DS9 Document EFTA01204332

1 COMPANY NOTE Target j Estimate Change FM I Telecommunications I Cable & Satellite SES (SESG FP) Whither the Cash? 5 March 2014 key Takeaway We remain a buyer of SES on fundamentals alone (just) but its re-rating back to all-time highs begs the question of what drives the upside from here. We look at three potential catalysts, with a focus on uses of its under-geared balance sheet. We screen the market for potential M&A targets with some clear candidates and a framework for evaluating a deal. A lack of visibility on timing and financial impact, clearly, limit our ability to pound the table. Still a buyer on fundamentals (just). SES's well-grounded guidance and consensus expectations limit scope for upgrades. Our work on expansion capacity continues to give us confidence that the growth guidance is well under-pinned. SES has put concerns on the risk from compression on the back foot, with most recent comments providing further comfort on the outlook. The stock has deservedly rallied back to close to all time highs, but now begs the question, 'what next?". Upside catalysts. We see three obvious upside catalysts, of which two involve leveraging the balance sheet: value accretive M&A; buybacks / special dividends; and / or improving satellite economics. While none of the catalysts comes with particularly high visibility, the latter two are perhaps furthest away from being embedded into expectations. We take the opportunity to recap on the potential impact of SpaceX / electric propulsion on terminal capex assumptions. Preference for M&A. With a long run cash flow yield of -8.5% and a typical satellite IRR of mid-teens, SES is right to signal that M&A has a higher weighting within its options to gear up the balance sheet. Nonetheless, it's worth highlighting that given the dividend coverage, SES's free cash flow yield is a credible proxy for its shareholder return yield meaning, in aggregate out to 2018, it could return 38% of its equity value, should it wish to do so. Whither the cash? We take recent management commentary as a lead and look at the various M&A options / targets in Asia Pacific. While our work aims to highlight the potential targets along with key operational / financial / valuation analysis, we present one clear-cut M&A roadmap: a take-out of the O3b minorities for E860m and an acquisition of Measat for E500m. Valuation/Risks SES has rallied to 16.3x 2014 PE, against our target rating of 18x. Its discount to Eutelsat (on 17x 2014 PE), as we had previously argued, has now reduced materially, but is still justified given the relative growth outlooks. Principle risk remains oversupply within the industry. CUR Prey. 2013E hey. 2014E Prey. 2015E Prey. 2016E Rev. (MM) 1,855.3 1,862.5 1,990.8 1,980.4 2,083.2 2,064.6 2,146.2 2,119.1 EB1TDR (MM) 1,361.8141,364.7 1,4671 1,451.0 1,535.3 1,512.7 1,581.8 1,552.7 EVJEBITDA Dix 9.6x 9.2x 8.9x EPS LSO 1.40 1.63 1.53 1.78 1.71 1.93 1.84 FY PIE 17.7x 16.2x 14.5x 13.5x Dividend FY Dec — 1.07 — 1.17 1.29 — 1.42 Div. Yield 4.31% 4.71% 5.19% 5.72% Jefferies BUY Price target €27.70 (from €28.00) Price €24.84 Financial Summary Net Debt (MM): E3,801.7 Market Data 52 Week Range: E25.47 - E20.48 Total Entprs. Value (MM): E13,862.4 Market Cap. (MM): E10,060.7 Shares Out. (MM): 405.1 Float (MM): NA Avg. Daily Vol.: 711,4 21 Giles Thorne • Anal yst +44 (0)20 7029 8005 Jerry Dellis • 44 (0)20 7029 8517 Ulrich Rathe, CFA • Equity Analyst 44 (0)20 7029 8286 Nayab Amjad • Equity Analyst +44 (0)20 7029 8605 • Jefferies International Limited Price Performance 20 MAR-13 .19.-13 NOV-19 MAR-14 1dO21111 ,--O21V1S11:1 Aunts Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 17 to 22 of this report. EFTA01204332 SES lox • SESG FP Target I Estimate Change 5 March 2014 Buy: €27.7 Price Target Scenarios Target Investment Thesis • Continued solid execution, free from negative catalysts (compression, HIS over- supply) • Relative insulation from short term sequestration headwinds • Revenue growth of 6.3% in 2013, compared to guidance of 6-7% • Margin stability • FY14 EPS of €1.53, PE of 18x, price target E27.7 Upside Scenario • Strong take-up and price inflation for capacity, especially in emerging markets • Faster-than-expected redeployment of German transponders • Earlier than expected normalisation of US government demand • Acquisition opportunities • FY13-16 guidance raised or exceeded • FY14 EPS of E1.65, PE of 20x, price target E33 Downside Scenario • Major USD depreciation against Euro sasS r•-• • Deep demand deflation from compression &I') and HTS over-supply • Sequestration headwinds cause management to lower FY14 guidance • Oversupply in global satellite capacity from increased industry launches • Unable to re-contract Germany transponders • FY14 EPS of E1.4, PE of 16x, price target €22 Long Term Analysis 1 Year Forward P/E 25. 2007 2009 2011 2013 lyr PE — Target — — — Upside Source: DataStream, jefferies Downskle Long Term Financial Model Drivers LT Earnings 2013-2016 CAGR 4.4% Organic Revenue Growth Acquisition Contribution Operating Margin Expansion 4.4% 0.0% 0.0% Other Considerations • SES has a 46.88% stake in a medium earth orbit satellite operator, O3b • O3b is yet to launch full global commercial service • O3b equity valuation, as per management, of 11.5-3.0bn • SES has options to take control and / or 100% ownership of 03b Peer Group 1 Year Forward PE's 20. 11Sa 16a 14a 12* see Lit IUt Source: DataStream, jefferies 19.1x 2013-15 earnings growth vs. P/E Recommendation / Price Target 20% Ticker Rec. PT us SESG W Buy (27.70 10% • EEL FP Buy €27.20 0% • ISAT LN Buy 790p (10)% .11.0 AVN Buy 580p (701% 0. 10x 20x 30x Source: DataStream, jefferies Catalysts • 1Q14 results on 9 May 2014 • 2Q14 results on 25 July 2014 • 3Q14 results on 31 October 2014 • Astra-5B launch on 21 March 2014 • Astra-2G launch in 1Q14 • SES-9 launch in 2015 • Announcement of incremental growth satellite launches Company Description SES SA provides satellite-based data transmission and ancillary services. The company operates through Media and Broadcasting services. The Media and Broadcasting segment offer space segment services, value added services and customized services. The company applications include Digital TV, HDTV, 3D1V and Hybrid 1V. It offers services including direct-to-home broadcasting, feeds for cable and digital terrestrial television networks, broadband Internet access and mobile backhaul. The company was founded in 1985 and is headquartered in Luxembourg. n TS page 2 of 22 Please see important disclosure information on pages 17- 22 of this report. Giles Thorne, Equity Analyst, +44 (0)20 7029 8005, Jefferies EFTA01204333 SESG FP Target I Estimate Change 5 March 2014 Reiterate Buy: whither the cash? We reiterate our Buy rating on SES, albeit with a lower level of conviction given the price action since our last note ("Stop Fretting", 3 December 201 3). There is now only 16.2% 12- month total return on SES, which only just keeps it at a Buy rating under out ratings framework (>15%). We remain a buyer of the name on fundamentals (just) but the well-grounded guidance and consensus expectations limit scope for upgrades. At the same time the recent re-rating raises the question of what could the potential upside catalysts be from here. In response, we see three obvious sources of upside: value accretive M&A; buybacks / special dividends; and / or improving satellite economics. While none of the catalysts comes with particularly high visibility, the latter two are perhaps furthest away from being embedded into expectations (though we take the opportunity to recap on the potential Impact of SpaceX / electric propulsion on terminal capex assumptions). In terms of M&A, we take recent management commentary as a lead and look at the various options that SES now has. We present one potential roadmap: a take-out of the O3b minorities for E860m and an acquisition of Measat for C5OOm. In aggregate this would take SES's leverage up to the 3.3x guidance level. A material deviation above these valuations would be a negative for the equity. Equally, SES may prefer to pursue growth opportunities / markets via strategic partnerships as opposed to outright M&A. Our new target price of E27.7 (from E28) reflects, inter alia, small cuts to our revenue and EBITDA forecasts, a weaker EURUSD assumption and updated capex assumptions (as per most recent management guidance). We perform a DCF-based SoTP valuation for SES (WACC of 7.8% and terminal growth rate of 2%) to derive our estimate of fair value. Table 1: Sum of the parts valuation Weloetloo Methodology 14 (rag F114 1011011 FYI S ISHDA 1g 12014 IV / 2011 stele value to SIS Value Fe etreM Ulna Mina Mon) sham td) Enterprise value DCF (WACC: 7.896; Term gr: 2.0%) 14,140.8 1,451.0 1.512.7 9.7x 9.32 100.0% 14,1408 614.91 93.3% 03b Networks DCF (WACC: 7.896; Term gr. 2.0%) 2,1383 nm nm nm nn 46.9% 1.011.9 4250 6.7% Enterprise value 16,299.3 15,132.7 (37.40 100.0% Len: proportionate net debt (FYI 4 yearend) (3,835.9) Len: minority interests (mokvalue) (80.0) Equity value 11,233.9 Shares in issue (forecast FYI 4 yearend) 405.1 Value per ordinary share (MTh) 427.7 Current Share Price (EUR) (24.9 D.Vidend )idd 4.7% Upside/(downside) to current share price 11.S% Total ?tear faun 14.2% Source: Jefferies We had previously highlighted how SES had compelling appeal against Eutelsat (valuation discount, faster growth, lower leverage, has lower earnings risk). We are therefore not surprised to see SES's discount to Eutelsat now completely reversed (Chart 3) after a difficult 2H13 period when the stock suffered some broker downgrades. With the Satmex acquisition now completed, Eutelsat's growth profile is once again superior to SES's, and on our numbers, Eutelsat justifies its slightly higher multiple (Table 2). Table 2: SES and Eutelsat, key metrics 2013.2016 revenue CACR• 2014 EBITDA margin 4.4% 73.1% Ilutebst 6.4% 76.6% 2014 Leverage (net debt / EIVTDA)" 2.49x 3.30x Ukctive tax rate 12.5% 40.096 2014 PE 16.24 17.0x Source: Company data, lefferies estimates •Cakndarised to a December year end. unadjusted for {X ••Eutelsat leverage xcludes impact of Satmex acquisitka, which is still to get completed page 3 of 22 Giles Thorne, Equity Analyst, +44 (0)20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report Jefferies EFTA01204334 SESG FP Target I Estimate Change 5 March 2014 Chart 1: SES share price, 2-year performance (2u C24 (22 (20 CI 8 CI6 CI4 Cl2 CIO Mar-12 Sep-12 Mar-13 Sep-13 SESG-FR year performance Is 17 16 15 14 13 12 11 10 Mar-12 Sep-12 Mar-13 Sep-13 •. SES - forward PE Chart 2: SES, forward 12-month PE, 2- Chart 3: Forward 12-month PE, Eutelsat vs. SES io 25 20% 15% 10% 5% 0% (5%) (10%) (15%) Mar-12 Sep12 Mar-13 Sep-I 3 —PE premium (ETUSES minus I) Source: FactSet Source: FactSet Source: FactSet We see three sources of potential re-rating from here Given SES's re-rating back to close to all-time highs, we begin to question what catalysts could push the equity on from here. Three obvious ones spring to mind: 1. value accretive M&A; 2. buybacks / pedal dividends; and 3. improving satellite economics (here were referring to lower launch costs). We look at the shareholder remuneration and M&A opportunities in the following section. In terms of changing satellite economics, this is a subject we've looked at previously (see the aforementioned "Stop fretting" note). We won't repeat the analysis presented there, but would remind investors of the conclusions: both electric propulsion and the disruptive presence of SpaceX in the market for launch services have potential (indeed, SpaceX is already beginning to crystallise) to bring down medium and long term capex assumptions for satellite replacement, in turn lifting DCF valuations materially. The question of electric propulsion was revisited at the 4Q13 results. In October 2013, SES announced that it was co-investing with the European Space Agency in the Electra development programme. Electra aims at developing an innovative small and medium sized, fully electric platform, manufactured in Europe. SES is the prime contractor to ESA for the first phase of the programme and is working with the German firm, OHB System as a subcontractor for the corresponding manufacturing design of the platform. SES will decide at the end of this development phase whether the Electra platform is commercially viable. In parallel, SES will continue to discuss with all the other satellite manufacturers who are also developing and offering all-electric satellite platforms. This remains a medium term catalyst with limited visibility at the current time, though momentum is going in the right direction. Considering a potential M&A roadmap On a number of occasions now, we have highlighted the attractive cash return potential at SES. Management have been questioned again and again on what they intend to use its increasingly under-levered balance sheet for. It is worth recapping what SES has been saying now for some time on uses of cash, in order of preference: focus on organic growth capex; non-transformational M&A; a growing dividend (note that we already assume annual DPS growth of 10%); and finally special dividends / buybacks. There has been increased speculation on the theme of M&A, something that SES has not gone out of its way to dampen. Speculation has grown from trying to second guess the proceeds, timing and likelihood of a take-out of the O3B minorities to more expansionist M&A. Indeed, on the 4Q13 results call and the subsequent analyst breakfast, SES actually began to be quite explicit on what it's looking for. These developments prompt us to more rigorously look at some of the potential targets. page 4 of 22 Giles Thorne, Equity Analyst, +44 (0)20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204335 SESG FP Target I Estimate Change 5 March 2014 SES will have -(1.2bn of "firepower" by the end of FY14 SES's leverage at the end of 2013 was 2.8x, against a target leverage of 3.3x. By the end of 2014, we estimate leverage of only 2.5x and only 2.2x by the end of 2015. So depending on timing, SES has E1.2-1.6bn of leverage headroom with which it could make acquisitions (Table 3). Table 3: Surplus cash after 00/0 yoy DPS commitment, leverage 2011e 2011e 2016e 2057e 2016e Equity Free cash flow 615.8 68033 735.1 755.7 763.5 Cash dividend (I0% yoy growth) (433.5) (476.11) (524.5) (577.0) (634.7) Surplus cash after dividend 182.3 203.9 210.6 178.7 128.9 layout ratio 77.4% 77.0% 785% 134.0% 91.496 Net debt/ EBITDA 2.494 2.26x 206x 1.91x 1.764 Leverage headroam (3.3x guidance) 0.81x 1.04x 12.44 1.19x 1St Leverage headroom (fm) 1,169.0 1476.6 1918.9 2.197.1 2,466.1 Source: Jefferies estimates A take-out of the O3b pi partners could cost up to 41.1bn Management have been consistently elusive on its potential obligations under the O3b options it holds. The only real steer they've given is that they've previously indicated that O3b has an equity valuation (in their view) of $1.6-3.0bn (€1.i-2.2bn). Speaking at the post 4Q13 results analyst breakfast, management said that they're taking a prudent approach to the decision, waiting to get more visibility on the success of O3b rather than perhaps moving sooner and paying a lower price. They're talking of 2016 for a decision point. We estimate that proceeds to get to a controlling stake of 50.1% (under the right of first refusal option) would be small (only €35-70m), while a complete take out could be significantly larger (€0.58-1.12bn). See Table 4. Table 4: 03b take-out (based on management comments around equity valuation for 03b) Settee or rage 104.64 et range Top strange Equity value (1) 1,500.0 2.250.0 3000.0 Equity value (e) 1,069.0 1,633.6 2,1713.1 Slake purchase to gel to 50.1% 1.2% 1.2% 1.2% Proceeds to get to 50.1% 35.1 52.6 70.1 Star purchasing 499% 49.9% 49.9% Proceeds to then get to 100% 543.4 815.2 1,086.9 Total proceeds 378.5 867.8 1,157.0 Source: Jefferies, company data Screening for potential M&A targets On the 4Q13 results, the CEO confirmed what many would take as a given, that the approach to M&A would be to focus on those regions of the world where SES lacks the "raw materials" for satellite services: namely, orbital slots and / or frequency rights. On this basis, the CEO went on to indicate that Asia Pacific is a region where SES feels under- resourced. Obviously, we must also factor in that SES will only look at "non- transformational" acquisitions. Recent AMA targets discussed in the industry press have been Telesat and Spacecom. While SES would undoubtedly look at these opportunities, we assign a lower likelihood of it ultimately proceeding with an acquisition given that 1) SES has a large operational overlap with Telesat in North America and already has critical mass in those markets; and 2) In the case of Spacecom, while it would certainly be of more interest with its exposure to Asia and Russia via Amos-4 at 65 degrees East, the mainstay of its business is Europe / Middle East / Africa via satellites at 4 degrees west Turning to the seemingly favoured Asia Pacific region, we see four standout credible M&A targets. We screened the universe based on size (SES has been clear it wants more mature businesses with established neighbourhoods) and whether there is a willing seller (which ruled out government-owned businesses). On these two criteria, we would expect the following four operators to be of particular interest to SES: Thaicom, AsiaSat, KoreaSat or page 5 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204336 SESG FP Target I Estimate Change 5 March 2014 Measat. We have performed some preliminary operational, financial and valuation analysis of the four names: Operational Krsis: we quantify the number of active and planned satellites for each operator and the weighted fleet age (a metric we use in valuation analysis, see below). The details on fleet size, number of transponders, orbital slots and launch dates are given in Table 5 below. In Chart 4, we present a snapshot of existing / planned capacity by orbital slot for each operator. We believe that AsiaSat and Measat, with presence in the India market (a market we look at in some more detail below), would be of particular interest to SES given the scope to consolidate a neighbourhood in a key market (something that SES explicitly said would be of interest during the aforementioned analyst breakfast). Table 5: Fleet details (shaded satellites are yet Slog Sate•It* immthed Retires Asiakt to be launched) Trasga•Nn Aa its c Tad weighting Age Cyan) %Warted Age 106E Assgat 3S 21444.4.99 21-Mar-14 16 28 44 16.4% 15.0 2.4 122E AsiaSat 4 12-Apr-01 12-44, 18 I6 28 44 16.4% 10.9 1.8 101 E Asagat 5 1I4u1.09 314o124 14 26 40 14.9% 4A 0.7 106E Asagat 7 2514ov.11 25-Nov-26 28 45 16.7% 2.1 0.4 120 E AsiaSat 6 (Thaican 7) 30-1un-14 30Jun.29 0 28 za 10.4% .0.3 0.0 106 E A-4gal 8 30-Jun-I4 30-Jun.29 24 0 24 8.9% .0.3 0.0 122E Algat 9 3141ec-Id 31•Dcc31 16 28 44 16A% .2.8 -0.S 269 100.0% 29.2 4.0 Mamas 119E Malcom 4 (baster I) II -Aug-05 1 1 -Aug.20 102 0 0 102 56.4% 8.6 48 79 E Malcom 5 (Pqrani 2) 27-May-06 27•May.21 II 0 25 39 21.516 7.8 1.7 79 E Malcom 6 30 -Jun -13 304un28 8 0 18 26 14.4% 0.7 0.1 120E Thaicom 7 30.Jun.14 301un.29 0 0 14 14 7.7% .0.3 00 101 100.0% 16.7 6.6 KoreoSol 1 11 E Koregat 5 22. Aug-06 22-Aug.21 24 4 0 28 48.3% 7S 3.6 116E Koregat 6 294)ec-10 29•Dec.25 30 0 0 30 51.7% 3-2 1.6 SS 100.0% 10.7 S.9 Measol 148E Meant 2 1444ov-96 14-Nov-I 1 9 6 IS 9.5% 17.3 1.7 119E Meant S 11-Aug-0S 11-Aug-20 7 0 7 4.5% 8.4 0.4 92 E Meant 3 11-Elec-06 11-Dec-21 24 24 48 30.5% 7-2 2.2 92E Meant 3A (Measat IR) 214m.09 21.1un 24 12 12 24 15.1% 4.7 0.7 92E Meant 38 31-Mar-14 1I.Mar•29 48 0 48 30.S% 41.1 00 6E Mensal 24 3141ec•14 31Aec•29 9 6 IS 9.5% -08 -OA 157.1 100.0% 36.9 4.9 Source: Company Data Chart 4: Number of existing / planned orbital slots in Asia* i so 120 100 so 60 40 20 'I I J 75 80 85 90 95 100 105 110 115 120 125 110 135 140 145 150 m- Source: jefferies, company data •Measat • Thaicom • AsiaSat • KoreaSat • SES Preliminary valuation analysis. Thaicom and AsiaSat are listed so you can take a view on SES's potential outlay from the quoted prices (Table 6). Notwithstanding, for all four names we perform a reverse-engineered valuation based on age-adjusted EV per transponder metrics for recent deals. In an ideal page 6 of 22 Wks Thorne, Equity Analyst, ♦44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204337 SESG FP Target 1 Estimate Change 5 March 2014 world, we'd look at the price / book multiples for recently done deals as it is a measure that looks through the fleet size and age, but we don't have the data to hand. We prefer not to look at plain EV / EBITDA multiples for recent transactions as it's not that meaningful given the various stages of rollout / ramp-up of the targets. In the absence of the data needed for price/book multiples, we came up with the idea of adjusting the EV (in EUR) / Transponder multiple by the weighted age of the fleet as a proxy. The reasoning is that a transponder is a measure of EBITDA potential then it makes sense to look at price paid per transponder rather than EBITDA itself as the company may not yet be generating EBITDA from that transponder — it needs to be adjusted for fleet age, as a buyer would be willing to pay more for a young satellite rather than an old one. For the GE-23, HellasSat and Satmex deals, the average EV / Age-adjusted transponder was 9.5x. We take that multiple and the weighted average age of each target to arrive at an EV in Euros, which we then translate into local currency and adjust for net debt. (Table 7). Table 6: Financial and valuation metrics, M&A targets — both completed and speculated Completed duals G141 Melia. Sat Sittrnes Spnulattd 1..9th Space <oa• Optw• Teleur• Agslat T•plIsla Paalta targets Timken Kce4 ateaSat Country Quoted? Ownership Hong Kong Yes OTC and GE own 76% Thailand Yes Shin Corp owns 41% South Kaye No KT Corp and Government Malaysia No Privately held Active satellites 2 4 I 1 2 4 5 14 4 3 Planned 0 0 2 1 I I 3 I 0 2 Blended age (yeah) 6.5 9.7 33 I.5 7.4 7.5 4.8 6.6 5.3 4.9 Revenue ducal) ilia 300.0 50.0 328 137.3 96.3 330.0 896.9 1,534.8 9,434.1 EIlffDA (local) 39.0 25.2 107.0 62.6 264.0 711.2 1,366.1 5,032.2 nra 240.0 Net debt (toed) 387.3 0.0 3,041.2 (2,1 31.5) 4,914.7 n. f a 0.0 EBffDA margin 78.0% 762% 77.99E 65.0% 80.096 79.3% 892% 51.1% nta 80.0% EX rate to DAI 1.367 1.000 1.367 &KIS 1 325 1318 10406 32.545 1455.946 4.469 Revenue (EURm) EfIffDA (ELIRm) Net debt (EUIlm) I 36.6 211.5 0.0 12.8 25.2 0.0 100.5 78.3 0.0 20.0 13.0 80.6 216.4 173.1 0.0 590.8 468.5 2,004.6 144.7 1284 .201.2 289.9 154.6 151.0 nla nla nla 67.1 53.7 0.0 Enterprise value (Weal) 1 228.0 157.0 1,0420 1,788.6 2,000.0 5,050.5 11437.0 28,8713 517,367.7 7,259E MP EfIffDA (local) I 5.854 6.23x 9.74x 28.S7x .7-48, 7.10x 11.664 £74r Na 9.424 Enterprise value (Ram) 1662 157.0 762.4 372.2 1,311.4 3,326.9 1,116.1 887.2 3.55.1 505.6 Less: net debt (ELIRm) I 0.0 0.0 0.0 (80.6) 0.0 (2,004.6) 201.2 (151.0) nfa 0.0 Equity value (EURm) 1662 157.0 762.4 291.6 1,311.4 1,322.3 1,317.2 736.2 3.55.1 505.6 Transponders (excl. laundies) 38 30 172 73 111 705 173 167 58 79 Revenue per transponder (EUR) 0.94 1.09 0.58 0.27 1.95 0.84 084 1.74 nla 0.85 EfIffDA per transpander (Eurt) 0.75 024 0.46 0.18 1.56 0.66 am 093 nia 0.611 EV/ transponder (ELIRm) 4.44 SS: 4.4 Six 11.8x 4.7x 6.54 Six 6.1x 6.44 WI transpander (aged adiusted, EURm) I 7.74 14.94 5.74 £74 23.34 93x 9.Sx 9.Sx 9.Sx 9.S4 1.76 2.86 1.28 Source: Jefferies, company data •Spcecom EV based on quote market price for the Spacecom equity, Optus based on press speculation. Telesat based on previ usly described EV Age adjusted transponder analysis page 7 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204338 SESG FP Target I Estimate Change 5 March 2014 Table 7: AsiaSat / Thaicom, enterprise value based on quoted market prices AUOSOI Share price Shares local 1110) 138 391 CUR Equity value 13,203 1,243 Net debt/ (cash) (2,134) (201) Enterprise value 11,069 1,044 Malcom Share price T116 39.5 Shares 1,096 Equity value 43,290 1,330 Net debt / (cash) 4,915 151 Enterprise value 48,204 1,481 Source: Jefferies, company data Second guessing a potential outcome: O3b and Measat Of the Asia Pacific targets, we believe Measat would be the most appealing name: it allows SES to both consolidate its position in the Indian market (both SES and MeaSat each serve 2 of the 7 pay-TV operators in that market) as well as gain key new slots at 119 and 148 degrees. MeaSat has leased 7% of the capacity on Ipstar 1, which is consistent with SES's view on high throughput satellite — SES believes in HTS but doesn't like the idea of dedicated payloads (and this is a reason that discounts Thaicom's suitability). MeaSat also looks like a deal size that could get done (€506m equity value) in conjunction with an O3b take-out of minorities (see numbers above). We believe that MeaSat also has a more willing seller (if recent press is to be believed). We also like AsiaSat as a candidate, but the deal would be less digestible (El .3bn). In the event a deal for Measat (or any other of the names) emerges, we would guide investors to appraise the price paid based on the analysis presented in Table 7 above, i.e., look to an EV / age-adjusted transponder multiple of 9.5x, at most. Cash yield feels too low to be a front-running opportunity With a long run cash flow yield of -8.5%, and the typical satellite IRR of mid-teens, SES will perhaps feel that M&A should have a higher weighting within its options to re- leverage the balance sheet. Nonetheless, it's worth highlighting that given the dividend coverage, SES's free cash flow yield is a credible proxy for its shareholder return yield meaning, in aggregate out to 2018, it could return 38% of its equity value (Table 8). Table 8: Potential shareholder distributions 2014e DM. 2014e 2017a 2011. Dividend per share- E1.18 (1.29 E1.42 f1.57 (1.72 nerd 4.7% 5.296 1796 6.3% 6.9% Buyback per share £0.45 (030 (032 f0.44 (0.32 nerd 1.8% 2.0% 2.1% 1.896 1.396 Total *Id 6.5% 7.2% 7.8% 8.1% 8.2% Cumulative)ied 6.5% 118% 21.6% 29.7% 37.9% Source: Jefferies estimates The compression debate: it's in the guidance In our "Stop fretting" note we looked in some detail at the industry debate around the revenue risk from advances in compression standards. We concluded that the risk from compression had been overblown. We injected some quantitative rigour into the debate with a hypothetical media broadcast model and looked at how the impact from migration to higher MPEG-4 and HEVC impacts the demand trajectory. We concluded that under the most credible worst case scenario investors should expect a -3.6% CAGR in demand out to 2022 (not insignificant, but not insurmountable). What we felt was much more likely to emerge was our base (flat CAGR) or bull (+1.3% CAGR) scenarios, which are consistent with all industry comment on the compression / ultra-HD trade-off. page 8 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204339 SESG FP Target I Estimate Change 5 March 2014 White we feel comfortable that the SES share price is now reflecting a much more credible assessment of the risk, the debate will of course continue. At the 4Q13 results and the analyst breakfast that followed, the question again came up of how many channels SES carries that are on MPEG-2 / MPEG-4 and how SES sees the migration unfolding. SES's response was closely aligned with what Eutelsat management had said in response to a similar question at its 2Q14 (calendar 4Q13) results, which is essentially that it has a deep insight into exactly how and when it's pay-TV customers (the large ones at least) will (or won't) do the MPEG-4 migration and how that freed up capacity will be re-used (or not). In the words of the SES CEO, "you can take it for granted that because of our strategic relationship with our large customers, we are quite well informed about their plans and we will not be taken by surprise when they will switch from MPEG-2 to MPEG-4". To our mind, this uniformity of response again undermines the bear argument on the FSS names regarding compression risk. There will undoubtedly be universal migration to MPEG-4 and there will undoubtedly be pockets of cost savings taken by certain operators, but we remain of the conviction view that for the most part efficiencies will be reinvested in product improvements (higher resolution SD, more HD channel launches, early ultra- HD channel launches) to deliver an overall flat to small positive growth demand profile for developed markets video. The fact that management teams are saying they have excellent visibility into the migration and have already embedded it into our guidance leaves those who push the bear argument having to convince the market that they have more insight into the product cycle than the operators (i.e., Sky, SkyD etc.) and their key suppliers (SES, Eutelsat, etc). We believe we remain on the right side of this debate. Recap of the 4Q13 results and changes to estimates SES reported another clean set of results on 21 February. It met FY13 guidance for constant FX growth, even in spite of the launch delays of Astra-2E and SES-8, with growth of 3.4% for the year (guidance of 3-4% range). Similarly, EBITDA growth landed at 2.8% against guidance of 2.5-3.5%. Results for the quarter were solid, with both revenue and EBITDA almost exactly in line with consensus (Table 9). The 4Q13 constant FX revenue growth of +6.3% compared to +2.9% / +6.1% in 3Q13 / 2Q13, with a strong performance from the European business particularly noteworthy (Table 10). Table 9: SES, 4Q13 results Cm 44112a 4413* Growth CM Actal vs. 1141111 Adel a (ettod) (Cats) Car. OM) Me Revenue 468.4 484.3 3.4% 483.0 0.3% 477.1 1.546 EBITDA 314.6 355.4 6-2% 357.0 (OA%) 152.5 0.8% (8(104 moron 71.4% 73.4% 1.95pp 73.9% (0.53pp) 73.9% (0.49j1p) Source: Jefferies, company data, company-compiled consensus Table 10: SES, r rends 3412a 4412a 1411a 2413a 3413a 4Q13. Reported (('al) Europe 2203 235.4 226.1 2285 2279 253.9 Growth (9.196) (3.9%) (5.9%) 0.6% 3.414 7.9% North America 123.9 105.9 95.0 108.1 100.6 94.3 Growth 36.2% 14.2% (0.196) 11.24 (18.8%) 01 .096) Intemabanal 123.3 127.1 119.7 131.1 139.2 136.1 Growth 27.9% 11.6% 4.3% 13.4% 12.9% 7.196 Total 467.7 468.4 440.8 469.7 467.7 484.3 Growth 8.7% 3.7% (IMO 6.3% 0.0% 3.4% Local currency (Em) North America 154.8 137.4 126.3 140.1 132.8 128.1 Growth 182% 8.6% 0.7% 11.0% (14.2%) (5.7%) Intemabanal 154.1 164.8 159.1 1725 181.7 184.9 Growth I L296 6.2% 5.496 13.296 19.2% 12.2% Group cont. IX growth 1.8% 1.2% (1.8%) 6.196 2.94 6.3% Source: Jefferles, company data, company-compiled consensus page 9 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17- 22 of this report. Jefferies EFTA01204340 SESG FP Target I Estimate Change 5 March 2014 Chart S: Group, revenue growth (constant FX) 8% 6% 4% 2% 0% (2%) (4%) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Chart 6: Transponder net adds, transponder utilisation 90 79.1% 77.0% 70 6% 74.4% 75.3% 75.5% 74.1% 74.0% 100% 80% so 60% 30 40% 10 (10) 20% (30) 0% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Operational net adds (LHS) tam Utilised net adds (LHS) 4Q13 —Group utilisation (RHS) Source: Company data Source: Company data Chart 7: Europe 120 100% 120 100% 120 80.9% 80.6% 82.0% 81.8% 80.1% 90 - 80% 90 75.3% 74.7% 74.0% 73.4% 72.7% 80% 90 AP 60 - 60% 60 60% 60 30 • 40% 30 40% 30 0 ■ 20% 0 20% 0 IN IMP (30) 0% (30) 0% (30) 4Q12 1Q13 2Q13 3Q13 4Q13 4Q12 1Q13 2Q13 3Q13 4Q13 Chart 8: North America Chart 9: International Operational net adds (LHS) Utilised net adds (LHS) —Europe utilisation (RHS) Operational net adds (LHS) Utilised net adds (LHS) North America utilisation (RHS) 70.7% 73.0% 73.1% 71.0% 71.8% I L a 4Q12 1Q13 2Q13 3Q13 4Q13 irm• Operational net adds (LHS) Utilised net adds (LHS) International utilisation (RHS) 100% 80% 60% 40% 20% 0% Source: Company data Source: Company data Source: Company data Changes to estimates, new guidance We lower our revenue and EBITDA estimates by 1-2% and EPS by 4-6%. We are broadly aligned with consensus on all financial forecasts (Table 11). New guidance is for FY14 constant FX revenue and EBITDA growth of 6-7% and FY13-16 compounded constant FX revenue and EBITDA growth of 4-4.5%. We're aligned with guidance (Table 12). Table 11: Changes to estimates Revenue 'fie prior 'fie current Mange Consensus an,. comma [Bata gie prior gie wait Change Consensus greys. consensus Source: Jefferies, company data VIII SY'S FYI6 1,9904 1,980.4 (0.5%) 1,982.7 (0.1%) 2,083.2 2,146.2 2,064.6 2,119.1 (0.9%) (1.3a 2,058.4 2,113.6 0.3% 0.3% 1,4672 1,451.0 (1.1%) 1,457.7 (0596) 1.535.3 1,581.8 1.512.7 1,552.7 (14%) (f.8%) 1.5148 1,557.2 (&l%) (0394) page IO of 22 Please see important disclosure information on pages 17- 22 of this report Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Jefferies EFTA01204341 SESG FP Target I Estimate Change 5 March 2014 Table 12: SES guidance 2014 StS COONMSIll Revenue growth (constant FX basis) 67% 63% 6.5% EBITDA growth (constant FX basis) 67% 6.3% 6.8% 1)201416 Revenue ChM 4.043% 4.4% 4.1% £BITDACAGR 4.043% 4.4% 4.5% Source: Jefferies, company data, FactSet consensus Capacity growth underpins 3-year guidance We look at the growth in capacity over the guidance period to give us comfort on revenue growth expectations. In Table 13 we take the expansion capacity from SES's upcoming launches and look at what that means in terms of compounded capacity growth over the 2013-16 period. As previously mentioned, revenue guidance is for 4.04.5% constant FX revenue and EBITDA growth 2013-16 while capacity will only grow 2.4% over that same period (Table 13, Chart 10). White there is a lower headline capacity growth number, we have to take into account that the baseline utilisation is very low (only 74% at the end of FY13, compared to 74% in 2012 and 81% in 2011), not least due to the German analogue switch off in 2012, which has still to be fully re-contracted. To take the FY13 year-end utilisation up to the normalised peak capacity of -80%, that would equate to 100 transponders. If we added 100 transponders to the 2014 capacity expansion in Table 13 below, that would take the 2013-16 CAGR up to 4.596, in line with the revenue guidance. In summary, we see room within the low utilisation and expansion capacity coming on-line to deliver the revenue growth the company is guiding to. Table 13: Operational transponder growth, m ed In # of transponders tad 80111 2014 aou zeta ! En412016 ! 201216 a441 201303 CAGE Europe 347 21 0 0 ! 368 ! 2.0% 3.0% North America 384 0 0 0 384 0.04 0.0% Internabanal 756 10 I 53 27 I 846 I 3.8% i 4.1% Total 1,487 31 53 27 I 1,598 I 2.4% 2.8% Source: Jefferies, company data Chart 10: SES, number of operational transponders, 2012-15 1,650 1,600 10 53 1,550 1,500 1,450 21 1,400 FY12.15 Gal of 3.7% 1,350 End 2012 2013 2014 2015 ■Total Europe ■ North America • International I End 2015 Source: Jefferies estimates, company data Europe: solid progress, forecasts nudge up 4Q13 was the third full quarter of growth normalisation for the European business given the prior year comparatives have no revenue related to German analogue TV (switched off in April 2012). Revenue of E253.9m was +7.0% ahead of JEFe, and implied a yoy growth rate of 7.9% (from 3.4% / 0.6% in 3Q13 / 2Q13). Management highlighted solid operational progress across its entire European footprint. The HD+ platform continued to page I I of 22 Giles Thorne, Equity Analyst, +44 (0)20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204342 SESG FP Target I Estimate Change 5 March 2014 perform well with lAm paying households (+120k on 3Q13 from +80k in 3Q13). We lift our Europe revenue forecasts by 3%. Table 14: Europe revenue forecast .n. IYI4 FTIS MS Old %recast 965.1 989.2 1,004.1 Growth 5.0% 2.5% 1.5% New forecast 992.6 1,017.4 1,032.7 Growth 6.0% 2.5% 1.5% Change 2.8% 22% 2.8% Source: Jefferies estimates North America At the 3Q13 results, management guided that US government business was up yoy in 1H13 but likely to be flat in 2H13. As expected, revenue trends normalised somewhat in 4Q13 after the 3Q13 print dealt with a difficult prior year comparative. SES delivered 4Q13 local currency growth of -6.7%, which compares to -14.2% / +11.0% in 3Q13 / 2Q13. North America revenue was -3.7% behind JEFe. SES proved far more resilient to US sequestration than peers in 2013 (note that Intelsat experienced -14% declines in USG business in its 4Q13 results). In its commentary, SES highlighted the difficult operating environment for US government business but again stated that there is good growth potential in the medium to long term as the demand to serve mobile operations continues to increase. A lower 2013 revenue number and lower growth expectations for FY14 (to -1.0% from flat yoy previously) bring our forecasts down by 3% in local currency. Table 15: North America revenue forecast (In local currency) (WI 11,14 MIS IVII Old %recast 538.3 S38.1 S38.3 Growth 1.0% 0.0% 0.0% New forecast 522.4 522.4 522.4 Growth (1.0%) 0.0% 0.0% Change (2.9%) (2.9%) (2.9%) Source: Jefferies estimates International International revenue of €136.1m in the quarter was -4.5% behind JEFe. Local currency growth of 12.2% compared to +19.2% / +13.1% in 3Q13 / 2Q13. We have now removed the revenue associated with Glocom (sold in 4Q13, CI 2m in FY13) and lower our growth expectations by 2-4pp. The result is a 4-6% downgrade in our International revenue forecasts. Table 16: In tonal revenue forecast (In local currency) Ca 11,14 FTIII Ms Old %recast 823.6 914.2 978.2 Growth 16.0% 11.0% 7.0% New forecast 788.5 867.3 919.4 Growth 12.5% 10.0% 6.0% Change (4.3%) (5.1%) (6.0%) Source: Jefferies estimates Update on 03b There have been concerns in the market as to the immediate outlook for 03b given the emergence of in-orbit anomalies in the first four satellites in September 2013. 03b pulled the September 2013 launch for the second batch of four giving them time to make modifications to satellite 5-8 to avoid another anomaly. Satellites 5 to 8 are expected to be launched in late 1Q14 (in line with our expectations following the decision to delay launch taken in September). At the post 4Q13 results analyst breakfast, the CEO indicated that while the transmission capability of the 1-4 satellites was unaffected, perhaps the lifetime would be less than expected (without quantifying by how much). He further suggested that insurance may well cover the service impairment (again, without being very specific on the matter). page 12 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17- 22 of this report. Jefferies EFTA01204343 SESG FP Target I Estimate Change 5 March 2014 At the 2Q13 results management said that satellites 9-12 would be launched in 2H14, though following the delay to 5-8, we would expect this to be pushed back to the very end of 2014 — indeed, at the 3Q13 results, management said that funding was being looked at for the 9-12 launch. As far as satellites 13-20, there hasn't been specific comment on these in a number of quarters. It was the original intention to have all 20 up by FY17. India: satcom policy changes on the horizon? We have previously highlighted the explosive growth of DTH television in India. Euroconsult says that demand for satellite capacity for DTH broadcasting grew at a CAGR of over 7% from 2008-2013. The outlook is equally robust • The trade association, The Cable and Satellite Broadcast Association of Asia (CASBAA) predicts (in its March 2013 white paper, "The Indian Capacity Crunch") that the number of TV channels in India will be 1,300 by 2017, from 821 in 2012, of which only 130 will be in HD. • In its inaugural Indian Satcom Value Chain and Markets report (23 January 2014), Euroconsult expects demand for C- and Ku-band capacity is expected to grow at 6% p.a. between 2013 and 2023 in addition to new demand for satcom services using HTS systems that should see strong take up towards the end of the decade. Chart 11: India, television subscriber net adds by platform Chart 12: India, television subscriber share yoy by platform 20 ISpp a_ I 1 1 1 L . Opp 5PP 0PP (5PP) (10pp) Spp) (20PP) j Analogue cable Digital cable DPI Other Analogue cable Digital cable DTH Other • 2006 ■ 2007 2008 • 2009 il 2010 • 2011 • 2012 • 2013E •2006 .2007 2008 •2009 •2010 •2011 •2012 -2013E Source: Federation of Indian Chambers of Commerce & Industry Source: Federation of Indian Chambers of Commerce & Industry SES capitalised on the growth potential of the Indian market with the launch of SES-8 in December 2013, building on the presence at the key 95 degrees east orbital slot (where NSS-6 is already located). SES also addresses India from 108 degrees east and, to a lesser extent, 57 degrees east. SES will launch SES-9 in mid-2015 to replace NSS-6 as well as bring material expansion capacity too to the 95 degrees east slot. The aforementioned growth outlook is perhaps now taken for granted (not least because the Euroconsult and CASBAA forecasts have been out for a number of months now). What is noteworthy at this point is the potential change to the satellite procurement process that could perhaps unlock an accelerated growth profile. We begin by recapping the current structure. The Indian Space and Research Organization (ISRO) is present all along the satcom value chain including for satellite manufacturing, launch, satellite operations, regulations and partially for services. ISRO is also the owner and operator of India's "Insat" satellite fleet, which has first priority for Indian customers. Satellite failures in the past few years, coupled with huge growth in demand, have forced ISRO to lean more heavily on non-Indian satellite operators like SES for capacity. page 13 of 22 Giles Thome, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204344 SESG FP Target I Estimate Change 5 March 2014 According to CASBAA, there is a looming capacity crunch. In its March 2013 report, CASBAA estimated that in the C-band, only -160 channels out of the -660 operational channels were carried by INSAT satellites, the balance being transmitted on foreign satellites. There is a similar picture in the Ku-band: out of the total -73 transponders used by Indian DTH broadcasters, only 18 were on INSAT satellites. CASBAA's forecasts suggest that the shortfall between demand (disaggregated again, by C-band and Ku-band) will only grow from here (Charts 13-15). Since the CASBAA report, we've seen ISRO procure GSAT-9 (6 C-band transponders, 24 Ku-band), GSAT-15 (24 Ku-band) and GSAT-16 (36 C- band and 12 Ku-band), which will certainly eat into the shortfall, but not get anywhere close to addressing it. Chart 13: India, C-band, total demand Chart 14: India, Ku-band, total demand Chart 15: India, total satellite demand vs. ISRO supply vs. ISRO supply vs. ISRO supply 300 300 300 250 250 200 200 150 150 100 100 SO 50 0 0 250 200 150 100 SO • • • 0 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 !SRO supply Total demand Source: CASBAA (March 2013) ISRO supply . .Total demand 2012 2013 2014 2015 2016 2017 ,, Total ISRO supply —Total demand Source: CASBAA (March 2013) Source: CASBAA (March 2013) According to Euroconsult, and wider industry press, we should expect to see a change in India's satcom policy in 2014. This should bring about positive changes and contribute to additional growth for SES. We should expect to see the following positive developments: • Simplified procurement process. Currently, Indian DTH operators are required to apply to ISRO (specifically, Antrix, ISRO's marketing arm) for satellite capacity. Only once Antrix confirms that it has no available supply can operators then place an official request to Antrix for capacity. Antrix then aggregates all requests and approaches foreign satellite operators and negotiates on behalf of the DTH operators. This is a costly and inefficient disintermediation of the value chain by the Indian government and creates unnecessary market inefficiencies. We would expect to see a rationalisation of this process. • Contract duration. Capacity secured with foreign suppliers via Antrix (as described above) is typically under three year contracts. We'd see a benefit to long term planning and visibility for DTH from the ability to procure capacity for a longer duration (perhaps equal to the average European contract length of 10 years), which in turn could unlock latent demand for the foreign operators. page 14 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17- 22 of this report Jefferies EFTA01204345 SESG FP Target I Estimate Change 5 March 2014 Table 17: SES revenue forecasts (local currency) 1412 1012 3Q12 4(112 IQI1 2Q11 AO 4413. Tens PITH IFTISe alt. Europe ((m) 240.3 227.1 220.5 235.4 226.1 228.5 227.9 253.9 936.4 992.6 1,017.4 1,032.7 Growth 3.7% (3.6%) (9.1%) (3.9%) (5.9%) 0.6% 3.4% 7.9% 1.4% 6.0% 2.5% 1.5% NathOmenca (Sm) 125.4 126.3 154.8 117.4 126.3 140.1 113.2 94.3 398.0 393.7 391.7 391.7 Growth (2.4%) (2.5%) 18.2% 8.6% 0.7% #1.0% 3.5%) (11.0%) (5.7%) (1.2%) 0.016 0.0% International (Sm) 151.4 152.5 154.1 164.8 159.1 172.5 184.4 136.1 528.1 594.1 651.5 692.8 Growth 8.6% 7.4% 11.1% .5.94 5.1% 13.1% 29.7% 7.1% 9.4% 12.5% 10.0% 6.0% Total revenue ((M) 450.2 441.7 467.7 468.4 440.8 469.7 467.7 484.3 1,862.3 1,980.4 2,064.6 2,119.1 3.5% (0.6%) 1.8% 1.24 (1.8%) 6.1% 2.94 3.4% 1.9% 4.3% 4.3% 2.6% Source: jefferies, company data Table 18: SES - P&L forecasts (Cm) 21111a IMI2. 21112 IMIla 21113•1 1112 !VIM FYIS• retie Revenue 881.7 891.9 936.1 910.5 952.01 1,862.5 1,9804 2,0644 2,119.1 Growth (1.011) 4.8% 4.2% 2.1% 1.7% 1.9% 6.1% 4.1% 2.6% Net operating cons (238.6) (226.8) (254.6) (248.5) (249.3) (497.8) (529.4) (551.9) (566.4) 46 of revenue 27.1% 214% 27.2% 27.3% 26.2% 26.7% 26.7% 26.7% 26.7% Growth I A% 3.1% 6.7% 9.6% (21%) 1.4% 6.1% 4.1% 2.6% OHM% 643.1 665.1 681.5 662.0 702.7 1,364.7 1,451.0 1,512.7 1,552.7 Margin 72.9% 744% 72.8% 72.73E 738% 71.1% 71.1% 73.3% 71.3% Growth (1.8%) 13% 6.0% (0.5%) 3.1% 1.1% 6.1% 4.3% 2.6% NM (216.9) (253.6) (102.5) (253.4) (260.1) (511.5) (466.1) (472.3) (474.9) %of coprx 48.2% 99.1% 80.0% Mn 149.0% 136.0% 97.1% 100.5% 105.5% %of revenue 26.9% 28.4% 32.3% 27.8% 27.3% 27.6% 21.5% 22.9% 22.4% Operating Income 406.2 411.5 379.0 4084 4426 851.2 984.7 1,040.5 1,077.8 Margin 46.)% 46.1% 40.5% 44.9% 46.5% 45.7% 49.7% 50.4% 50.9% Growth 1.0% 2.4% (6.7%) (0.7%) 16.8% 7.7% 15.7% 5.7% 1.6% Interest income (1.2) 3.0 1.5 IS 9.6 5.4 6.1 7.1 Growth (184.2%) (83.4%) (209.4%) (40.0%) 122.9%j 47.7% (41.3%) 128% 14.9% Interest expense (94.5) 0 3.0 (93.1) (84.3) (98.8)1 (181.1) (192.0) (186.2) (187.6) EflecnVe MIMICS, rote 4.5% 3.9% 4.4% 1.09E 4.394i 4.1% 4.596 4.5% 4.6% Profit before tax 308.5 331.5 289.4 326.1 351.6 677.7 798.2 40.1% 860.5 897.2 Margin 35.0% 37.2% 35.8% 36.9% 36.4% 41.7% 42.1% Growth (3602% .996) (3.2%) (2.8%) (1.6%) 21.596i 9.1% 17.8% 7.8% 4.3% Income lax evens* 20.9 (27.9) 70.1 (45.3) (4 2.2) (87.5) (1: . 2.0) (14 (22.4) (157.0) f flecnVe tax role (6.8%) 8.4% (24..2%) #3.9% 12.0% 12.9% i 76)1) 16.5% 17.5% Income tram Associates (48) (5.1) (8.9) (12.3) (9.41 (21.7) 525 11s. 8.4 Growth 118.2% 41.7% 85.4% 141.2% 54% 55.0% 135.6% (562%) (137S%) Profit on continuing operations 324.6 298.5 350.6 268.5 300.01 548.5 623.3 696.1 748.6 Margin 36.894 33.5% 37.5% 29.5% 11391 30.5% 31.5% 13.7% 35.3% Growth 23.8% (0.7%) 8.0% (10.1%) (14.4%) (12.4%) 9.6% 11.7% 7.5% Loss alter tax Iron discontinued operations 0.0 0.0 0.0 0.0 0.0I 0.0 0.0 0.0 0.0 Growth 000.090 (IMO%) urn ram nm nm nm nm nm Minority interests 1.0 (0.2) (0.1) (OS) (IS) (2.0) (2.1) (2.2) (2.2) Growth (266.7%) (84.6%) 0 100%1 150.0% 1400.09il 566.7% 6.0% 4.0% 2.0% Net income attributable 325.6 298.3 350.5 268.0 298.5I 544.5 621.2 693.9 746.3 36.9% 314% 37.4% 29.4% 31.4% 30.4% 31.4% 116% 35.2% 13.5% 2.1% 7.6% 170290 (14.8%).; (12.7%) 9.7% 11.7% 7.5% Source: Jeff cries estimates, company data page IS of 22 Giles Thorne, Equity Analyst, +44 (0)20 7029 8005, Please see important disclosure information on pages 17- 22 of this report. Jefferies EFTA01204346 SESG FP Target I Estimate Change 5 March 2014 Table 19: SES — cash flow forecasts (Cm) SHIN OHL. 2/112a 11113a Filla 'TIM. FM* Ma. profit from continuing operations before tax 677.7 747.1 818.1 905.6 Loss from discontinued operations before fax OA 0.0 0.0 0.0 Profit before tax 677.7 747.1 8301 905.6 Taxes paid (30.6) (121.7) (142.0) (157.0) finance costs I 147.7 186.5 180.0 180.6 Depreciation and amortisation 513.5 466.1 472.3 474.9 Impairments (42.1) 0.0 0.0 0.0 Other non C401 24.2 51.1 22.4 (8.4) Operating profit before working capital changei 1,290.2 1,327.3 1,370.8 1,393.7 Change in inventories 1.3 0.0 0.0 0.0 Changes in trade and other debtors (211.6) 0.0 0.0 0.0 Changes in prepayments and deferred charges 2.9 0.0 0.0 0.0 Changes in trade creditors (60.1) 0.0 0.0 0.0 Changes in payments on account (21.2) 0.0 0.0 0.0 Changes in upfront payments and deferred income 147.2 0.0 0.0 0.0 Net cash flows from operating activkles (141.7) 0.0 0.0 0.0 Net operating cash flow 586.6 593.2 640.2 531.2 617.3 1,148.5 1,327.3 1,370.1 1,395.7 Net Ciaplioa i (purchase) of intangble assets (0.1) (1.5) 0.0 (5.51 (5.5) 0.0 0.0 0.0 Caper (49(21.'97)) (2550.9.0) (378.1) (202.9) (174.6)1 (377.5) (480.0) (470.0) (450.0) Disposal of tangible assets 6.4 3.2 0.0 0.2 0.2 0.0 0.0 0.0 Acquisition of noncontrolling interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Disposal of equity investments 0.0 0.0 (68.1) 0.0 15.5. 15.5 0.0 0.0 0.0 Investment in associates (7.3) (30.5) 34.6 0.0 (12.3)i (12.1) 0.0 0.0 0.0 Dividends from associates Changes in other noncurrent friends' assets Other inwsbng activities 0.0 0.0 (2.6) 0.0 0.0 3.8 0.0 0.0 (5.1) 0.0 (57.0) 14.0 0110 , 0 49.2] 14.2 (57.0) 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net cash flow from Investing activities (498.1) (282.7) (415.0) (245.9) (176.4)i (422.3) (480.0) (470.0) (450.0) i Net drawdown / (repayment) of borrowings (56.7) 29.1 (23.1) 574.3 (391.9)1 182.4 (112.6) (112.6) (33.3) Buybacks 0.0 86.7 (66.7) 0.0 0.01 0.0 0.0 0.0 0.0 Dividends paid, net of dividends received 0.0 (320.9) (30.1) (356.5) 0 1.7)1 (433.5) (476.8) (524.5) Dividends paid to noncontrolling interests 0.0 (2.7) (2.9) 0.0 (5.6)i (1189(0 05...64 1)) (220.0) 0.0 0.0 0.0 Interest on borrowings (96.8) (94.3) (100.2) (85.6) (9411 (231.5) 0.0 (210.6) Net proceeds on treasury shares sold 7.6 11.8 32.1 23.3 (1-5)1 21.8 0.0 0.0 fisancing received from non-controlling interests 58.5 0.1 (0.3) 0.0 aoi 0.0 0.0 0.0 0.0 Net cash flow from financing activities (87.4) (290.0) (211.0) 155.5 (527.4): (371.9) (777.7) (809.5) (WU) fit impact 0.2 0.S (13.2) (15.3) (3441 (50.1) 0.0 0.0 0.0 Increase/ (decrease) In cash 1.3 21.0 1.0 425.5 (121.3)1 304.2 69.7 91.3 177.2 Source: Jefferies estimates, company data Table 20: SES — cash flow forecasts ((aim) 21Illa MIL, 21112. 'HIM 21113a1 'VIM I714• SVISe Ina, IftliDA 141.1 665.1 681.5 662.0 702.71 1,3/4.7 1,451.0 1,312.7 1,552.7 taper Operating cash flow (491.9) 151.2 (255.9) 409.2 (378.1) 303.4 (202.9) 459.1 (174.6) 528.1 (377.5) 987.2 (480.0) 971.0 (470.0) 1,042.7 (450.0) 1,102.7 Growth (53.4%) 41.6% W0.796 12.2% 74.1%i 38.5% (1.6%) 7.4% 5.7% Net cash flow from operating activibts 586.6 593.2 640.2 511.2 617.3 1,148.5 1,327.1 1,3704 1,195.7 Net interest paid (96.8) (94.1) (100.2) (85.6) (94.7) (180.1) (231.5) (220.0) (2104 Caper (491.9) (255.9) (378.1) (202.9) (174.6)1 (377.5) (480.0) (470.0) (450.0) Equity free cash flow (2.1) 243.0 161.9 242.7 341.0 590.7 615.8 680.1 735.1 Growth (102.1 91) 250.)91 (7809.5%) (0.1%) 114.9% 45.9% 4.2% 10.6% 8.0% Source: Jefferies estimates, company data page lb of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report Jefferies EFTA01204347 SESG FP Target I Estimate Change 5 March 2014 Company Description SES, through subsidiaries, offers global satellite broadband communications services and is the 2nd largest satellite operator. The Company offers feeds for cable television networks, Internet access, corporate networks, network facilities, telecommunications services, and audiovisual broadcasting. Analyst Certification I, Giles Thorne, certify that all of the views expressed in this research report accurately reflect my personal views about the subject securitydes) and subject companydes). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report I, Jerry Dellis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject companydes). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report I, Ulrich Rathe, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject companydes). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report Nayab Amjad, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report Registration of non-US analysts: Giles Thorne is employed by Jefferies International Limited, a non-US affiliate of jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-US analysts: ferry Dellis is employed by jefferies International Limited, a non-US affiliate of jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-US analysts: Ulrich Rathe, CFA is employed by fefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst Registration of non-US analysts: Nayab Amjad is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. As is the case with all jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. Company Specific Disclosures fefferies Group, Inc. makes a market in the securities or ADRs of Avanti Communications Group PLC Within the past 12 months, jefferies Group LLC, its affiliates or subsidiaries has received compensation from investment banking services from Avanti Communications. Within the past twelve months, Avanti Communications has been a client of jefferies LLC and investment banking services are being or have been provided. Jefferies I-Mare Covet( a division of Jefferies International Limited acts as a corporate broker for Avanti Communications. Meanings of jefferies Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative retum (price appreciation plus yield) of 10% or more within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below S10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price consistently below S10, the expected total retum (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below S10, the expected total return (price appreciation plus yield) is minus 20% within a 12- month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. Restricted - Describes issuers where, in conjunction with jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. page 17 of 22 Giles Thome, Equity Analyst, +44 (0) 20 7029 8005. Please see important disclosure Information on pages 17 - 22 of this report. Jefferies EFTA01204348 I SESG FP Target I Estimate Change 5 March 2014 Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. Valuation Methodology 'Merles' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EMTDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, PIE, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Jefferies Franchise Picks Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it underperforms the S&P by 15% or more since inclusion. Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Other Companies Mentioned in This Report • Avanti Communications (AVN LN: p273.00. BUY) • Eutelsat (ETL FP: E23.17, BUY) • Inmarsat plc (ISAT LN: p678.50. BUY) Rating and Price Target History for: SES (SESG FP) as of 03-03-2014 27 24 18 Is 12 nfit,":11 07(16/12 i.2, 08/08/12:,(2/81.1 Vir. 05/21/13. :7(f,1,527,1 \ f eiCaMe riVa lat/ It til" Q1 Q22 Q3 2012 QI Q2 Q3 2013 Q1 Q2 Q3 2014 page 18 of 22 Please see important disclosure information on pages 17 - 22 of this report. ClIes Thome, Equity Analyst, +44 (0) 20 7029 8005, Jefferies EFTA01204349 SESG FP Target I Estimate Change 5 March 2014 Rating and Price Target History for: Avanti Communications (AVN IN) as of 03.03.2014 600 450 300 150 0 0 /12 8600• 0 8 1 09/12/1 8640. 2580• N N N N 01 Q2 Q3 01 Q2 Q3 01 Q2 Q3 2012 2013 2019 Rating and Price Target History for: Eutelsat (ETL FP) as of 03-034014 32 28 24 20 16 06 1 /11 i H (114 0 05 1 11 REIIRIS 06/03;31 II EUR 30 0 1 /1 0589/1 11106/13 8 1St 1 B (0217,7 8 1 II 2 N N 01 Q2 Q3 2012 01 Q2 Q3 2013 01 Q2 Q3 2014 page 19 of 22 Giles Thorne, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure information on pages 17 - 22 of this report. Jefferies EFTA01204350 I SESG FP Target I Estimate Change 5 March 2014 Rating and Price Target History for: Inmarsat plc (ISAT LN) as of 03.03.2014 800 700 600 SOLI 11104/11 II/ 111 I 0 4 5 0 / 811 8 0 09 2 112 1114112 I 01/18/B 10875013 8660 8 /6 11.7658 \ ISI Th i t i4t /AdJ 1 W 144 360 01 Q2 Q3 2012 O1 QZ 03 2013 01 QZ Q3 2014 Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY 893 49.39% 223 24.97% HOLD 766 42.37% 130 16.97% UNDERPERFORM 149 8.24% 5 3.36% page 20 of 22 Giles Thome, Equity Analyst, +44 (0) 20 7029 800S, Please see important disclosure Information on pages 17 - 22 of this report. Jefferies EFTA01204351 SESG FP Target I Estimate Change 5 March 2014 Other Important Disclosures Jefferies Equity Research refers to research reports produced by analysts employed by one of the following fefferies Group LLC ('Jefferies, group companies: United : Jefferies LLC which is an SEC registered firm and a member of FINRA. United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority; registered in England and Wales No. 1978621; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3B1; telephone +44 (0)20 70298000; facsimile +44 (0)20 7029 8010. Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; located at Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong. Singapore: Jefferies Singapore Umited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place 015-20, DOB Plaza 2, Singapore 048624, telephone: +65 6551 3950. Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a member of the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chb.oda-ku, Tokyo 100-0006; telephone +813 5251 6100; facsimile +813 5251 6101. India: Jefferies India Private Limited, which is licensed by the Securities and Exchange Board of India as a Merchant Banker (INM000011443) and a Stock Broker with Bombay Stock Exchange Limited (INI3011491033) and National Stock Exchange of India Limited (INB231491037) in the Capital Market Segment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-Kuria Complex, Bandra (East) Mumbai 400 051, India; Tel +91 22 4356 6000. This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. The information set forth herein was obtained from sources believed to be reliable, but has not been independently verified by Jefferies. Therefore, except for any obligation under applicable rules we do not guarantee its accuracy. Additional and supporting information is available upon request. Unless prohibited by the provisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States ("US'), by Jefferies LLC, a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. Transactions by or on behalf of any US person may only be effected through Jefferies LLC. In the United Kingdom and European Economic Area this report is issued and/or approved for distribution by fefferies International Limited and is intended for use only by persons who have, or have been assessed as having, suitable professional experience and expertise, or by persons to whom it can be otherwise lawfully distributed. Jefferies International Limited has adopted a conflicts management policy in connection with the preparation and publication of research, the details of which are available upon request in writing to the Compliance Officer. Jefferies International Limited may allow its analysts to undertake private consultancy work. Jefferies International Limited's conflicts management policy sets out the arrangements Jefferies International Limited employs to manage any potential conflicts of interest that may arise as a result of such consultancy work. For Canadian investors, this material is intended for use only by professional or institutional investors. None of the investments or investment services mentioned or described herein is available to other persons or to anyone in Canada who is not a 'Designated Institution" as defined by the Securities Act (Ontario). In Singapore, Jefferies Singapore Limited is regulated by the Monetary Authority of Singapore. For investors in the Republic of Singapore, this material is provided by fefferies Singapore Limited pursuant to Regulation 32C of the Financial Advisers Regulations. The material contained in this document is intended solely for accredited, expert or institutional investors, as defined under the Securities and Futures Act (Cap. 289 of Singapore). If there are any matters arising from, or in connection with this material, please contact Jefferies Singapore Limited, located at 80 Raffles Place #15-20, UOB Plan 2, Singapore 048624, telephone: +65 6551 3950. In Japan this material is issued and distributed by Jefferies (Japan) Limited to institutional investors only. In Hong Kong, this report is issued and approved by fefferies Hong Kong Limited and is intended for use only by professional investors as defined in the Hong Kong Securities and Futures Ordinance and its subsidiary legislation. In the Republic of China (Taiwan), this report should not be distributed. The research in relation to this report is conducted outside the PRC. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors shall have the relevant qualifications to invest in such securities and shall be responsible for obtaining all relevant approvals, licenses, verifications and/or registrations from the relevant governmental authorities themselves. In India this report is made available by Jefferies India Private Limited. In Australia this information is issued solely by Jefferies International Limited and is directed solely at wholesale clients within the meaning of the Corporations Act 2001 of Australia (the 'Act") in connection with their consideration of any investment or investment service that is the subject of this documenL Any offer or issue that is the subject of this document does not require, and this document is not, a disclosure document or product disclosure statement within the meaning of the AcL Jefferies International Limited is authorised and regulated by the Financial Conduct Authority under the laws of the United Kingdom, which differ from Australian laws. fefferies International Limited has obtained relief under Australian Securities and Investments Commission Class Order 03/1099, which conditionally exempts it from holding an Australian financial services licence under the Act in respect of the provision of certain financial services to wholesale clients. Recipients of this document in any other jurisdictions should inform themselves about and observe any applicable legal requirements in relation to the receipt of this document. This report is not an offer or solicitation of an offer to buy or sell any security or derivative instrument, or to make any investment. My opinion or estimate constitutes the preparer's best judgment as of the date of preparation, and is subject to change without notice. Jefferies assumes no obligation to maintain or update this report based on subsequent information and events. Jefferies, its associates or affiliates, and its respective officers, directors, and employees may have long or short positions in, or may buy or sell any of the securities, derivative instruments or other investments mentioned or described herein, either as agent or as principal for their own account. Upon request Jefferies may provide specialized research products or services to certain customers focusing on the prospects for individual covered stocks as compared to other covered stocks over varying time horizons or under differing market conditions. While the views expressed in these situations may not always be directionally consistent with the long-term views expressed in the analyst's published research, the analyst has a reasonable basis and any inconsistencies can be reasonably explained. This material does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of the investments referred to herein and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of securities. None of fefferies, any of its affiliates or its research analysts has any authority whatsoever to make any representations or warranty on behalf of the issuer(s). fefferies policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis. Any comments or statements made herein are those of the author(s) and may differ from the views of Jefferies. page 21 of 22 ales Thome, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure Information on pages 17 - 22 of this report. Jefferies EFTA01204352 I SESG FP Target I Estimate Change 5 March 2014 This report may contain information obtained from third parties, including ratings from credit ratingsagencies such as Standard & Poor's. Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice. lel feries research reports are disseminated and available primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of lel feries. Neither Jefferies nor any officer nor employee of Jefferies accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents. For Important Disclosure information, please visit our website at https://javatatbluematrix.com/seliside/Disclosures.action or call 1.888.IEFFERIES 2014 Jefferies Group LLC page 22 of 22 Giles Thome, Equity Analyst, +44 (0) 20 7029 8005, Please see important disclosure Information on pages 17 - 22 of this report. Jefferies EFTA01204353