mytilineos holdings · 11/22/2010 · resume of coverage november 22, 2010 mytilineos holdings...

Please refer to important disclosures in the Disclosure Appendix.

Resume of Coverage

November 22, 2010

Mytilineos Holdings

OVERWEIGHT Previous Rating: Under Review

Growth story becomes more clear

Share Price: €4.27 (close of November 19)

12M Price Target: €6.50 Previous Target: U/R Expected Total Return: 52.1%

Estimates 2009 2010e 2011e 2012e Sales (€ m) 662 990 1,306 1,422 EBITDA(€ m) 89.3 191.2 214.3 228.4 Net profit (€ m) 13.7 64.5 77.2 85.1 EPS (€) 0.13 0.61 0.72 0.80 EPS growth (%) -23.7% 370% 19.7% 10.3%

Source: Hellenic Exchanges, Euroxx Research

Ratios 2009 2010e 2011e 2012e P/E (x) 33.2 7.1 5.9 5.3 EV/EBITDA (x) 10.1 5.6 5.2 4.9 EV/EBIT (x) 12.9 6.6 6.1 5.7 EV/Turnover (x) 1.4 1.1 0.9 0.8 Div Yield (%) 0.0% 5.0% 5.9% 6.5% P/BV (x) 0.7 0.6 0.6 0.5

Source: Hellenic Exchanges, Euroxx Research

Stock Performance 3M 6M 12M YTD Absolute -9.1% -7.2% -19.6% -14.9% Difference (ATG) 0.3% 1.6% 20.6% 17.1%

Stock Data: Market Cap (€ m) 500 Outstanding shares (#) 116,984,340 Daily volume (#) 187,934 Low / High 52 w (€) 3.53 -5.88 Free float 60.8% Bloomberg / Reuters MYTIL GA / MYTr.AT

Company Description: The Mytilineos group is a leading Greek industry active in Metallurgy & Mining, Energy, EPC projects and the Vehicle industry. Established in Greece in 1990, the group’s holding company, Mytilineos Holdings, is listed on the Athens Exchange, has a consolidated turnover of approximately €700m and employs over 2,700 people in Greece and abroad. Marios Theofanopoulos Industrials/Refining [email protected] +30 210 6879307

Mytilineos is active in Metallurgy & Mining, Energy and EPC sectors with substantial synergies evolving between the 3 activities. Outlook is improving regarding the business environment of the 3 sectors, while key uncertainties of the past have been resolved.

The Metallurgy & Mining activity is expected to benefit by the recovery of aluminium prices and the operation of the cogeneration plant. Furthermore, after the successful conclusion of the arbitration with PPC, AoG’s electricity cost has now stabilized at low levels that enable very efficient operation of the smelter.

Group figures will be significantly boosted by the EPC sector. METKA’s backlog is currently standing at the record high of €2.4bn, while 90% of it refers to projects outside Greece. Its latest success to sign a further 724MW CCGT in Syria underscores its drive to evolve to one of the leading players in the energy thirsty markets of SE Europe and Middle East. In addition, natural gas could become base load post 2013, when CO2 free allowances will be abolished, providing Metka with ample opportunities for backlog replenishment.

Going forward, the Energy sector is expected to become a key growth driver of the group. After the acquisition of Endesa Hellas, Mytilineos will establish itself as the largest IPP in Greece with a capacity of 1.2GW in operation by 2011. The EU/ECB/IMF is pushing for the quicker liberalization of the electricity market, while the group has speeded up developments regarding the opening of the natural gas market.

The aforementioned positive trends will reflect in significant growth rates from FY’10 onwards. Specifically, we expect 2009-2012e revenue and net profit CAGR of 29% and 84% respectively.

Overall, we believe Mytilineos group is well placed to outperform the market with Metka as its flagship and with improved performance from the metallurgy and energy activities going forward. We resume coverage on Mytilineos group with an Overweight recommendation and a TP of €6.50.

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November 22, 2010 Greece / Industrials

Euroxx Research / Mytilineos Holdings 2

Table of Contents

Investment Positives ...................................................................................................................................................... 3

Investment Risks ............................................................................................................................................................. 4

Investment Thesis ........................................................................................................................................................... 4

Group Profile ................................................................................................................................................................... 5

Business Outlook ............................................................................................................................................................ 8

9M’10 Results ................................................................................................................................................................ 16

Financial Forecasts ....................................................................................................................................................... 18

Valuation ........................................................................................................................................................................ 24

Consensus .................................................................................................................................................................... 28

Summary of Financials ................................................................................................................................................. 29

Important Disclosures .................................................................................................................................................. 30



3 activities with significant synergies between them

Vertical integration

Hedging policy to safeguard financials

Demand for alumina secured

EPC backlog provides visibility for 3-4 years

Strong partnerships / central player in

energy thirsty markets

Largest IPP with 1.2GW by 2011

Investment positives The group operates a diversified business portfolio with activities in metallurgy & mining, EPC projects and power generation. Significant synergies arise between the 3 business units since Metka specializes in the construction of energy projects, while the cogeneration plant provides cheap energy to the aluminium smelter. The group has made significant progress in extending its vertical integration. Metka has transformed into an EPC contractor. AoG receives half of its bauxite requirements from own bauxite reserves through the wholly owned subsidiary Delphi Distomon. The energy activity provides electricity and steam to AoG, sells loads at the wholesale market and targets the retail electricity market as well. The group is alert and effective in managing the inherent volatility of the commodity markets. This ability was proven by the successful hedging policy that has supported the metallurgy sector’s profitability in 2009 and 2010. Notably, 100% of 2009 aluminium production and 50% of 2010 production has been sold through derivative contracts in much higher prices than current market levels. Further, note that the group has already began to hedge 2011 production at aluminium prices of $2,450 per ton. The contract with Glencore AG regarding the sale agreement of 5m tns of alumina within the next 10 years provides revenue visibility and enables Mytilineos to proceed with the debottlenecking process and increase its alumina production to 1.1m tns pa. The value of the agreement is expected to exceed $2bn. METKA’s backlog is currently standing at the record high of €2.4bn, while 90% of it refers to projects outside Greece. Its latest success to sign a further 724MW CCGT in Syria underscores its drive to become one of the leading players in the broader region of SE Europe and Middle East. Metka is building strong relationships with global utilities and clients of international status. It has partnered with OMV, RWE and Ansaldo for projects in Turkey, Syria and Romania. Such partnerships enable Metka to consolidate its presence in emerging markets and secure its backlog replenishment. Mytilineos group will become the largest Independent Power Producer in Greece with an energy portfolio of 1.2GW installed by 2011. The EU is pushing for the quicker liberalization of the electricity market, while Mytilineos group has speeded up developments regarding the liberalization of the natural gas market.



Volatility of commodity prices

EPC projects execution risks

Energy market risks

Currency risk

Investment risks The group’s activities expose it to the volatility of the commodity prices, such as aluminium, zinc, lead as well as fuel oil as a production cost. As a base metals company, the valuation of AoG is substantially influenced by the aluminium and raw materials prices. The smooth execution of the projects undertaken is a major risk for Metka given that it currently runs 7 projects within and outside Greece simultaneously. Furthermore, delays in the development of existing projects and delays in the assignment of new projects introduce downside risk to Metka’s valuation. The energy activity is expected to provide significant contribution to group figures from 2011 onwards. Any delays in the full commercial operation of the group’s thermal plants impose downside risk to our estimates. Furthermore, low SMPs or high gas prices may hinder the profitable operation of the thermal plants in the medium term. The group is activated on a global scale and consequently is exposed to foreign exchange risk stemming mainly from the US dollar. This kind of risk concentrates to metallurgy revenues which are totally conducted in US dollar.

Investment thesis Mytilineos group has recently resolved two long-standing issues that have dampened its growth story so far. Firstly, it has acquired the full energy portfolio of Endesa Hellas. Having established itself as the largest Independent Power Producer with installed capacity of 1.2GW by 2011, Mytilineos is well placed to benefit from the progressing liberalization of electricity and natural gas markets. The second issue of the arbitration with PPC regarding the electricity supply to AoG was also resolved recently on mutually favorable terms. With the advent of the cogeneration plant, the electricity cost for aluminium has now stabilized at low levels enabling very efficient metallurgy operations. These developments coupled with the establishment of Metka as a key EPC player in the energy-thirsty markets of SE Europe and Middle East provide us with confidence that Mytilineos group will outperform the market. Overall, we feel Mytilineos group is well placed to benefit from future business trends in its 3 sectors of activity and resume coverage with an Overweight recommendation and a TP of €6.50.



Vertical integration of AoG

AoG’s energy costs (electricity, fuel & steam) in

FY’10e are expected to comprise 50% of its total

production cost

Group Profile Metallurgy & Mining sector The entire M&M complex was acquired from Alcan in 2004. Since then Mytilineos has developed into a leading industrial producer of alumina and aluminium in South Eastern Europe. Production facilities occupy an area of 7,035km

2 and

constitute a vertically integrated production unit including bauxite mines, alumina refinery, smelter and self owned port facilities for large tonnage ships. The main strength of Aluminium of Greece (AoG) is its vertical integration since it gets approximately half of its bauxite raw material needs from the wholly owned Delfi Distomon subsidiary. Approximately half of AoG’s alumina production is sold to the market at LME prices while the rest is used for the production of aluminium. About 55% of the aluminium production is marketed in Greece, while the rest is exported. Based on AoG’s current capacity, c1.8m tns of bauxite are converted into c780K tns of alumina, 320K tns of which are used to produce approximately c165K tns of aluminium, while the rest 460K tns of alumina are being sold to the market through long term contracts. A stable contract with Glencore and the on-going debottlenecking process are expected to enable AoG return to nearly full capacity levels in 2011. Aluminium production is a particularly energy intensive business since the energy cost comprises 50% of the total production cost according to our 2010 estimates. Specifically, electricity is expected to account for 29% and the fuel & steam cost for 19% of total 2010e costs. A significant part of the electricity and steam requirements are supplied by the 334MW CHP plant of the group.

29%

19%24%

8%

20%

AoG production cost 2010e

Electricity Fuel & steam Materials Labour Maintenance & other

Alumina (OX) Aluminium (Al)

Steam

Soda

Electricity

Bauxite



Strong backlog currently at €2.4bn

EPC sector In the EPC projects sector, Mytilineos group is active through METKA. Founded in 1962, METKA undertakes projects regarding construction of energy plants, defense mechanisms and infrastructure. It holds a world class manufacturing capability with high added value profile, while it collaborates with all world class technology providers, including GE, Alstom, and Siemens. After winning recently a second contract in Syria for the construction of a 724MW CCGT plant, Metka’s backlog increased by a further €680m to stand to a record high of €2.4bn. About 90% of this backlog refers now to projects outside Greece indicating that Metka is little exposed to the adverse domestic macro environment. On the contrary, it is further strengthening its presence in the wider region including SE Europe and the Middle East. Specifically, it has projects under construction of €1bn in Turkey and two projects in Syria of a total budget of €1.3bn, both of which are markets with booming energy needs. Note that currently Metka is carrying out EPC contracts for 7 major projects simultaneously. Below we present the backlog of the major projects currently contracted to the Metka group:

PPC: 430MW in Aliveri, natural gas fired combined cycle. Alstom sub supplier for the main equipment. Contract value of €220m

Protergia: 430MW in Ag. Nikolaos, natural gas fired combined cycle. GE sub supplier for the main equipment. Contract value of €232m

Korinthos Power: 437MW in Ag. Theodori, combined cycle natural gas driven power station. Contract value of €285m

RWE/Turcas: 775MW in Turkey, natural gas fired combined cycle. Siemens sub supplier for the main equipment. Contract value of €470m

OMV (Borasco): 870MW in Turkey, natural gas fired. GE sub supplier for the main equipment. Contract value of €475m

OMV (Petrom): 860MW in Romania, natural gas fired. GE sub supplier for the main equipment. Contract value of €210m

PEEGT: 700MW in Syria, natural gas fired. Ansaldo sub supplier for the main equipment. Contract value of €650m

PEEGT: 724MW in Syria, natural gas fired. Ansaldo sub supplier for the main equipment. Contract value of €680m



Acquisition of Endesa Hellas

Energy sector On March 2010 Mytilineos and Endesa reached an agreement for the acquisition of 50.01% of the share capital held by Endesa in the joint company Endesa Hellas. The total price to be paid by Mytilineos amounts to €140m and will be paid in installments scheduled until 1 July 2012. At the same time, Endesa will acquire one wind park and three hydro-electric plants with a total installed power generation capacity of around 14MW, which belong to Endesa Hellas portfolio, for a price of €20m. The abovementioned acquisition is a further step towards the creation of the largest independent electrical power producer in Greece establishing a portfolio of 1.2GW of installed capacity from thermal plants in operation by 2011 and over 800MW RES in different stages of development. Specifically, after the acquisition of Endesa Hellas (renamed to Protergia), the total energy portfolio of the group consists of:

334MW CHP – Combined Heat & Power plant in Viotia (in operation)

444MW CCGT – Merchant power plant in Viotia (under construction – commercial operation by November 2010)

437MW CCGT – Merchant power plant in Korinthos, 65% stake in JV with Motor Oil (under construction – commercial operation by August 2011)

437MW CCGT – Merchant power plant in Volos (licensing stage - to be completed by January 2013)

Portfolio of Renewable Energy Generation Assets (Wind Parks, Hydroelectric Power Stations and Photovoltaic Parks) with total capacity of 1,000MW

Electricity Trading Licence of 310MW

CO2 Emission Trading platform

Production License for a 600MW Coal-Fired Power Plant in Viotia region



Sector trends

International outlook

Domestic outlook

Aluminium pricing

Effective hedging policy provided financial

support in downturn

Business Outlook Metallurgy & Mining Sector In an interview at the Metal Buletin, the Chairman of the group commented that “there are fundamental changes in the industry brought by funds, by the financing deals, the investment banks, by the Chinese role in the market as a consumer and a producer, by consolidation and by the ongoing scarcity of energy supplies in most parts of the world”. The market environment for base metals shows signs of improvement benefiting largely from the worldwide economic recovery. Generally, aluminium availability remains tight supporting premiums at their high levels. Specifically, total world supply increased 17.1% y-o-y in H1’10 (mainly due to Chinese smelters that bring capacity back online), while total world consumption was up 25.6%. Demand in China has risen by 32% during H1’10 helped by stimulus measures. On the other hand, domestic aluminium demand will be negatively affected over the next twelve months by the adverse macro environment. Specifically, management expects local demand to remain flattish in 2010 compared to the previous year but decline 10-20% in 2011. In such an environment, the group will direct more sales to its traditional export markets in northern and southern Europe, since these markets feature increasing demand for value added products such as slabs and billets. Aluminium prices rallied during Q3’10 on the back of weak dollar, expectation of further quantitative easing by the US Federal Reserve and robust demand. The average aluminium price during 9M’10 rose to $2,115 per ton, up 36.1% y-o-y. Note that outlook for aluminium is positive since robust demand for the commodity is driving prices higher. In our model, we estimate the LME price of aluminium to settle at $2,200 per ton going forward. On the positive side, Mytilineos group has proven highly efficient in shielding itself against adverse commodity and currency movements. Mytilineos was the aluminium company that did the largest hedging in the world at the end of 2007 and in 2008 since it had almost half a million tonnes hedged at $3,000 per ton. A policy well implemented since at the start of 2008 the aluminium price stood at $2,400 per ton but plunged at $1500 per ton 12 months later. Note that 70k tons of the aluminium production for 2010 are hedged at $3,200 per ton.



Production costs finally stabilized at low levels

Prospects for rest of 2010

A significant development is that the long-standing arbitration of AoG with PPC regarding the supply of electricity has been resolved with mutually beneficial terms. The agreement provides for the supply of AoG with a total of 4,710 hours of electrical power at a tariff of €40.7/MWh by PPC effective as of July 1, 2010. In effect, AoG secured electricity supply for 54% of the hours used, while the balance is to be supplied by the 334MW CHP plant. Going forward, and in order to derive our model estimates, we expect the electricity cost to settle at €42/MWh with the advent of the cogeneration plant operating on cheaper LNG. The duration of the agreement was set to 25 years, however a provision is included for renegotiation of its terms after 31-12-2013, depending on the conditions that will prevail in the energy market at that time and on the respective CO2 emission rights. Finally, the debt of AoG with PPC (created from the dispute regarding past electricity charges) is also settled with mutually acceptable terms. Specifically, the debt of c€80m will be repaid in instalments (with an upfront payment of €20m) and will bear an interest rate of Euribor plus 1%. Furthermore, the CHP plant helps to decrease the production costs of the AoG by supplying steam to the aluminium refinery and enabling it to reduce purchases of fuel oil. Note that energy is the most significant cost component in the production of aluminium and accounts for c50% of its total cost. Overall, the commodities sector, which is traditionally regarded as highly cyclical, continues to benefit from the improvement of the economic climate which begun during Q2’09, and especially from the strong demand originating from rapidly developing economies such as that of China. For the rest of the year, the metallurgy and mining sector is expected to continue profiting from the on-going recovery of aluminium prices, as well as from its successful risk-hedging policy against fluctuations in the prices of metals and against currency fluctuations. These measures, coupled with the benefits from the operation of the group’s cogeneration plant and the group’s strict cost controls, create positive prospects that allow forecasts of sustained profitability.



Market/Environment

International project portfolio

New project in Syria

EPC Sector Metka started from a stated-owned construction company specializing in metallic projects. The second phase of its expansion involved it becoming an EPC contractor. Now it has entered the third phase of its development that involves expanding its activities abroad and acquiring an international status through strong partnerships with established utilities. Positive long term market factors for Metka, such as the need to reduce carbon emissions, the aging installed base and the industrialization of emerging economies, remain intact. Natural gas could become base load post 2013, when CO2 free allowances will be abolished. Further, all the new conventional capacity additions will be in CCGTs and Metka will benefit since its expertise lies in power generation constructions. Regarding the EPC market, there has been evidence of a slowdown in the progress of energy investments in Western Europe. However, demand in the wider Southern Eastern Europe and the Middle East remains robust. Having established itself as a specialist contractor for EPC energy projects in Greece, Metka is now expanding to competitive markets abroad. It has diversified internationally its project portfolio by achieving contracts in Pakistan, Syria, Turkey and Romania. It is resilient to the adverse domestic outlook since only 10% of its existing backlog relates to domestic projects. Furthermore, domestic revenues are expected to account for 36% of total FY’10 revenues, while exposure on PPC has been reduced to an immaterial level. Metka increased further its international exposure after winning a second contract in Syria for the construction of a 724MW CCGT plant. The new project increased Metka’s backlog by a further €680m to stand to a record high of €2.4bn. About 90% of this backlog is now out of Greece indicating that Metka is little exposed to the adverse domestic macro environment. The contract features an EBITDA margin of 19% prior to the management fee to Mytilineos holding company. Metka targets markets with substantial growth potential. It is further strengthening its presence in the wider region including SE Europe and the Middle East. Specifically, it has projects under construction of €1bn in Turkey and two projects in Syria of a total budget of €1.3bn, both of which are markets with booming energy needs. Metka is building strong relationships with global utilities and clients of international status. It has partnered with OMV and RWE for projects in Turkey and Romania. Such partnerships enable Metka to penetrate emerging markets and receive a stake of their significant growth potential. Specifically, Turkey has a market size of 40GW, while RWE expects it will need to expand significantly its power generation capacity in the next 10 years. Other international partnerships of Metka include Alstom, General Electric and Siemens in the energy sector and Raytheon, KMW, Lockheed Martin and HDW in the defense sector.



.

Domestic market

Sale of ETADE

EPC Sector Regarding the domestic market, the fuel mix is changing with new gas-fired CCGT plants coming on stream and increasing penetration of renewable energy sources – wind and photovoltaic. Furthermore, the need to replace old, high polluting technology facilities with new, environmental friendly ones and the energy market’s liberalization will increase the demand for new capacity and is expected to replenish existing backlog. PPC has announced a heavy capex for the following years which involves investing in new units as well as replacing old and inefficient plants in order to meet EU environmental standards. Metka is the only local EPC contractor and has a proven successful long cooperation with Greece’s electricity incumbent, so we expect it to undertake a substantial part of PPC’s new investments. On January 2010 the management of Metka announced the sale to Terna of 100% of the shares of ETADE, a wholly owned subsidiary of Metka, for a price of €42.5m. ETADE held a 90% stake in the consortium for the construction of the Megalopolis V CCGT project with a budget of €500m. The suspension for more than 2 years of the activities for the Aliveri V CCGT and the consequences from postponement of its implementation for a time coinciding with the implementation of the Megalopolis project, led to the sale of ETADE being considered as the most appropriate course of action in order to protect the interests of Metka and establish the conditions for further expansion of its activities abroad. The contribution of the ETADE sale on the P&L is 42.5m revenue, 32.4m ebitda and 14.6m net profit.

Projects Description MWRemaining

Budget (€m)9M'10 2010e 2011e 2012e 2013e 2014e

EPC future

PPC Lignite/Greece 600MW 300 0 0 0 0 120 180

E. Hellas/Volos CC/Greece 437MW 265 0 0 0 0 115 150

Backlog (Future) 565

EPC existing

OMV(Borasco) CC/Turkey 870MW 292 183 190 130 155 0 0

RWE/Turcas CC/Turkey 775MW 464 6 10 180 280 0 0

Korinthos Power CC/Greece 437MW 111 66 70 107 0 0 0

Protergia/St. Nicholas CC/Greece 430MW 11 16 27 0 0 0 0

PPC/Ilarion Hydro/Greece - 15 5 9 11 0 0 0

PPC/Aliveri CC/Greece 430MW 36 31 59 8 0 0 0

OMV(Petrom) CC/Romania 860MW 67 107 110 64 0 0 0

PEEGT CC/Syria 700MW 638 12 40 120 200 290 0

PEEGT CC/Syria 724MW 680 0 0 40 80 280 280

Scrapping Greece - 20 0 10 10 0 0 0

Defence existing 55 0 10 25 20 0 0

Infrastucture existing 11 0 5 2 2 2 0

Backlog (Existing) 2,401

Source: Metka, Euroxx Research



Liberalization of the electricity market

Market participants

Electricity consumption

SMP level

Energy Sector The Greek electricity market (demand peak c10GW) is under liberalization. Most of the existing capacity is old and inefficient, underlining the need for new capacity and replacements, while PPC is looking for strategic partners to finance new commissioning plan. Simultaneously, the EU/IMF/ECB apply strong pressure on PPC to either reduce its production capacity or otherwise change it to facilitate the quicker opening of the market. PPC is the incumbent power producer with >97% market share in retail and around 93% in the wholesale market. Currently, there are 3 independent units in the market but PPC has overtaken the operation of Heron 147MW OCGT. Two new CCGTs namely Thisvi and Heron 2 have recently commenced trial operation. The dominant position of PPC will be challenged by IPPs (Mytilineos-Motor Oil, Terna-GDF-Suez, Helpe-Edison). Mytilineos replaced Iberdrola in the JV with Motor Oil and acquired the full control of Endesa Hellas buying out ENEL. Electricity consumption has grown with a yearly average of 3.7% in the decade 1998-2008 peaking during the summer due to strong air cooling penetration in the commercial and residential sectors. However, the recession combined with mild weather resulted in a 7.1% decline during 2009. Total power demand is seen leveling off during the first 8 months of 2010 since it declined marginally to 35.8TWh, down 0.7% y-o-y. Going forward, the reference scenario of the 2009 study of the National Council for Energy Strategy predicts a 2.1% annual growth rate in demand during the period 2010-2015. However, the economic recession could keep the average growth rate for the two year period 2009-2010 in negative figures. Despite the reduced demand for electrical power and the increased power generation from hydro-electric plants, the System Marginal Price posted a light increase. Specifically, the average SMP for Jan-Aug 2010 rose to €52.3/MWh from €48.1/MWh prior period, up 8.7% y-o-y. Higher oil prices are expected to put an upward pressure on the SMP during the rest of the year.

0

20

40

60

80

100

120

€/MWh SMP level

2008 2009 2010

Avg 2008: 87.2

Avg 2009: 47.4

Avg Jan-Aug'10: 52.3



Lignite

Natural Gas

Renewable energy sources

Electricity production factors The percentage of domestic lignite in electricity generation in the interconnected system has ranged from 56-63%, while Greece has reserves for another 50 years. Lignite production during the first 8 months of 2010 declined to 18.8TWh, down 9.8% y-o-y, and accounted for 59.9% of total electricity production from 64.3% prior period. Lignite will remain the central production factor of electricity, though its share is expected to decline. Its cost will rise significantly from 2013 onwards since it will incorporate the full CO2 cost. The share of natural gas in electricity production follows an upward trend as most planned recent investments have been in CCGTs, while all the new conventional capacity up to 2014 will be in CCGTs and perhaps some hundreds of OCGTs. However, in 2009 its share was just 19.4% because of the lower demand and increased production from hydro-electric plants. Natural gas increased its participation in the total energy output to 21.8% from 17.4% prior period and produced 6.8TWh of electricity, up 21.2% y-o-y. Hydro-electric production also increased to 4.4MWh, up 41.5% y-o-y, while crude oil usage fell to minor levels. Note that Greece is importing gas mainly from Russia and Turkey via pipeline and LNG from Algeria and occasionally from the spot market. Renewable energy sources (without large hydro) have traditionally participated with less than 5% in the mix, while their contribution in Jan-Aug 2010 rose to 4%. However, Greece hopes on important wind and solar potential. Law 3851/2010 dictates that 40% of the electricity consumed in 2020 should be generated by RES. According to this target, 9.5GW of RES capacity should be installed by 2014, while this figure should increase to 15GW in 2020. In order to reach these targets, a very favorable framework has been put into place to facilitate the RES penetration in the total production mix. This includes feed-in tariff for the energy produced and up to 40% subsidy for the construction of wind and solar parks.

10.9% 12.5% 6.0% 5.8% 10.2% 14.0%1.8% 2.3%

2.5% 3.1%3.9%

4.0%

64.6% 58.3%59.8% 58.3%

63.0% 59.9%

16.0% 20.3% 25.4% 26.0%19.4% 21.8%

6.7% 6.6% 6.3% 6.9%3.5%

0.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 Jan-Aug'10

Power Production Mix

Hydro-electric Renewables Lignite Natural gas Crude oil



Energy assets

CHP plant in operation

Natural gas market developments

Energy Sector The group’s investments in the Energy sector continue unabated, since a second thermal plant (444MW CCGT plant in Agios Nikolaos) is scheduled for the immediate future. In parallel, construction of a third 437MW CCGT plant in Agii Theodori, in collaboration with Motor Oil, is proceeding at a fast pace. The group is also strongly involved in the RES sector, with a portfolio representing a total installed operational capacity of 36MW and an additional total capacity of more than 1,000MW in various licensing and implementation stages. The CHP plant, fully owned by Mytilineos group, is operational since May 2009 selling electricity to the pool and providing steam to AoG for the production of alumina, while it has supplied the grid with loads of around 1TWh since January 2010. However, its full commercial operation is still pending and remains subject to the completion of the relevant electricity codes. Note that since May 2010 the CHP has been operating on LNG making it more efficient. Since early 2009 gas prices have decoupled from the price of oil. Specifically, average Brent prices during 9M’10 rose to $78/bbl vs $58/bbl prior period, up 34% y-o-y, while prices of natural gas rose by a modest 13% during the same period. Whether this trend is sustainable or not is debatable. Constant developments in the technology applied to shale gas extraction have brought down the overall cost of the process and have uncovered massive amounts of natural gas in shale rock. On the other hand, skeptics state that shale gas exploration is still too expensive and it carries environmental risks since it could contaminate drinking water supplies. Either way, under the current market environment, supplies of Liquid Natural Gas (LNG) from Africa and the Gulf (mainly Algeria and Qatar), which otherwise might have gone to the US, are now being directed to Europe. Furthermore, China’s natural gas unconventional production continues to grow. Natural gas was introduced in the Greek market in 1997 whereby total consumption increased from 0.8bcm at that time to c4bcm in 2008. Demand fell by c15% in 2009 mainly due to reduced electricity generation, which accounts for c72% of natural gas end uses. The market is expected to reach 3.6bcm in 2010 and to double in 2020 at 8bcm. With an energy portfolio of 1200MW, Mytilineos will consume close to 1.2bcm pa.



Liberalization of the Greek natural gas

market (including LNG)

These figures indicate that Mytilineos had a great scope to push for the liberalization of the domestic natural gas market. Notably, since May the group operates on LNG thus reducing substantially its energy cost regarding both power production and metallurgy services. In 2009 Mytilineos group and Motor Oil joined forces in the natural gas market facilitating its liberalization. Specifically, they established an equal stake JV which will import and trade all kinds of natural gas (LNG, CNG). The natural gas will be used to fuel industrial facilities and power plants and for sale to third parties. Under the scope of the new JV, Mytilineos and Motor Oil announced the arrival of the first private LNG cargo for the two companies scheduled for unloading at the Revithousa LNG terminal in May 2010. From this shipment of 140,000 m

3 of LNG,

20,000 m3 will be collected by Motor Oil, 70,000 m

3 by AoG and 50,000 m

3 will be

made available to DEPA on the same privileged terms as those applicable for the initial buyers after a decision of the two groups following a proposal by DEPA. Further, M&M will supply PPC with 5 cargoes of total 290,500 m³ of LNG. The total cost of the supply will reach €56m, while PPC reckons will save €22m from avoiding the more expensive natural gas of DEPA. These conditions create a challenging environment for DEPA, which is not expected to benefit from the expected increase in natural gas demand by 10% in 2010.



9M’10 Results Mytilineos announced a strong set of 9M’10 results, positively influenced by increased international revenues from the EPC sector, the continued recovery in international aluminium prices and support from its successful hedging policy. On a Q3’10 basis:

Sales reached €349.0m (+121.6% y-o-y)

EBITDA settled at €50.4m (+54.3% y-o-y)

EBITDA margin settled to 14.4% from 20.7% in Q3’09

Bottom line posted €19.9m gains vs €6.3m in Q3’09 (+219.0% y-o-y) On a 9M’10 basis:

Adjusted sales from continuing operations reached €764.5m (+57.3% y-o-y)

Adjusted EBITDA from continuing operations rose to €112.5m (+48.2% y-o-y)

Adjusted EBITDA margin came in flattish at 15.4% from 15.6% in 9M’09

Adjusted net profit advanced to €48.8m (+173.5% y-o-y) The increase in sales is mainly attributed to the acceleration of the implementation of international projects at the EPC sector, which contributed revenues of €327.4m in 9M’10. EBITDA were boosted by the robust performance achieved by METKA, as well as by the improved sector conditions in the Metallurgy activity. Note that we have adjusted 9M’10 net profit from continuing operations of €63.4m downwards by €14.6m to account for the extraordinary gain related to the sale of ETADE. Further, 9M’10 net profit includes a €9.8m crisis levy. Positive drivers for the Metallurgy & Mining sector are its export orientation and the significant recovery in the international prices for aluminium (up 36.1 y-o-y), while group financials were supported from the hedging policy. Production costs were further reduced with the advent of the cogeneration plant which supplies steam to the alumina refinery and now operates under LNG. Regarding the energy activity, the group has continued unabated its investments in thermal plants, while simultaneously pushing for the liberalization of the natural gas market. Under its new JV with Motor Oil, “M&M Natural Gas”, it has been importing LNG to reduce its own energy cost in light of the full liberalization of the electricity market and to even supply industrial groups such as PPC. Finally, note that the 444MW CCGT in Agios Nikolaos is scheduled to start commercial operations in the immediate future, while the 437MW CCGT with Motor Oil is proceeding fast.



Mytilineos 9M'10 results

P&L (in €m) Q3'09 Q3'10 y-o-y 9M'09 9M'10 y-o-y

Sales 157.5 349.0 121.6% 485.9 764.5 57.3%

Sales (adj.) 157.5 349.0 121.6% 485.9 732.6 50.8%

Gross profit 40.0 54.9 37.2% 89.5 161.4 80.3%

Gross margin 25.4% 15.7% -9.7pp 18.4% 21.1% 2.7pp

EBITDA 32.6 50.4 54.3% 75.9 144.5 90.3%

EBITDA margin 20.7% 14.4% -6.3pp 15.6% 18.9% 3.3pp

EBITDA (adj.) 32.6 50.4 54.3% 75.9 112.5 48.2%

EBITDA (adj.) margin 20.7% 14.4% -6.3pp 15.6% 15.4% -0.3pp

EBIT 27.9 45.2 61.9% 61.9 129.7 109.7%

EBIT margin 17.7% 12.9% -4.8pp 12.7% 17.0% 4.2pp

Pre-tax profit 19.1 39.6 108.0% 35.1 117.8 235.2%

Tax 10.4 6.3 -409.8pp 13.2 26.4 100.0%

effective tax rate 54.7% 16.0% -38.7pp 37.6% 22.5% -15.2pp

Minorities 2.4 13.4 461.5% 4.1 27.9 585.9%

Net profit 6.3 19.9 219.0% 17.8 63.4 255.4%

Net margin 4.0% 5.7% 1.7pp 3.7% 8.3% 4.6pp

Net profit (adj.) 6.3 19.9 219.0% 17.8 48.8 173.5%

Net (adj.) margin 15.6% 36.3% 20.7pp 19.9% 30.2% 10.3pp

Source: Mytilineos, Euroxx Research



Efficient hedging supports margins

Electricity and fuel costs remain the

major cost element

Financial forecasts AoG forecasts The group has successfully used hedges to safeguard its profitability from the volatility of metal prices. Specifically, 50% (or 70K tns according to our estimates) of its FY’10e aluminium production has been sold short at $3,110/tn. Going forward, we estimate a stable aluminium price of $2,200/tn. Electricity and fuel costs remain the most significant cost element for the group as they comprise c50% of AoG’s cash costs. However, the electricity cost will be contained as much as possible due to the recently signed agreement with PPC and the operation of the CHP plant on LNG. Further, we also incorporate a flat selling price equal to 13.5% of the LME aluminium price into our model for alumina.

Overall, we expect AoG to generate flattish revenues in FY’10e and FY’11e at c€400m, while EBITDA margin should settle at 14% in 2010 and decline to more sustainable levels going forward.

AoG key assumptions 2008 2009 2010e 2011e 2012e 2013e 2014e 2015e 2016e

Al production sold (K tns) 159 135 135 159 165 165 165 165 165

Ox production sold (K tns) 478 470 465 465 465 465 465 465 465

Al prices ($/tn) 2,868 1,667 2,100 2,200 2,200 2,200 2,200 2,200 2,200

Al effective prices ($/tn) 2,825 2,800 2,625 2,200 2,200 2,200 2,200 2,200 2,200

Ox prices ($/tn) 330 217 273 286 286 286 286 286 286

Coke avg. prices ($/tn) 491 431 378 378 378 378 378 378 378

Pitch avg. prices ($/tn) 566 311 381 399 399 399 399 399 399

Bauxite tropical prices ($/tn) 75 58 60 62 64 66 68 70 72

Soda avg. prices ($/tn) 483 515 480 494 509 525 540 556 573

€/$ exchange rate 1.47 1.39 1.35 1.35 1.35 1.35 1.35 1.35 1.35

Brent ($/bl) 117 60 80 85 85 85 85 85 85

Electricity (€/ΜWh) 55 43 48 42 42 42 42 42 42

Source: Euroxx Research

P&L (in €m) 2008 2009 2010e 2011e 2012e 2013e 2014e 2015e 2016e

Alumina (Ox) sales 193.7 133.3 153.9 171.0 175.0 176.2 176.7 177.3 177.9

Aluminium (Al) sales 328.8 192.5 242.2 298.3 312.9 315.0 317.3 319.6 322.1

Electrolysis & Hedging -54.8 74.2 -1.3 -70.8 -74.8 -76.0 -76.5 -77.1 -77.7

Sales (AoG) 467.7 400.1 394.9 398.5 413.0 415.2 417.5 419.8 422.3

chng -0.9% -14.5% -1.3% 0.9% 3.6% 0.5% 0.5% 0.6% 0.6%

Ox EBITDA 8.8 6.5 -7.0 -4.7 -6.4 -8.2 -9.0 -10.0 -10.9

Al EBITDA 19.4 -34.6 5.7 50.2 45.2 44.9 44.8 44.8 44.8

Metal hedging 17.7 118.8 57.0 0.0 0.0 0.0 0.0 0.0 0.0

EBITDA (AoG) 46.0 90.7 55.8 45.4 38.7 36.8 35.8 34.8 33.8

chng -47.3% 97.4% -38.5% -18.6% -14.7% -5.1% -2.6% -2.7% -2.8%

Ox EBITDA mgn 4.6% 4.9% -4.5% -2.8% -3.7% -4.6% -5.1% -5.6% -6.1%

Al EBITDA mgn 5.9% -17.9% 2.4% 16.8% 14.4% 14.3% 14.1% 14.0% 13.9%

EBITDA (AoG) mgn 9.8% 22.7% 14.1% 11.4% 9.4% 8.9% 8.6% 8.3% 8.0%

EBIT (AoG) 34.2 79.2 43.7 32.7 26.0 24.0 23.1 22.1 21.1

chng -54.9% 131.5% -44.8% n.m n.m -7.7% -4.0% -4.2% -4.4%

EBIT (AoG) mgn 7.3% 19.8% 11.1% 8.2% 6.3% 5.8% 5.5% 5.3% 5.0%

EBT (AoG) 29.3 78.0 42.5 31.8 25.1 23.5 22.9 21.9 20.9

chng -61.8% 165.8% -45.6% n.m n.m -6.2% -2.7% -4.3% -4.6%

EBT (AoG) mgn 6.3% 19.5% 10.8% 8.0% 6.1% 5.7% 5.5% 5.2% 4.9%

Source: Mytilineos group, Euroxx Research



Fundamentals are positive for Metka

METKA’s production capacity gradually approaches €1bn

METKA forecasts Although some pressure on METKA’s margins is anticipated in the following years, current backlog stands at record high (€2.4bn), while further projects are under the bidding process. Natural gas could become base load post 2013, when CO2 free allowances will be abolished. Further, all the new conventional capacity additions will be in CCGTs and Metka will benefit since its expertise lies in power generation constructions. Demand for power in the SE Europe and emerging markets is robust with Turkey calling for major investments in gas and indigenous plants. On our estimates, the adjusted EBITDA margin is expected to settle at 16.4% in 2010e and decline until it reaches 16.0% in 2014e.

We see significant growth in all financial lines, since the record high backlog allows Metka to increase its production capacity and bring it above €750m revenues per year.

EBITDA Breakdown 2008 2009 2010e 2011e 2012e 2013e 2014eCAGR

09/14e

Energy Projects 297.5 257.2 525.0 670.0 715.0 805.0 640.0

EBITDA (adj.) of Energy Projects 52.0 51.3 102.4 127.8 137.9 155.9 122.4 19.0%

gross EBITDA mgn 17.5% 19.9% 19.5% 19.1% 19.3% 19.4% 19.1%

Energy Projects 297.5 257.2 557.4 670.0 715.0 805.0 640.0

EBITDA of Energy Projects 52.0 51.3 134.8 127.8 137.9 155.9 122.4

gross EBITDA mgn 17.5% 19.9% 24.2% 19.1% 19.3% 19.4% 19.1%

Defence Projects 23.3 4.2 10.0 25.0 20.0 0.0 0.0

EBITDA of Defence Projects 9.5 -1.2 4.0 10.0 8.0 0.0 0.0 n.m

EBITDA mgn 40.8% n.m n.m 40.0% 40.0% n.m n.m

Construction Projects 9.6 6.8 5.0 2.0 2.0 2.0 0.0

EBITDA of Construction Projects 1.2 -1.8 0.6 0.2 0.2 0.2 0.0 n.m

EBITDA mgn 12.5% n.m 12.2% 8.0% 8.0% n.m n.m

Total EBITDA (adj.) after mgnt fee 66.9 60.6 93.7 121.0 127.8 135.7 107.1 12.1%

EBITDA mgn after mgnt fees 17.5% 18.3% 16.4% 16.6% 16.7% 16.2% 16.0%

Total EBITDA after mgnt fee 66.9 60.6 126.2 121.0 127.8 135.7 107.1

EBITDA mgn after mgnt fees 17.5% 18.3% 20.9% 16.6% 16.7% 16.2% 16.0%

Source: Euroxx Research (adjusted figures exclude operating profits from the sale of ETADE)

P&L (in €m) 2008 2009 2010e 2011e 2012e 2013e

Sales 381.5 339.4 602.4 727.0 767.0 837.0

chng 34.2% -11.0% 77.5% 20.7% 5.5% 9.1%

EBITDA (adj.) 66.9 60.6 93.7 121.0 127.8 135.7

chng 17.1% -9.4% 54.7% 29.1% 5.6% 6.2%

EBITDA margin (adj.) 17.5% 17.8% 16.4% 16.6% 16.7% 16.2%

Pre tax profit 58.0 54.6 121.2 115.8 122.4 130.0

Pre tax margin 15.2% 16.1% 20.1% 15.9% 16.0% 15.5%

Tax 13.2 17.6 40.6 41.1 41.6 35.9

Net profit (adj.) 41.4 35.2 50.4 71.3 77.1 90.2

chng 12.6% -14.9% 42.9% 41.5% 8.2% 17.0%

Net margin (adj.) 10.9% 10.4% 8.8% 9.8% 10.1% 10.8%

Source: Metka, Euroxx Research (adjusted figures exclude sale of ETADE)



Fuel costs, load factors and SMPs are the main

factors that determine the profitability of thermal plants

Energy sector forecasts Thermal energy On our estimates, the contribution from the energy sector will come from two CCGT (combined cycle gas turbine) plants of total 840MW and one CHP (combined heat and power) plant of 334MW. The CHP plant has commenced operations since May 2009 but its results have not yet been consolidated due to the lack of the electricity codes. The two CCGTs will begin to contribute from late 2010 and mid 2011. As far as the RES are concerned these are already under operation. SMPs are seen gradually rising again on the back of soaring CO2 emission costs. Gas effective price is linked to Brent (€/bl) and €/$, while personnel and other operating costs follow Greek CPI. Finally we include a capacity charge of 35K per MW to be received by HTSO. CHP 334MW

P&L - CHP 334MW 2009 2010e 2011e 2012e 2013e 2014e 2015e 2016e

Net Capacity (MW) 321 321 321 321 321 321 321 321

SMP effective (€/ΜWh) 47 55 60 60 65 65 65 68

Load factor 70% 60% 65% 60% 60% 60% 60% 55%

Volumes (GWh) 824 1,431 1,551 1,431 1,431 1,431 1,431 1,312

Electricity sales 41.3 83.2 97.9 90.4 97.5 97.5 97.5 93.3

Capacity charge (€/ΜW) 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000

Capacity charges 5.3 10.6 10.6 10.6 10.6 10.6 10.6 10.6

CO2 emmisions g/GWh 0.502 0.502 0.502 0.502 0.502 0.502 0.502 0.502

CO2 allowance (m tons) 1.4 1.4 1.4 1.4 0.0 0.0 0.0 0.0

CO2 cost (€/ton) 16.0 17.0 18.0 19.0 20.0 20.0 20.0 20.0

CO2 allowance 11.4 24.3 25.7 27.1 0.0 0.0 0.0 0.0

Gas volumes (m tons) 0.4 1.3 1.3 1.3 1.3 1.3 1.3 1.3

Gas effective price 18.6 22.0 24.5 25.4 26.4 26.4 26.4 26.4

Steam sales 7.7 29.0 32.3 33.5 34.8 34.8 34.8 34.8Energy sales 58.0 118.1 134.2 128.1 108.1 108.1 108.1 103.9

Energy sales 65.7 147.1 166.4 161.5 142.9 142.9 142.9 138.7

Fuel Cost 43.1 135.0 141.7 126.5 94.9 93.1 93.1 93.1

CO2 emissions 2.7 -9.8 -9.2 -11.0 15.3 15.0 15.0 15.0

Gross profit 19.9 21.9 33.9 46.0 32.7 34.8 34.8 30.6

OPEX 4.5 5.5 6.4 6.9 5.8 6.0 6.1 6.3

EBITDA 15.4 16.4 27.5 39.1 26.9 28.8 28.6 24.3

D&A 7.5 7.5 7.4 7.4 7.4 7.4 7.4 7.4

Tax 2.0 2.2 5.0 7.9 4.9 5.3 5.3 4.2

Net profit 5.9 6.7 15.1 23.8 14.6 16.0 15.9 12.6

Source: Euroxx Research (in €m unless otherwise stated)



CCGT 444MW

CCGT 437MW

P&L - CCGT 444MW 2009 2010e 2011e 2012e 2013e 2014e 2015e 2016e

Net Capacity (MW) 430 430 430 430 430 430 430 430

SMP effective (€/MWh) 47 55 60 60 65 65 65 69

Load factor 0.0% 5% 25% 30% 50% 50% 50% 55%

Volumes (GWh) 0.0 16 942 1,130 1,884 1,884 1,884 2,072





CO2 allowance (m tons) 0.0 0.0 0.3 0.4 0.0 0.0 0.0 0.0

CO2 cost (€/ton) 16.0 17.0 18.0 19.0 20.0 20.0 20.0 20.0

CO2 allowance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Energy sales 0.0 15.1 70.7 82.0 136.7 136.7 136.7 156.2

Fuel Cost 0.0 0.6 41.2 51.2 88.7 88.7 88.7 97.6

CO2 emissions 0.0 0.1 3.3 4.2 21.1 21.1 21.1 23.3

Gross profit 0.0 14.4 26.2 26.6 26.8 26.8 26.8 35.4

OPEX 0.0 4.9 5.8 6.2 5.1 5.2 5.2 5.3

EBITDA 0.0 9.5 20.5 20.4 21.7 21.7 21.6 30.1

D&A 0.0 9.3 9.3 9.3 9.3 9.3 9.3 9.3

Tax 0.0 0.1 2.6 2.4 2.6 2.5 2.5 4.2

Net profit 0.0 0.2 8.6 8.6 9.8 9.9 9.8 16.6


P&L - CCGT 437MW 2009 2010e 2011e 2012e 2013e 2014e 2015e 2016e

Net Capacity (MW) 420 420 420 420 420 420 420 420

SMP effective (€/ΜWh) 47 55 60 60 65 65 65 69

Load factor 0.0% 0.0% 5% 15% 20% 25% 25% 70%

Volumes (GWh) 0.0 0.0 184 552 736 920 920 2,575





CO2 allowance (m tns) 0.0 0.0 0.1 0.2 0.0 0.0 0.0 0.0

CO2 cost (€/tn) 16.0 17.0 18.0 19.0 20.0 20.0 20.0 20.0

CO2 allowance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Energy sales 0.0 0.0 24.9 47.0 61.7 73.7 73.7 190.3

Fuel Cost 0.0 0.0 8.0 25.0 34.6 43.3 43.3 121.2

CO2 emissions 0.0 0.0 0.7 2.1 8.3 10.3 10.3 28.9

Gross profit 0.0 0.0 16.2 19.9 18.8 20.0 20.0 40.2

OPEX 0.0 0.0 5.6 6.1 5.0 5.0 5.1 5.1

EBITDA 0.0 0.0 10.6 13.9 13.8 15.0 15.0 35.0

D&A 0.0 0.0 11.4 11.4 11.4 11.4 11.4 11.4

Tax 0.0 0.0 0.0 0.5 0.5 0.7 0.7 4.7

Net profit 0.0 0.0 (0.8) 1.9 1.9 2.9 2.8 18.9




Renewable energy For renewable capacity we include in our estimates 35MW of wind RES capacity which are already under operation. We assume that Protergia RES will enjoy feed in tariffs for their 20 years of operation, while we do not assume replacement after the expiration of the concession period. Regarding the wind renewable energy we assume an investment cost of €1.4m per MW, 30% of which is subsidized, 61% is equity and only the rest 9% is debt financed. On our estimates load factor for wind RES is seen at 30%. Regarding wind RES costs, municipality tax is set at 3.0% of sales, while other OPEX are linked to the Greek CPI. WIND 35MW

P&L (in €m) 2009 2010e 2011e 2012e 2013e 2014e … 2029e

Energy sales 7.4 7.6 7.8 8.0 8.2 8.5 12.6

Operation costs 0.7 0.8 0.8 0.8 0.8 0.9 1.3

Gross profit 6.7 6.9 7.0 7.2 7.4 7.6 11.3

mgn 90.0% 90.0% 89.9% 89.9% 89.9% 89.8% 89.4%

Municipality tax 0.2 0.2 0.2 0.2 0.2 0.3 0.4

Overheads 0.3 0.3 0.3 0.3 0.3 0.3 0.5

EBITDA 6.2 6.3 6.5 6.6 6.8 7.0 10.4

mgn 83.0% 82.9% 82.9% 82.8% 82.8% 82.8% 82.1%

Depreciation 2.7 2.7 2.7 2.7 2.7 2.7 2.7

Financials 3.2 3.4 3.5 3.7 3.9 4.2 7.7

EBT 3.2 3.4 3.5 3.7 3.9 4.2 7.7

Tax 0.8 0.8 0.8 0.8 0.8 0.8 1.5

Net profit 2.4 2.6 2.7 2.9 3.1 3.3 6.1

mgn 32.1% 33.5% 34.9% 36.4% 37.9% 39.4% 48.7%




Group financials Overall, Mytilineos group aims to exceed the €1bn of revenues in 2010. Going forward, main growth drivers will be the strong EPC performance and increased contribution from the energy sector. Notably, we see for the period 2009-2012e sales CAGR of 29%, EBITDA CAGR of 24.3% and bottom line to grow at a CAGR of 83.7%. Contribution from the energy portfolio will have a significant impact on the group figures from FY’11e onwards, while the EPC sector’s contribution to group revenues is expected to grow at an annual rate of 48.1% from 2009 to 2012. The Metallurgy & Mining sector is expected to improve its performance since its electricity cost variable has now stabilized due to the agreement with PPC and the operation of the CHP on LNG. Furthermore, hedges for 50% of the aluminium production in 2010 will provide strength to the topline. In order to calculate the income tax, we assume that the group will distribute 35% of net profit. Net profit margin is expected to rise to 6.5% in 2010e and settle at 6.0% going forward.

P&L (in €m) 2008 2009 2010e 2011e 2012e

Metallurgy 664.0 473.3 454.9 418.5 433.0

EPC 310.5 212.6 512.1 618.0 690.3

Energy 1.9 5.0 22.7 269.9 298.6

Other -46.8 -28.5 0.0 0.0 0.0

Sales 929.5 662.5 989.7 1,306 1,422

Metallurgy 62.1 70.8 56.8 46.4 39.7

EPC 57.0 68.0 118.6 102.8 108.6

Energy 0.2 0.7 15.9 65.1 80.0

Other -23.0 -20.6 0.0 0.0 0.0

EBITDA 96.3 118.9 191.2 214.3 228.4

EBITDA mgn 10.4% 17.9% 19.3% 16.4% 16.1%

Depreciation 20.9 19.5 27.8 31.2 31.5

Profit from associates -5.1 -13.4 0.0 -10.0 -10.9

Net financials 26.0 19.9 26.1 26.4 25.8

Profit before tax 44.3 36.5 137.3 146.8 160.2

Tax 15.5 16.7 46.5 50.3 53.7

Minorities 12.9 6.4 26.3 19.3 21.3

Net profit 18.5 13.7 64.5 77.2 85.1

Net profit mgn 2.0% 2.1% 6.5% 5.9% 6.0%




AoG accounts for 13.2% of Mytilineos EV

METKA accounts for

18.5% of Mytilineos EV

Valuation AoG value We value Aluminium of Greece through a DCF model assuming WACC of 9.5% and perpetuity growth of 0%. Our DCF model returns an equity value of €270m (€2.5 per share or 13.2% of total Mytilineos EV) for the aluminium business.

METKA value Assuming WACC of 10.5% and perpetuity growth rate of 1.0% we value METKA at €670.4m (€3.5 per share or 18.5% of total Mytilineos EV).

AoG - DCF model 2009 2010e 2011e 2012e 2013e 2014e 2015e 2016e

EBITDA 90.7 55.8 45.4 38.7 36.8 35.8 34.8 33.8

D&A 11.5 12.1 12.7 12.7 12.7 12.7 12.7 12.7

Tax 19.8 10.5 7.5 5.7 5.0 4.6 4.4 4.2

Operating CF 70.9 45.3 37.9 33.0 31.7 31.2 30.4 29.6

NWC chng 1.0 5.0 -2.0 -5.4 -0.9 -0.8 -0.9 -0.9

CAPEX 12 12 12 12 12 12 12 12

FCF 59.9 38.3 23.9 15.6 18.8 18.3 17.5 16.7

WACC 9.5%

ΣPV of FCF 82.8

Perpetuity growth 0.0%

Terminal value 102.0

Enterprise value 184.8

(-) Net debt '10e -84.1

Equity value 268.9

Source: Euroxx research

DCF Valuation 2010e 2011e 2012e 2013e 2014e T

EBIT 121.4 116.0 122.7 130.3 101.5 102.5

chng 117.5% -4.4% 5.7% 6.3% -22.1% 1.0%

EBIT margin 20.1% 16.0% 16.0% 15.6% 15.1% 15.1%

(-) Tax 40.6 41.1 41.6 35.9 27.3 25.6

After tax EBIT 80.8 74.9 81.0 94.4 74.2 76.9

(-) ΔWC 66.4 59.6 12.8 19.9 -49.7 2.6

(+) Depreciation 4.8 4.9 5.1 5.4 5.6 n.m

(-) CAPEX 3.5 4.2 5.0 5.4 4.6 n.m

Free Cash Flow (FCF) 15.6 16.1 68.4 74.4 124.9 74.3

Discounted FCF 15.6 14.6 56.0 55.2 83.8 45.1

WACC 10.5%

ΣPV of FCF's 209.5

Perpetuity growth rate 1.0%


Firm value 690.0

(-) Net debt / (cash) '10e -20.3

(-) Minority rights 40.5

(+) Associates 0.6

Equity value 670.4



Energy value We value the two CCGTs and the 35MW of wind RES separately through DCF models assuming WACC of 8.5%-9% and perpetuity growth rate of 0%. We do not proceed to estimate the Market Value of the 334MW CHP plant since the terms of its commercial operation have not yet been clarified. Therefore, we account for it at its Book Value of €180m. The total energy portfolio is valued at €585m and accounts for 28.6% of total Mytilineos EV. CCGT 444MW

CCGT 437MW

CCGT 444MW - DCF model 2010e 2011e 2012e 2013e 2014e 2015e 2016e T

EBITDA 9.5 20.5 20.4 21.7 21.7 21.6 30.1 30.1

mgn 63.3% 29.0% 24.8% 15.9% 15.9% 15.8% 19.2% 19.2%

Taxes 0.1 2.6 2.4 2.6 2.5 2.5 4.2 4.2

Operating CF 9.5 17.9 17.9 19.1 19.2 19.1 25.9 25.9

Tax payment 0.0 0.1 4.6 2.3 2.7 2.4 2.5 2.5

FCF 9.5 17.8 13.4 16.8 16.4 16.8 23.5 23.5

WACC 8.5%

ΣPV of FCF 91.6



Enterpise value 247.4

(-) investment 10.0

Equity value 237.4


CCGT 437MW - DCF model 2010e 2011e 2012e 2013e 2014e 2015e 2016e T

EBITDA 0.0 10.6 13.9 13.8 15.0 15.0 35.0 35.0

mgn n.m 42.6% 29.5% 22.4% 20.4% 20.3% 18.4% 18.4%

Taxes 0.0 0.0 0.5 0.5 0.7 0.7 4.7 4.7

Operating CF 0.0 10.6 13.3 13.3 14.3 14.3 30.3 30.3

Tax payment 0.0 0.0 0.0 1.0 0.5 0.9 0.7 0.7

FCF 0.0 10.6 13.3 12.4 13.8 13.4 29.6 29.6

WACC 8.5%

ΣPV of FCF 84.5



Enterpise value 298.0

(-) investment 124.0

Equity value 174.0




WIND 35MW

Management fees value

WIND 35MW - DCF model 2010e 2011e 2012e 2013e 2014e 2015e … 2027e

EBITDA 6.3 6.5 6.6 6.8 7.0 7.2 9.8

Debt service 0.4 0.4 0.4 0.4 0.5 0.5 0.0

Tax 0.8 0.8 0.8 0.8 0.8 0.9 1.4

FCF 5.1 5.3 5.4 5.5 5.7 5.8 8.4

WACC 9.0%

ΣPV of Cash Flows 54.2

Terminal Value 0.0

Total Value (€m) 54.2


Mngmt fees DCF model 2010e 2011e 2012e 2013e 2014e T

Metka sales 602.4 727.0 767.0 837.0 670.0 450.0

MF on sales (%) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Fees (€m) 18.1 21.8 23.0 25.1 20.1 13.5

WACC 11.5% 11.5% 11.5% 11.5% 11.5% 11.5%

Σ PV of Fees (11-14e) 69.2

Perpetuity growth rate 0.0%

Terminal value 68.1

Equity Value 137.3




SOTP valuation Following our explicit DCF valuations on Mytilineos main business sectors, we apply sum of the parts valuation (SOTP) for Mytilineos group to derive our TP of 6.5 €/share, which implies a 52.1% upside from current market levels and thus justifies our Overweight rating. Please note that we have assigned zero value in Sometra (since it has stopped operations) and the Greek vehicle manufacturer Elvo as their contribution to Mytilineos group financials is minimal. We have also accounted for the net debt position at a company level at 9M’10, which stands at €527m. Notably, at a group level Mytilineos has secured a €465 bond loan in order to finance its business plan and to refinance its short-term bank liabilities. Furthermore, we have incorporated in our valuation €150m of overheads, representing the present value of the negative cash flow stream of parent company’s administration expenses.

Mytilineos SOTP valuation (€m)

Section Value Stake Mytilineos

value% of EV

Value per

shareMethod

AoG 268.9 100.0% 268.9 13.2% € 2.5 DCF

Sometra 0 100.0% 0 0.0% € 0.0 -

Metallurgy & Mining

Metka 670.4 56.3% 377.4 18.5% € 3.5 DCF

EPC

CHP 334MW 180.0 100.0% 180.0 8.8% € 1.7 BV

CCGT 444MW (Viotia) 237.4 100.0% 237.4 11.6% € 2.2 DCF

CCGT 437MW (Korinthos) 174.0 65.0% 113.1 5.5% € 1.1 DCF

RES 35MW (wind) 54.2 100.0% 54.2 2.7% € 0.5 DCF

Energy

Elvo 0 43.0% 0 0.0% € 0.0 -

Management fee from Metka 137.3 100.0% 137.3 6.7% € 1.3 DCF

Net debt of parent 527.0 - -527.0 25.8% -€ 4.9 BV

Overheads 148.7 - -148.7 7.3% -€ 1.4 DDM

Dividend FY'09e 0.0 - 0.0 0.0% € 0.0 BV

Other

Total Mytilineos value 692.6 2043.9

# of shares* 106.6

Target Price 6.50

( * excluding treasury shares)




Consensus We stand above consensus forecasts as far as FY’10e figures are concerned. We attribute the discrepancy to our lower estimates regarding the production cost of the metallurgy sector since we have incorporated in our model the latest agreement of AoG with PPC that reduced the electricity cost for the metallurgy activity to €40.7/MWh from €55/MWh. Going forward, we continue to stand below market estimates regarding operating profitability on higher estimates regarding interest expenses. Note that profitability levels for 2011 and 2012 are expected to be boosted by the full consolidation of the energy assets and the commercial operation of the 3 thermal plants of the group.

Exx vs Cons

(in €m) Exx Cons % diff Exx Cons % diff Exx Cons % diff

Revenues 990 1,000 -1.0% 1,306 1,385 -5.7% 1,422 1,502 -5.3%

EBITDA 191 179 6.7% 214 199 8.0% 228 223 2.6%

% margin 19.3% 17.9% 16.4% 14.3% 16.1% 14.8%

EBIT 163 145 13.0% 183 185 -1.0% 197 205 -4.1%

% margin 16.5% 14.5% 14.0% 13.4% 13.8% 13.7%

Pre-tax profit 137 111 23.3% 147 169 -13.2% 160 190 -15.8%

% margin 13.9% 11.1% 11.2% 12.2% 11.3% 12.7%

Net profit 65 56 14.4% 77 86 -10.5% 85 88 -2.8%

% margin 6.5% 5.6% 5.9% 6.2% 6.0% 5.8%

FY'10e FY'11e FY'12e

Source: Factset, Euroxx Research



Summary of Financials

(in €m unless otherwise stated)

Profit & Loss (€m) 2008 2009 2010e 2011e 2012e Balance Sheet (€m) 2008 2009 2010e 2011e 2012e

Sales 929.1 661.8 989.7 1,306 1,422 Fixed assets, net 421.5 648.2 926.0 920.4 914.5

chng 1.8% -28.8% 49.5% 32.0% 8.8% Intangible assets, net 6.3 7.2 145.4 136.8 136.2

Gross profit 130.5 119.0 223.5 261.8 281.7 Goodwill 171.7 201.3 257.0 257.0 257.0

chng -20.2% -8.8% 87.8% 17.1% 7.6% Investment in associates 206.0 187.8 40.0 40.0 40.0

EBITDA 96.3 89.3 191.2 214.3 228.4 Other L/T assets 96.5 91.0 91.0 91.0 91.0

chng -37.4% -7.3% 114.2% 12.1% 6.5% L/T assets for sale 210.3 99.5 99.5 99.5 99.5

D&A 20.9 19.5 27.8 31.2 31.5 S/T assets 657.8 753.8 913.5 1078.9 1115.9

Operating profit (EBIT) 75.4 69.8 163.4 183.2 196.8 Inventories 174.0 89.4 126.2 172.0 187.8

chng -42.5% -7.5% 134.3% 12.1% 7.4% Trade receivables 250.3 308.5 488.1 608.4 623.3

Net finance income/(cost) -26.0 -19.9 -26.1 -26.4 -25.8 Other S/T receivables 189.1 136.8 175.2 212.4 225.9

Other financial results 2.4 -1.0 0.0 -10.0 -10.9 Cash & cash equivalent 44.4 219.2 124.1 86.1 79.0

Share of profit associates -7.5 -12.4 0.0 0.0 0.0 TOTAL ASSETS 1,770 1,989 2,472 2,624 2,654

Pre-tax profit 44.3 36.5 137.3 146.8 160.2 Net debt/(cash) 366.8 430.9 605.9 643.9 651.0

chng -83.8% -17.7% 276.5% 6.9% 9.1% Shareholders' equity 848.7 694.4 736.3 786.5 841.8

Tax 15.5 16.7 46.5 50.3 53.7 Minority interest 52.6 69.5 95.8 115.1 136.4

% effective tax rate 34.9% 38.4% 30.0% 25.0% 25.0% L/T liabilities 500.6 680.6 934.5 931.1 927.9

Discontinuing operations -2.5 -0.4 0.0 0.0 0.0 L/T debt 311.2 522.0 580.0 580.0 580.0

Minorities 12.9 6.4 26.3 19.3 21.3 Other L/T liabilities 189.4 158.5 354.5 351.1 347.9

Net profit 18.5 13.7 64.5 77.2 85.1 S/T liabilities 283.7 544.1 705.9 790.9 748.0

chng -90.4% -25.8% 369.9% 19.7% 10.3% S/T debt 100.1 128.0 150.0 150.0 150.0

EPS 1.71 0.17 0.13 0.61 0.72 Accounts payable 141.6 354.9 437.9 511.2 464.3

chng 9.2% -90.1% -23.7% 3.7x 19.7% Other S/T liabilities 42.0 61.2 117.9 129.7 133.7

Dividends 11.0 0.0 22.6 27.0 29.8 Liabs of L/T assets for sale 84.5 0.3 0.0 0.0 0.0

DPS (in €) 0.10 0.00 0.21 0.25 0.28 TOTAL EQUITY & LIAB/S 1,770 1,989 2,472 2,624 2,654

chng -80.4% n.m n.m 19.7% 10.3%

Cash Flow (€m) 2008 2009 2010e 2011e 2012e Ratio Analysis 2008 2009 2010e 2011e 2012e

Net profit/(loss) 18.5 13.7 64.5 77.2 85.1 Current ratio 2.32 1.39 1.29 1.36 1.49

(+) Minorities 12.9 6.4 26.3 19.3 21.3 Acid ratio 2.16 0.98 1.12 1.26 1.39

(+) D&A 20.9 19.5 27.8 31.2 31.5 Trade receivables days 98 170 180 170 160

(+) Other non cash items 18.5 31.9 55.7 10.0 10.9 Creditors days 65 239 209 179 149

Gross CF 70.7 71.6 174.3 137.7 148.8 Inventory days 80 60 60 60 60

(-) Chng in inventories 119.2 -34.8 36.8 45.8 15.8 Cash conversion cycle 113 -8 31 51 71

(-) Chng in acc. receivables -11.8 67.3 179.5 120.4 14.9 Debt / asset 0.4x 0.6x 0.7x 0.7x 0.6x

(-) Chng in other receivables -2.9 1.9 38.5 37.1 13.6 Liabilities to equity 0.9x 1.8x 2.2x 2.2x 2.0x

(+) Chng in trade payables 123.3 31.9 83.0 73.3 -46.9 Bank debt to equity 0.5x 0.9x 1.0x 0.9x 0.9x

(+) Chng in other liabilities 0.0 -2.3 56.8 11.7 4.0 Net debt / EBITDA 3.8x 4.8x 3.2x 3.0x 2.9x

Operating CF 89.6 66.7 59.4 19.3 61.8 Net debt / equity 0.4x 0.6x 0.8x 0.8x 0.8x

(-) Capex & investments 32.3 40.4 149.2 16.9 25.0 ROA 1.0% 0.7% 2.6% 2.9% 3.2%

(-) Discontinuing ops 0.0 0.0 0.0 0.0 0.0 ROE 2.2% 2.0% 8.8% 9.8% 10.1%

Investing CF -32.3 -40.4 -149.2 -16.9 -25.0 ROIC 3.9% 3.2% 7.8% 9.1% 9.4%

(+) Share capital -29.7 -1.3 0.0 0.0 0.0 P/OpCF 5.8x 7.8x 8.8x 27.1x 8.5x

(+) Debt 58.8 238.8 79.9 0.0 0.0 FCF yield 11.0% 5.0% -17.2% 0.5% 7.0%

(+) Subsidies 0.0 0.0 0.0 0.0 0.0 EBITDA mgn 10.4% 13.5% 19.3% 16.4% 16.1%

(-) Dividends 69.1 20.4 22.6 27.0 29.8 EBIT mgn 8.1% 10.5% 16.5% 14.0% 13.8%

(-) Other 57.8 68.7 62.6 13.4 14.1 Pre-tax profit mgn 4.8% 5.5% 13.9% 11.2% 11.3%

Financing CF -97.8 148.4 -5.2 -40.4 -43.9 Net profit mgn 2.0% 2.1% 6.5% 5.9% 6.0%

Change in Cash Position -40.5 174.8 -95.1 -38.0 -7.1 Dividend payout ratio 59.3% 0.0% 35.0% 35.0% 35.0%

Source: Mytilineos group, Euroxx Research



IMPORTANT DISCLOSURES

Analyst Certification The analyst identified on the front page of this report and the Head of Research (Certified Analyst) certify that the written views about each company and security they cover reflects only their personal opinions and estimates and their compensation are not linked to any investment banking services provided by Euroxx.

Risks and sensitivity The views and recommendations for all the companies that Euroxx Securities covers or refers to in the daily report have various levels of risk depending on company, industry and market events. Furthermore, our estimates for each company we cover are affected by various factors such as interest rates, inflation, local economic environment, market volatility, currency, management continuity or other company specific events. Investors should be informed that the investment strategies discussed or recommended in these reports may not be realised and each company may fail to reach its targets or the analyst’s targets.

Recommendation System Our recommendation system is based on the unbiased personal views of our analysts. The target prices have a time horizon of one year. Euroxx Securities S.A. aims in updating the covered companies on any new future material that may lead to a different recommendation but does not have a regular policy to update reports

Investment recommendations are determined by the ranges described above at the time of initiation or review of coverage. Furthermore, the aforementioned ratings and target prices are subject to constant changes. Any unauthorised use, disclosure, copying, distribution, or taking of any action in reliance on these reports is strictly prohibited. Euroxx Securities S.A. and its employees are neither liable for the proper and complete transmission of these reports nor for any delay in their receipt. Euroxx Securities S.A. and its employees do not guarantee the accuracy of the research reports or daily report, while they are not responsible for any possible errors or omissions.

Under no circumstances Euroxx suggests any buying or selling activity through this document. In producing its research reports, Euroxx Securities SA research departments may have received assistance from the subject company such as access to the company’s sites, visits to certain operations of the subject company, meetings with management or employees and the handing by them of historical data regarding the subject company, as well as of all the publicly available information regarding strategy and financial targets.

Other Important Regulatory Disclosures The information and opinions in this report were prepared by Euroxx Securities S.A., which is member of the Athens Exchange S.A. and regulated by the Hellenic Capital Market Commission. There is a separate location of analysts from Investment Banking, Capital Markets and Sales and Trading employees and research reports are produced away from them. The communication between the Research Department and the other departments of Euroxx Securities S.A. is restricted between the different departments. Note that "EUROXX Securities S.A. is regulated in Greece by the Hellenic Capital Market Commission, License No. 45/23.06.95/3”.

Valuation Method We value the three business sectors (Metallurgy, EPC and Energy) separately through DCF model and then we value Mytilineos group through a sum of the parts model. Disclosure checklist for companies mentioned in this report 1. As of the aforementioned date, Euroxx Securities S.A. does not own 5% or more of any common equity securities. 2. As of the aforementioned date, no listed companies own 5% or more of a class of common equity securities of Euroxx Securities S.A. 3. Euroxx Securities S.A. does not act as a market maker for any listed company. 4. Euroxx Securities S.A. has made underwriting for the prior 12 months of the aforementioned date for the stock GPSB. 5. Within the last 12 months, Euroxx Securities S.A. did not have a contractual relationship or has not received compensation for financial advisory services from any listed company, except Postal Savings Bank 6. Euroxx Securities S.A. has not sent the research report to the company prior to publication for factual verification. 7. Following 6, Euroxx Securities S.A. has not changed the contents of the initially sent research report. 8. Euroxx Securities S.A. has not received compensation from the company for the preparation of this research report.

Rating ExplanationCoverage Universe (#) in

the last quarter

Coverage

Universe (%)

% Companies covered that are

investment banking clients

Overweight Expected total return >10% 9 26% 0%

Equalweight Expected total return betw een -10% and +10% 11 32% 3%

Underweight Expected total return < -10% 0 0% 0%

Under Review Recommendation and Target Price are subject to revision 14 41% 0%

*The target price and rating have a time horizon of one year



Rating History

Research Manos Giakoumis +30-210-6879322 [email protected] Kostas Glikas +30-210-6879362 [email protected] Maria Kanellopoulou +30-210-6879363 [email protected] Yiannis Sinapis +30-210-6879353 [email protected] Marios Theofanopoulos +30-210-6879307 [email protected] Manos Kourentos +30-210-6879402 [email protected] Sales George Polites +30-210-6879520 [email protected] Ilias Dimitros +30-210-6879485 [email protected] Danai Filioti +30-210-6879480 [email protected] George Lymberopoulos +30-210-6879494 [email protected] Costis Papaconstantinou +30-210-6879523 [email protected] Margaret Stamatiadou +30-210-6879481 [email protected] Kostas Tsigourakos +30-210-6879354 [email protected] Nicholas Zarkas +30-210-6879491 [email protected] Euroxx Securities S.A

7 Paleologou Str. 15232, Athens www.euroxx.gr

Date Rating Share Price Target Price

12/01/2009 Overw eight 4.20 6.10

02/04/2009 Equalw eight 3.69 4.20

03/06/2009 Equalw eight 6.30 6.60

18/08/2009 Overw eight 5.68 6.60

20/11/2009 Overw eight 5.31 7.80

28/06/2010 Under Review 4.04 U/R

22/11/2010 Overw eight 4.27 6.50



http://www.euroxx.gr/

mytilineos holdings · 11/22/2010 · resume of coverage november 22, 2010 mytilineos holdings...

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