; $305.69; Outperform) Coupa Software Incorporated (NASDAQ: COUP US; $160.16; Outperform) Credit Suisse Group AG (SWX: CSGN SW; CHF12.12; Sector Perform) Crescent Point Energy Corp. (TSX: CPG CN; C$3.62; Sector Perform) Crew Energy Inc. (TSX: CR CN; C$0.33; Sector Perform) Crown Holdings, Inc. (NYSE: CCK US; $74.52; Outperform) CSX Corporation (NASDAQ: CSX US; $75.31; Sector Perform) Cullen/Frost Bankers, Inc. (NYSE: CFR US; $87.30; Sector Perform) Cummins Inc. (NYSE: CMI US; $157.97; Sector Perform) Daimler AG (XETRA: DAI GR; €39.57; Outperform) Danaher Corporation (NYSE: DHR US; $152.19; Sector Perform) Danone (NXT PA: BN FP; €67.94; Sector Perform) Davide Campari-Milano S.p.A. (MILAN: CPR IM; €8.13; Sector Perform) Dechra Pharmaceuticals PLC (LSE: DPH LN; GBp2,758.00; Sector Perform) Delek US Holdings, Inc. (NYSE: DK US; $22.22; Sector Perform) Delivery Hero AG (XETRA: DHER GR; €70.78; Outperform) Delphi Energy Corp. (TSX: DEE CN; C$0.68; Sector Perform; Speculative Risk) Denbury Resources Inc. (NYSE: DNR US; $0.79; Sector Perform) Deutsche Bank AG (XETRA: DBK GR; €8.73; Underperform; Speculative Risk) Deutsche Boerse Aktiengesellschaft (XETRA: DB1 GR; €149.00; Sector Perform) Devon Energy Corporation (NYSE: DVN US; $16.72; Sector Perform) Diageo PLC (LSE: DGE LN; GBp2,933.50; Outperform) Diamondback Energy, Inc. (NASDAQ: FANG US; $63.14; Outperform) Diamond Offshore Drilling, Inc. (NYSE: DO US; $2.69; Sector Perform) Dick's Sporting Goods, Inc. (NYSE: DKS US; $38.87; Sector Perform) Dixons Carphone plc (LSE: DC/ LN; GBp130.50; Sector Perform) Dollarama Inc. (TSX: DOL CN; C$38.00; Outperform) Dollar General Corporation (NYSE: DG US; $162.67; Outperform) Dollar Tree, Inc. (NASDAQ: DLTR US; $87.75; Outperform) Domino's Pizza, Inc. (NYSE: DPZ US; $366.67; Outperform) Domtar Corporation (NYSE: UFS US; $29.97; Sector Perform) Dow Inc (NYSE: DOW US; $43.05; Sector Perform) Dunelm Group PLC (LSE: DNLM LN; GBp1,181.00; Sector Perform) DuPont de Nemours Inc (NYSE: DD US; $47.26; Sector Perform) eBay Inc. (NASDAQ: EBAY US; $36.69; Sector Perform)

February 27, 2020 92 Global Reference Guide to COVID-19 ("coronavirus")

Electrocomponents Public Limited Company (LSE: ECM LN; GBp639.00; Sector Perform) ELMO Software Limited (ASX: ELO AU; AUD7.40; Sector Perform; Speculative Risk) Emera Incorporated (TSX: EMA CN; C$59.81; Outperform) Emerson Electric Co. (NYSE: EMR US; $66.63; Sector Perform) Empire Company Limited (TSX: EMP/A CN; C$31.10; Sector Perform) Enerflex Ltd. (TSX: EFX CN; C$7.00; Outperform) Enerplus Corporation (TSX: ERF CN; C$5.83; Outperform) Entergy Corporation (NYSE: ETR US; $125.65; Sector Perform) EOG Resources, Inc. (NYSE: EOG US; $63.20; Outperform) EQT Corporation (NYSE: EQT US; $4.96; Outperform) Equinor ASA (OSLO: EQNR NO; NOK151.35; Outperform) Essent Group Ltd. (NYSE: ESNT US; $45.44; Outperform) EssilorLuxottica (NXT PA: EL FP; €130.25; Sector Perform) Expedia Group, Inc. (NASDAQ: EXPE US; $101.19; Outperform) Extraction Oil & Gas LLC (NASDAQ: XOG US; $0.71; Outperform) Exxon Mobil Corporation (NYSE: XOM US; $53.01; Sector Perform) F5 Networks, Inc. (NASDAQ: FFIV US; $126.45; Sector Perform) Faurecia (NXT PA: EO FP; €42.91; Sector Perform) Ferrovial, S.A. (SIBE: FER SM; €27.94; Outperform) Fifth Third Bancorp (NASDAQ: FITB US; $26.65; Outperform) First Commonwealth Financial Corporation (NYSE: FCF US; $12.72; Outperform) FirstEnergy Corp. (NYSE: FE US; $48.30; Sector Perform) First Horizon National Corporation (NYSE: FHN US; $14.78; Sector Perform) First Quantum Minerals Ltd. (TSX: FM CN; C$10.18; Outperform) Five Below, Inc. (NASDAQ: FIVE US; $105.60; Outperform) Flowserve Corporation (NYSE: FLS US; $41.57; Sector Perform) Flughafen Wien AG (WBO: FLU AV; €32.60; Underperform) Flughafen Zurich AG (SWX: FHZN SW; CHF159.20; Outperform) Fortinet, Inc. (NASDAQ: FTNT US; $106.26; Sector Perform) Fortis Inc. (TSX: FTS CN; C$57.59; Outperform) Fortive Corporation (NYSE: FTV US; $70.75; Sector Perform) Fortune Brands Home & Security, Inc. (NYSE: FBHS US; $64.83; Sector Perform) Fraport AG Frankfurt Airport Services Worldwide (XETRA: FRA GR; €62.08; Underperform) Frasers Group PLC (LSE: FRAS LN; GBp445.00; Underperform) Freehold Royalties Ltd. (TSX: FRU CN; C$6.48; Outperform) Fresenius Medical Care AG & Co. KGaA (NYSE: FMS US; $38.84; Sector Perform) Gates Industrial Corporation plc (NYSE: GTES US; $11.05; Sector Perform) GDS Holdings Limited (NASDAQ: GDS US; $59.07; Outperform) GEA Group Aktiengesellschaft (XETRA: G1A GR; €25.50; Sector Perform) General Electric Company (NYSE: GE US; $10.95; Outperform) General Mills, Inc. (NYSE: GIS US; $52.14; Sector Perform) General Motors Company (NYSE: GM US; $32.00; Outperform) Genesis Energy, L.P. (NYSE: GEL US; $10.80; Outperform) Genuine Parts Company (NYSE: GPC US; $90.18; Sector Perform) George Weston Limited (TSX: WN CN; C$106.74; Outperform) Gilead Sciences, Inc. (NASDAQ: GILD US; $74.70; Top Pick) Goco Group PLC (LSE: GOCO LN; GBp85.90; Outperform) GrafTech International Ltd. (NYSE: EAF US; $8.33; Sector Perform) Graphic Packaging Holding Company (NYSE: GPK US; $13.65; Outperform) Halliburton Company (NYSE: HAL US; $18.40; Outperform) Hammerson PLC (LSE: HMSO LN; GBp228.00; Sector Perform) Hansen Technologies Limited (ASX: HSN AU; AUD3.45; Sector Perform) Hays plc (LSE: HAS LN; GBp147.90; Sector Perform)

February 27, 2020 93 Global Reference Guide to COVID-19 ("coronavirus")

Heineken NV (NXT AM: HEIA NA; €97.66; Sector Perform) Helmerich & Payne, Inc. (NYSE: HP US; $38.89; Outperform) Henkel AG & Co. KGaA (XETRA: HEN3 GR; €87.12; Sector Perform) Hennes & Mauritz AB (OMX: HMB SS; SEK186.54; Outperform) Hexagon AB (STO: HEXAB SS; SEK549.00; Outperform) Hilton Worldwide Holdings Inc. (NYSE: HLT US; $97.90; Outperform) HSBC Holdings plc (LSE: HSBA LN; GBp555.00; Underperform) Hugo Boss AG (XETRA: BOSS GR; €40.97; Sector Perform) Humana, Inc. (NYSE: HUM US; $328.67; Sector Perform) Huntington Bancshares Incorporated (NASDAQ: HBAN US; $12.70; Outperform) Huntsman Corporation (NYSE: HUN US; $18.62; Outperform) Husky Energy Inc. (TSX: HSE CN; C$7.15; Sector Perform) Hydro One Limited (TSX: H CN; C$28.37; Sector Perform) IG Group Holdings PLC (LSE: IGG LN; GBp670.40; Outperform; Speculative Risk) IMI plc (LSE: IMI LN; GBp1,022.50; Sector Perform) Incyte Corporation (NASDAQ: INCY US; $77.97; Sector Perform) Independence Contract Drilling, Inc. (NYSE: ICD US; $0.43; Sector Perform) Inditex (SIBE: ITX SM; €29.25; Top Pick) Infomedia Ltd (ASX: IFM AU; AUD2.15; Outperform) Inovio Pharmaceuticals, Inc. (NASDAQ: INO US; $3.99; Outperform; Speculative Risk) InterContinental Hotels Group PLC (LSE: IHG LN; GBp4,538.00; Underperform) International Paper Company (NYSE: IP US; $38.82; Sector Perform) Intertape Polymer Group Inc. (TSX: ITP CN; C$15.00; Sector Perform) Intertek Group plc (LSE: ITRK LN; GBp5,580.00; Underperform) Investors Bancorp, Inc. (NASDAQ: ISBC US; $10.94; Outperform) IPL Plastics Inc. (TSX: IPLP CN; C$8.45; Outperform) Ivanhoe Mines Ltd. (TSX: IVN CN; C$3.23; Outperform; Speculative Risk) Jabil Inc. (NYSE: JBL US; $34.63; Sector Perform) JD Sports Fashion plc (LSE: JD/ LN; GBp783.80; Outperform) JELD-WEN Holding, Inc. (NYSE: JELD US; $20.08; Sector Perform) JPMorgan Chase & Co. (NYSE: JPM US; $126.64; Outperform) Julius Baer Group Ltd. (SWX: BAER SW; CHF43.63; Outperform) Kelt Exploration Ltd. (TSX: KEL CN; C$3.20; Outperform) Kering (NXT PA: KER FP; €530.00; Outperform) Keyera Corp. (TSX: KEY CN; C$33.80; Outperform) Kinaxis Inc. (TSX: KXS CN; C$113.09; Outperform) Kingfisher plc (LSE: KGF LN; GBp196.40; Underperform) Kone OYJ (HEL: KNEBV FH; €52.48; Underperform) L'Oreal (NXT PA: OR FP; €254.00; Sector Perform) Lam Research Corporation (NASDAQ: LRCX US; $296.60; Outperform) L Brands, Inc. (NYSE: LB US; $22.78; Sector Perform) Lear Corporation (NYSE: LEA US; $112.04; Outperform) Legrand (NXT PA: LR FP; €74.52; Underperform) Leucrotta Exploration Inc. (TSXV: LXE CN; C$0.62; Sector Perform; Speculative Risk) Loblaw Companies Limited (TSX: L CN; C$69.68; Outperform) lululemon athletica inc. (NASDAQ: LULU US; $238.56; Outperform) Lundin Mining Corporation (TSX: LUN CN; C$7.05; Outperform) Lyft, Inc. (NASDAQ: LYFT US; $39.86; Outperform) M&T Bank Corporation (NYSE: MTB US; $153.46; Outperform) Manulife Financial Corporation (TSX: MFC CN; C$23.39; Outperform) Maple Leaf Foods Inc. (TSX: MFI CN; C$23.67; Outperform) Marathon Oil Corporation (NYSE: MRO US; $8.41; Outperform) Marks and Spencer Group plc (LSE: MKS LN; GBp171.95; Outperform; Speculative Risk)

February 27, 2020 94 Global Reference Guide to COVID-19 ("coronavirus")

Marriott International, Inc. (NASDAQ: MAR US; $120.19; Outperform) Masco Corporation (NYSE: MAS US; $44.33; Outperform) Masonite International Corporation (NYSE: DOOR US; $76.65; Sector Perform) Mastercard Incorporated (NYSE: MA US; $298.04; Outperform) Matador Resources Company (NYSE: MTDR US; $10.76; Outperform) McDonald's Corporation (NYSE: MCD US; $210.10; Outperform) Melrose Industries PLC (LSE: MRO LN; GBp226.00; Outperform) Mercer International Inc. (NASDAQ: MERC US; $9.27; Sector Perform) Merck & Co., Inc. (NYSE: MRK US; $79.94; Sector Perform) Merus N.V. (NASDAQ: MRUS US; $16.96; Outperform; Speculative Risk) Methanex Corporation (NASDAQ: MEOH US; $29.47; Outperform) Metro Inc. (TSX: MRU CN; C$54.04; Sector Perform) Microsoft Corporation (NASDAQ: MSFT US; $170.17; Outperform) Mohawk Industries, Inc. (NYSE: MHK US; $125.83; Underperform) Moncler SpA (MILAN: MONC IM; €35.70; Outperform) Mondelez International, Inc. (NASDAQ: MDLZ US; $56.86; Outperform) Moneysupermarket.com Group PLC (LSE: MONY LN; GBp326.10; Underperform) Montage Resources Corporation (NYSE: MR US; $3.18; Outperform; Speculative Risk) Morgan Advanced Materials plc (LSE: MGAM LN; GBp301.60; Underperform) Morgan Stanley (NYSE: MS US; $47.24; Outperform) Mullen Group Ltd. (TSX: MTL CN; C$8.14; Outperform) Munich Reinsurance Co. (XETRA: MUV2 GR; €253.80; Outperform) Mylan N.V. (NASDAQ: MYL US; $19.54; Outperform) Nabors Industries Ltd. (NYSE: NBR US; $1.79; Sector Perform) National Oilwell Varco, Inc. (NYSE: NOV US; $19.47; Sector Perform) Naturgy Energy Group S.A. (MADRID: NTGY SM; €22.25; Underperform) Nearmap Limited (ASX: NEA AU; AUD1.74; Outperform) Nestle S.A. (SWX: NESN SW; CHF104.70; Underperform) NetScout Systems, Inc. (NASDAQ: NTCT US; $27.54; Sector Perform) Newell Brands Inc. (NASDAQ: NWL US; $16.59; Sector Perform) New York Community Bancorp, Inc. (NYSE: NYCB US; $11.25; Sector Perform) Next PLC (LSE: NXT LN; GBp6,510.00; Sector Perform) Noble Corporation plc (NYSE: NE US; $0.70; Sector Perform) Noble Energy, Inc. (NYSE: NBL US; $15.30; Outperform) Norfolk Southern Corporation (NYSE: NSC US; $190.07; Underperform) Nutanix, Inc. (NASDAQ: NTNX US; $32.63; Outperform) Nutrien Ltd. (NYSE: NTR US; $40.46; Outperform) NuVista Energy Ltd. (TSX: NVA CN; C$2.11; Outperform) NVIDIA Corporation (NASDAQ: NVDA US; $267.65; Outperform) O'Reilly Automotive, Inc. (NASDAQ: ORLY US; $377.69; Outperform) Oasis Petroleum Inc. (NYSE: OAS US; $1.65; Outperform) Ocado Group PLC (LSE: OCDO LN; GBp1,121.50; Sector Perform) Oceaneering International, Inc. (NYSE: OII US; $10.94; Outperform) Oracle Corporation (NYSE: ORCL US; $52.05; Sector Perform) Ovintiv Inc. (NYSE: OVV US; $11.90; Outperform) Owens Corning (NYSE: OC US; $56.83; Outperform) Owens-Illinois, Inc. (NYSE: OI US; $12.10; Sector Perform) PacWest Bancorp (NASDAQ: PACW US; $34.12; Outperform) PageGroup plc (LSE: PAGE LN; GBp419.40; Sector Perform) Painted Pony Energy Ltd. (TSX: PONY CN; C$0.50; Sector Perform) Palo Alto Networks, Inc. (NYSE: PANW US; $189.58; Sector Perform) PANDORA (CSE: PNDORA DC; DKK319.10; Underperform) Paramount Resources Ltd. (TSX: POU CN; C$4.55; Sector Perform)

February 27, 2020 95 Global Reference Guide to COVID-19 ("coronavirus")

Par Pacific Holdings, Inc. (NYSE: PARR US; $17.17; Sector Perform) Patterson-UTI Energy, Inc. (NASDAQ: PTEN US; $6.03; Outperform) PBF Energy Inc. (NYSE: PBF US; $23.65; Sector Perform) Pernod Ricard (NXT PA: RI FP; €155.95; Sector Perform) Peugeot SA (NXT PA: UG FP; €18.53; Underperform) Peyto Exploration & Development Corp. (TSX: PEY CN; C$2.41; Sector Perform) Pfizer Inc. (NYSE: PFE US; $34.72; Outperform) Phillips 66 (NYSE: PSX US; $80.33; Sector Perform) Pioneer Natural Resources Company (NYSE: PXD US; $125.49; Outperform) Pipestone Energy Corp. (TSXV: PIPE CN; C$1.10; Outperform; Speculative Risk) PPG Industries, Inc. (NYSE: PPG US; $109.09; Outperform) PrairieSky Royalty Ltd. (TSX: PSK CN; C$12.65; Sector Perform) Precision Drilling Corporation (TSX: PD CN; C$1.63; Outperform) Pro Medicus Limited (ASX: PME AU; AUD20.77; Sector Perform) Proofpoint, Inc. (NASDAQ: PFPT US; $116.14; Outperform) PROS Holdings, Inc. (NYSE: PRO US; $48.04; Outperform) Provident Financial Services, Inc. (NYSE: PFS US; $21.55; Sector Perform) Prudential Public Limited Company (LSE: PRU LN; GBp1,422.50; Sector Perform) PTC Inc. (NASDAQ: PTC US; $80.43; Sector Perform) PUMA SE (XETRA: PUM GR; €73.60; Outperform) Pushpay Holdings Limited (ASX: PPH AU; AUD3.86; Outperform) PVH Corp. (NYSE: PVH US; $74.04; Outperform) QUALCOMM Incorporated (NASDAQ: QCOM US; $79.66; Sector Perform) Qualys, Inc. (NASDAQ: QLYS US; $81.88; Sector Perform) Ralph Lauren Corporation (NYSE: RL US; $101.58; Outperform) Randstad NV (NXT AM: RAND NA; €49.96; Outperform) Range Resources Corporation (NYSE: RRC US; $2.80; Outperform) Rapid7, Inc. (NASDAQ: RPD US; $48.50; Outperform) RATIONAL AG (XETRA: RAA GY; €632.00; Underperform) Rayonier Inc. (NYSE: RYN US; $26.60; Sector Perform) RealPage, Inc. (NASDAQ: RP US; $58.09; Outperform) Reckitt Benckiser Group PLC (LSE: RB/ LN; GBp6,099.00; Underperform) Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN US; $457.92; Sector Perform) Regions Financial Corporation (NYSE: RF US; $14.58; Outperform) Renault (NXT PA: RNO FP; €29.09; Outperform) Repsol SA (SIBE: REP SM; €10.87; Outperform) Republic Services, Inc. (NYSE: RSG US; $96.90; Sector Perform) Restaurant Brands International Inc. (NYSE: QSR US; $61.65; Outperform) RHI Magnesita N.V. (LSE: RHIM LN; GBp3,006.00; Outperform) Rightmove plc (LSE: RMV LN; GBp654.20; Sector Perform) Rio Tinto PLC (LSE: RIO LN; GBp3,912.50; Underperform) Ross Stores, Inc. (NASDAQ: ROST US; $119.20; Outperform) Rotork P.L.C. (LSE: ROR LN; GBp297.30; Sector Perform) RPM International Inc. (NYSE: RPM US; $69.46; Sector Perform) Sandvik AB (STO: SAND SS; SEK169.70; Sector Perform) SAP SE (NYSE: SAP US; $126.90; Outperform) Saputo Inc. (TSX: SAP CN; C$39.38; Outperform) Sarepta Therapeutics, Inc. (NASDAQ: SRPT US; $113.63; Outperform) Schindler Holding AG (SWX: SCHP SW; CHF222.40; Sector Perform) Schlumberger Limited (NYSE: SLB US; $28.38; Outperform) Schneider Electric SE (NXT PA: SU FP; €97.10; Outperform) SCOR SE (NXT PA: SCR FP; €34.98; Sector Perform) Scout24 AG (XETRA: G24 GR; €60.55; Sector Perform)

February 27, 2020 96 Global Reference Guide to COVID-19 ("coronavirus")

Sealed Air Corporation (NYSE: SEE US; $32.78; Sector Perform) Sensata Technologies Holding plc (NYSE: ST US; $43.09; Outperform) Seven Generations Energy Ltd. (TSX: VII CN; C$5.70; Outperform) SGS SA (SWX: SGSN SW; CHF2,527.00; Sector Perform) Shopify Inc. (NYSE: SHOP US; $471.18; Outperform) SIEMENS AG (XETRA: SIE GR; €97.87; Sector Perform) Sierra Wireless, Inc. (NASDAQ: SWIR US; $8.17; Sector Perform) Silgan Holdings Inc. (NASDAQ: SLGN US; $31.11; Sector Perform) Smiths Group plc (LSE: SMIN LN; GBp1,657.00; Underperform) SolarWinds Corporation (NYSE: SWI US; $17.69; Outperform) Southwestern Energy Company (NYSE: SWN US; $1.41; Sector Perform) Spectrum Brands Holdings, Inc. (NYSE: SPB US; $54.27; Outperform) Spirax-Sarco Engineering plc (LSE: SPX LN; GBp9,045.00; Underperform) SPX FLOW, Inc. (NYSE: FLOW US; $37.82; Underperform) Standard Life Aberdeen PLC (LSE: SLA LN; GBp301.40; Underperform) Starbucks Corporation (NASDAQ: SBUX US; $80.67; Outperform) Stella-Jones Inc. (TSX: SJ CN; C$34.52; Outperform) Sterling Bancorp (NYSE: STL US; $17.67; Outperform) Storm Resources Ltd. (TSX: SRX CN; C$1.29; Outperform) Suncor Energy Inc. (TSX: SU CN; C$37.88; Outperform) Sun Life Financial Inc. (TSX: SLF CN; C$62.00; Sector Perform) SVB Financial Group (NASDAQ: SIVB US; $224.30; Outperform) Swiss Re AG (SWX: SREN SW; CHF98.80; Sector Perform) Sydney Airport Limited (ASX: SYD AU; AUD8.03; Sector Perform) Synovus Financial Corp. (NYSE: SNV US; $31.15; Sector Perform) Takeaway.com N.V. (LSE: JET LN; GBp7,165.00; Sector Perform) Tamarack Valley Energy Ltd. (TSX: TVE CN; C$1.40; Sector Perform) TC PipeLines, LP (NYSE: TCP US; $39.80; Sector Perform) TeamViewer AG (XETRA: TMV GR; €28.99; Outperform) TechnipFMC plc (NYSE: FTI US; $15.23; Outperform) Teck Resources Limited (TSX: TECK/B CN; C$13.68; Outperform) Tenneco Inc. (NYSE: TEN US; $9.34; Sector Perform) Terex Corporation (NYSE: TEX US; $22.61; Sector Perform) Tesla, Inc. (NASDAQ: TSLA US; $778.80; Underperform) Texas Capital Bancshares, Inc. (NASDAQ: TCBI US; $52.09; Sector Perform) The Chemours Company (NYSE: CC US; $15.55; Sector Perform) The Coca-Cola Company (NYSE: KO US; $57.60; Outperform) The Descartes Systems Group Inc. (NASDAQ: DSGX US; $43.17; Outperform) The Estée Lauder Companies Inc. (NYSE: EL US; $189.29; Sector Perform) The Gap, Inc. (NYSE: GPS US; $14.70; Sector Perform) The Goldman Sachs Group, Inc. (NYSE: GS US; $215.78; Sector Perform) The Mosaic Company (NYSE: MOS US; $17.45; Outperform) The PNC Financial Services Group, Inc. (NYSE: PNC US; $138.71; Outperform) The Procter & Gamble Company (NYSE: PG US; $120.16; Sector Perform) The Sherwin-Williams Company (NYSE: SHW US; $550.61; Outperform) The Southern Company (NYSE: SO US; $66.19; Outperform) The Swatch Group AG (SWX: UHR SW; CHF235.10; Sector Perform) The TJX Companies, Inc. (NYSE: TJX US; $63.99; Sector Perform) The Weir Group PLC (LSE: WEIR LN; GBp1,391.00; Top Pick) TORC Oil & Gas Ltd. (TSX: TOG CN; C$3.50; Outperform) Total SA (NXT PA: FP FP; €41.05; Outperform) Tourmaline Oil Corp. (TSX: TOU CN; C$11.87; Outperform) TP ICAP PLC (LSE: TCAP LN; GBp388.80; Top Pick)

February 27, 2020 97 Global Reference Guide to COVID-19 ("coronavirus")

Transocean Ltd. (NYSE: RIG US; $3.43; Sector Perform) Truist Financial Corporation (NYSE: TFC US; $50.70; Top Pick) TT Electronics plc (LSE: TTG LN; GBp210.00; Outperform) Twilio Inc. (NYSE: TWLO US; $112.96; Outperform) U.S. Bancorp (NYSE: USB US; $49.66; Outperform) Uber Technologies Inc (NYSE: UBER US; $34.45; Outperform) UBS Group AG (SWX: UBSG SW; CHF11.69; Sector Perform) Unilever N.V. (NXT AM: UNA NA; €51.16; Underperform) Union Pacific Corporation (NYSE: UNP US; $165.75; Outperform) Uniper SE (XETRA: UN01 GR; €27.82; Underperform) UnitedHealth Group Inc. (NYSE: UNH US; $263.00; Outperform) V.F. Corporation (NYSE: VFC US; $76.39; Outperform) Valaris PLC (NYSE: VAL US; $3.21; Sector Perform) Valeo SA (NXT PA: FR FP; €24.60; Underperform) Valley National Bancorp (NASDAQ: VLY US; $10.08; Outperform) VAT Group AG (SWX: VACN SE; CHF142.50; Underperform) Vesuvius plc (LSE: VSVS LN; GBp411.20; Outperform) Vinci SA (NXT PA: DG FP; €97.62; Sector Perform) Visa Inc. (NYSE: V US; $187.21; Outperform) Visteon Corporation (NASDAQ: VC US; $67.57; Outperform) VMware, Inc. (NYSE: VMW US; $144.27; Outperform) Walmart Inc. (NYSE: WMT US; $113.78; Sector Perform) Wartsila Corporation (HEL: WRT1V FH; €9.88; Underperform) Waste Connections, Inc. (NYSE: WCN US; $99.87; Outperform) West Fraser Timber Co. Ltd. (TSX: WFT CN; C$54.94; Outperform) Westlake Chemical Corporation (NYSE: WLK US; $56.29; Sector Perform) Westshore Terminals Investment Corporation (TSX: WTE CN; C$14.10; Outperform) Weyerhaeuser Company (NYSE: WY US; $27.40; Outperform) Whirlpool Corporation (NYSE: WHR US; $137.31; Underperform) Whitecap Resources Inc. (TSX: WCP CN; C$4.21; Outperform) WH Smith PLC (LSE: SMWH LN; GBp2,120.00; Outperform) Williams-Sonoma, Inc. (NYSE: WSM US; $64.94; Sector Perform) Winpak Ltd. (TSX: WPK CN; C$44.79; Sector Perform) Wintrust Financial Corporation (NASDAQ: WTFC US; $57.88; Outperform) WPX Energy, Inc. (NYSE: WPX US; $10.27; Outperform) Xero Limited (ASX: XRO AU; AUD78.00; Outperform) Xylem Inc. (NYSE: XYL US; $83.93; Outperform) Yum! Brands, Inc. (NYSE: YUM US; $97.50; Sector Perform) Zalando SE (XETRA: ZAL GR; €44.25; Outperform) Zendesk, Inc. (NYSE: ZEN US; $83.04; Outperform) Zoom Video Communications, Inc. (NASDAQ: ZM US; $106.88; Sector Perform) Required disclosures Non-U.S. analyst disclosure RBC Capital Markets or its affiliates trades or may trade as principal in the debt securities (or in related derivatives) of the Commonwealth of Australia, New South Wales Treasury Corporation, Queensland Treasury Corporation, South Australian Financing Authority, Treasury Corporation of Victoria, Western Australian Treasury Corporation, Northern Territory Treasury Corporation and Tasmanian Public Finance Corporation.

RBC Europe Limited, RBC Capital Markets or one of its affiliates trades or may trade as principal in the debt securities (or in related derivatives) of the Government of the United Kingdom, the Federal Republic of Germany and the Republic of France. RBC Europe Limited, RBC Capital Markets one of its affiliates managed or co-managed a public offering of securities for the Government of the February 27, 2020 98 Global Reference Guide to COVID-19 ("coronavirus")

United Kingdom. RBC Europe Limited, RBC Capital Markets, or one of its affiliates, received compensation for Investment Banking services from the Government of the United Kingdom in the past 12 months. RBC Europe Limited, RBC Capital Markets or one of its affiliates expects to receive, or intends to seek, compensation for Investment Banking services from the Government of the United Kingdom in the next 3 months.

Gordon Aitken, Steve Arthur, Ben Bathurst, Biraj Borkhataria, Tyler Broda, Andrew Brooke, Richard Chamberlain, Sam Crittenden, Stephanie D'Ath, Piral Dadhania, Luke Davis, Julian Easthope, James Edwardes Jones, Mark Fielding, Michael Harvey, Kamran Hossain, Mandeep Jagpal, Zoe Karamanoli, Sebastian Kuenne, Julian Livingston-Booth, Sherri Malek, Douglas Miehm, Darko Mihelic, Tom Narayan, Irene Nattel, James Nevin, Nelson Ng, Greg Pardy, James Pearse, Paul C. Quinn, Anke Reingen, Wasi Rizvi, Garry Sherriff, Kate Somerville, Walter Spracklin, Benjamin Toms, Paul Treiber, Charles Weston and Andrew D. Wong (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to provide specific disclosures for the subject companies by reference. To access conflict of interest and other disclosures for the subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or an email to [email protected].

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/ Outperform, Sector Perform, and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis. Distribution of ratings RBC Capital Markets, Equity Research As of 31-Dec-2019 Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [Top Pick & Outperform] 765 51.97 225 29.41 HOLD [Sector Perform] 625 42.46 127 20.32 SELL [Underperform] 82 5.57 5 6.10

Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time. Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional February 27, 2020 99 Global Reference Guide to COVID-19 ("coronavirus")

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