EQUITY RESEARCH

European Equity Strategy | 29 June 2012

EUROPEAN STRATEGY ELEMENTS Upgrade your call plan
As business confidence slides, we expect the European earnings picture to be more nuanced for the Q2 earnings season and we are particularly concerned about Q2 earnings for cyclical sectors. We provide a quantitative screen to see which companies may be at risk of warning on profits. We upgrade the more defensive Telecoms to Overweight and downgrade Tech to Underweight following multiple profit warnings. Upgrade Telecoms to Overweight: We upgrade the Telecoms sector on diminishing dividend risks, inexpensive valuation, positive seasonality and increased M&A activity. In addition, investors’ allocation to Telecoms is at a relatively low level to history and versus other sectors. Downgrade Technology to Underweight: Earnings momentum of the Tech sector is relatively weak and valuation looks stretched. We remain cautious on the IT services sector. We are also cautious on consumer tech broadly (PCs, handsets, TVs) and the related semis. Trends in telecom infrastructure have been sluggish for some time, but we do not see any sign of these improving in the near future. Industrial cyclicals see relatively higher earnings risks: Industrials, Basic Resources and Tech seem to be more exposed to earnings downgrades. Consensus bottom-up earnings forecasts for 2013e for STOXX 600 at 12% look far too high. Potential profit warners: ENRC, Carrefour, Kuehne & Nagel, Alfa Laval are highlighted by our quantitative profit warning screen and are also rated 3-Underweight by our sector analysts. Figure 1: Investors’ allocation to Telecoms at a relatively low level
100% 80% 60% 40% 20% 0% -20% -40% -60% Healthcare Energy Utilities Cons Staples Materials Financials ndustrials Telecom Svcs. -37% Underweight Cons Disc. IT -22% -14% -14% -13% -11% -8% 23% 39% EPFR current allocation/ MSCI Europe neutral weighting (versus range since July 2006) Overweight 80%
Yu-chieh Chiang, CFA +44 (0)20 3134 4217 yu-chieh.chiang@barclays.com Barclays, London Edmund Shing, PhD +44 (0)20 7773 4307 edmund.shing@barclays.com Barclays, London Dennis Jose +44 (0)20 3134 3777 dennis.jose@barclays.com Barclays, London Joao Toniato +44 (0)20 7773 4813 joao.toniato@barclays.com Barclays, London

Source: EPFR

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA.
PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 15.

Barclays | European Strategy Elements

EQUITY STRATEGY VIEWS ON A PAGE
Market View Investment Thesis We temper our bullish stance on European equities and expect markets to enter a sideways correction phase in the short term, as global macro momentum starts to lose steam and Spanish peripheral risk re-emerges. Longer-term, we remain bullish on abundant global liquidity and investors’ hunt for real yield Investment Thesis To benefit from the depreciation of the Swiss franc Better global exposure, overweight exposure to Healthcare Oils and Mining, positive on weak GBP Prefer Insurance to Banks to play a reduction in sovereign risk. Selection of 20 high quality stocks that have consistently increased their dividends over the last 10 years (BBG ticker: BCIIDIVA Index) Selection of 12 consumer stocks to take advantage of the megatrend - the Chinese consumption upgrading (BBG ticker: BCIIDRAG Index) A model portfolio with 20 stocks consistent with our top-down macro, sector view and key investment themes for 2012 and bottom-up analyst view (BBG ticker: BCIITP20 Index) Trade Date 26 July 2011 11 November 2011 3 February 2011 Index Target End-2012: SXXP +12% to 275, SX5E +22% to 2650

2012 year end

Themes Swiss 10 Overweight UK Sovereign risk rebound European quality dividend aristocrats* European Consumer Dragons* European Select Twenty*

Trade Idea OW Swiss 10, UW SX5E OW FTSE 100, UW SX5E OW SXIP, UW SX7P OW European Quality Dividend Aristocrats, UW SX5E OW European Consumer Dragons, UW SX5E

Performance +21% +5% +36%

2 December 2011

+13%

20 January 2012

+11%

27 January 2012

OW 20 selected stocks, UW SX5E

+11%

Note: Performance of trades based on prices as of 27 June 2012. SXIP, SX7P, SXFP are STOXX sector codes. Performance measured on a total return basis and on a relative basis (OW = overweight, UW= underweight) where 2 trade legs are specified, else on an absolute basis for a single leg idea. Performance of the STOXX 600 for the period 11 Nov 2011 to 27 June 2012 is 2%, 3 Feb 2011 to 27 June 2012 is -14%, 02 Dec to 27 June 2012 is 2%, 20 Jan 2012 to 27 June 2012 is -4%, 27 Jan 2012 to 27 June 2012 is -4%. *: Performance measured in Euros

STOXX Sector Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Financial Services Food & Beverage Health Care Industrial Goods & Services Insurance Media Oil & Gas Personal & Household Gds. Real Estate Retail Technology Telecommunications Travel & Leisure Utilities

Neutral Wgt. 2.2% 11.1% 4.2% 4.8% 2.3% 1.4% 9.1% 11.7% 10.4% 5.3% 2.4% 9.4% 6.4% 1.4% 3.4% 3.0% 5.1% 1.4% 4.9%

Ratings Market Weight Underweight Market Weight Overweight Underweight Market Weight Market Weight Overweight Market Weight Market Weight Overweight Overweight Market Weight Overweight Market Weight Underweight Overweight Underweight Market Weight

Chg

Key attributes for the ratings EM central banks in easing mode, commodity cost pressures easing Sovereign and profitability concerns remain, valuation only “cheapish” Slowdown in EM, prefer to stay away from earnings volatility EM exposure, productivity improvement, stronger pricing power Euro austerity measures, expensive valuations, high leverage Weak fund flows and exchanges volumes, but remains potent beta play EM exposure, valuation inexpensive vs. other safe haven assets Defensive sector, valuation not stretched, US/USD exposure Structurally we favour the sector but tactical risks to confidence emerging Low real interest rates, sovereign risk concerns, inexpensive valuation US and EM exposure, US consumer rebound, reasonable valuation Structural support from higher oil prices and macro volatility EM exposure, expensive valuation, earnings momentum faltering Robust commercial real estate rebound, inflation hedge Improving consumer outlook in the UK, but Europe is concerning

↓ ↑↑

Earnings concerns, valuation relatively expensive Dividend risks diminishing, inexpensive valuation, seasonality Fiscal consolidation, valuation relatively expensive Funding costs reduced, but Robin Hood taxes main risk

Overweight: The performance of the particular STOXX sector is expected to exceed the performance of the STOXX 600 index by 5%+ over a 12-month horizon. Market Weight: The performance of the STOXX sector is expected to be between -5% and +5% of the performance of the STOXX 600 index over 12-months. Underweight: The STOXX sector is expected to underperform the STOXX 600 index by 5%+ over a 12-month horizon. The Chg. Column highlights changes in recommendation with ↑ signifying a one-notch upgrade, ↓ a one-notch downgrade, ↑↑ a two-notch upgrade and ↓ ↓ a twonotch downgrade. Source for all tables: Barclays Research

29 June 2012

2

Barclays | European Strategy Elements

Q2 EARNINGS: CAUTIOUS ON CYCLICALS
Q1 earnings season was relatively upbeat with nearly twice as many earnings beats as misses (see European Earnings Scorecard: Trends in the Current Reporting Season (1Q12), 28 June 2012). However, as business confidence slides, we expect the European earnings picture to be more nuanced for the Q2 earnings season and we are particularly concerned about Q2 earnings for cyclical sectors (Figure 1). Figure 2: Global PMIs on a decline
70 Eurozone Manufacturing PMI China Manufacturing PMI US ISM Manufacturing European Cyclicals/Defensives (rhs) 140

60

120

50

100

40 Cyclicals: Basic resources + Industrials Defensives: Healthcare + Utilities Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12

80

30 Jan 08

60

Source: Barclays, Bloomberg

Lead indicators and analysts’ earnings revisions (number of analysts' upgrades/downgrades of 12-month forward EPS for STOXX 600) tends to be highly correlated and they are rolling over together (Figure 3), suggesting that there should be more earnings downgrades to come. Figure 3: Lead indicator and EPS momentum rolling over
2.5 2.0 15 1.5 1.0 0.5 0.0 1996 5
-1 -4 0 0

Figure 4: Tech saw the worst earnings momentum
1 1m EPS Momentum (%) 3m EPS Momentum (%, rhs) 4

Europe: Analyst upgrades/downgrades of 12m fwd EPS German IFO Index (rhs, %y/y) 25

-5 -15 -25 1999 2002 2005 2008 2011
-2 Travel & L. Media Autos & P. Per. & H. G. Retail Oil & G. Healthc. Indus. Insur. Chem. Utilities Food & B. Cons. & M. Telecoms Fin. Serv. Basic Res. Banks Tech
Source: Datastream

-8

Source: Datastream

We see Industrial cyclicals, 2013e earnings the most at risk
Among sectors, Tech saw the worst earnings momentum over either the 1-month or 3month period (Figure 4). Our Tech analysts continue to see earnings risks in certain subsectors (see the next section). We also see risks in other cyclical sectors such as
29 June 2012 3

Barclays | European Strategy Elements

Industrials and Basic Resources sectors as our quantitative profit warnings screen picks up several names in these sectors. Looking at 2012 and 2013 earnings, 2012e earnings consensus numbers have been revised down significantly and do not look too concerning if tail risks events do not happen as per our base case. We see 2012e EPS growth of 3%, in line with current consensus expectations as we expect a moderate recovery in the US, a shallow recession in 2012 and sluggish growth in the euro area in 2013 and beyond, and a soft landing in China. We also do not expect tail risks events in Europe, such as an imminent Greek exit, in our base case scenario. However, 2013e bottom-up consensus earnings forecasts do look too high in our view. Currently the market expects EPS growth of 12% for 2013e. In Figure 5, it seems to us that as analysts revised down 2012 forecasts over the year, they remained relatively optimistic for 2013 and did not revise down the numbers on the same scale as they did for 2012. This is also not consistent with the declining trend of consensus Eurozone and US GDP forecasts (Figure 6). Figure 5: Bottom-up 2013e earnings seem too optimistic
15 12 9 6
1

Figure 6: Consensus GDP forecasts also declining
5 4 Eurozone 2012e consensus GDP % y/y Eurozone 2013e consensus GDP % y/y US 2012e consensus GDP % y/y US 2013e consensus GDP % y/y

Current bottom-up consensus EPS growth forecasts 2012e: 3%, 2013e: 12%

3 2

3 0 Aug 11

STOXX 600 2013e consensus EPS growth STOXX 600 2012e consensus EPS growth

0 -1

Oct 11

Dec 11

Feb 12

Apr 12

Jun 12

Jan 11

Apr 11

Jul 11

Oct 11

Jan 12

Apr 12

Source: Datastream

Source: Bloomberg

As we expect to see surprises in the upcoming Q2 earnings, we provide a quantitative profit warnings screen to see which companies may be the next profit warners. In addition, we downgrade the Technology sector to Underweight on earnings concerns and relatively stretched valuation. We upgrade the more defensive Telecoms sector on our view of diminishing dividend risks, inexpensive valuation, positive seasonality and increased M&A activity.

29 June 2012

4

Barclays | European Strategy Elements

PROFIT WARNINGS SCREEN: WHO WILL WARN?
We allocate scores to each stock according to the following five criteria within the universe of the STOXX 600: 1. Disappointing latest earnings outturn versus consensus expectations: As market conditions or a company's business model do not change overnight, when we see a negative earnings surprise, more poor results often follow. We take the last annual report, quarterly report, or the average of the two earnings report if both are available. 2. More cautious consensus expectations over the month: Analysts downgrades/ upgrades can be a guide. If more analysts downgrade a company than upgrade in the last month, we think it is not very likely for a company to surprise on the upside in the near future. We take (number of upgrades - number of downgrades) as % of total number of covering analysts. 3. Wide spread of analyst consensus forecasts on EPS 2011e: We think if the analysts have more divided views on earnings forecasts, it is more likely that the company announces negative surprises, more often than not. It highlights that forecasting earnings for this company is difficult. However, some sectors tend to have more volatile earnings than others. To strip out the sector effect, we compare the forecast relative to the sector. The formula we use is (coefficient of variation of the single stock 2011e earnings)/ (coefficient of variation of the median sector 2011e earnings). 4. Weak on relative one month price momentum: Surprises tend to have been priced in somewhat by the market before they are announced. We then look at one month relative price return to the market to capture the signal that the market is giving us. 5. Low quality earnings: Surprises tend to happen in companies where the quality of the earnings is low. When the most recent profits have been largely based on accounting accruals and estimates rather than on cash flows, it is more likely that these profits will not last. We therefore look at the ratio of cash flows from operations to earnings in the most recent earnings announcement. We relate this ratio to the sector average given that some sectors are more cash heavy than others. Finally, we rank each criterion within the universe (STOXX 600) from the most negative to the most positive and use the rank as the score. We then sum up the scores of the 5 criteria to get to the final overall score. In addition we exclude from the screens financials and firms that have already issued profit warnings in 2012, recently reported or updated their guidance 1 .

Industrials particularly vulnerable
We find that 10 out of the top 30 non-financials names are industrials, which suggests that this sector is particularly vulnerable. This reflects the cyclicality of the sector and the difficult economic environment. The different timing of earnings announcements across industries also affects our screen, For instance, various names from the technology sector such as Nokia and Aixtron were originally picked up on the screen but were excluded due to having already warned.

1

Companies excluded from the screen due to having warned in 2012 are: Nokia, Aixtron, Clariant, Vallourec, Kloeckner & Co, SBM Offshore, Kesko, Philips Electronics, Siemens and Skanska. Although these companies. Imagination Technologies has just reported recently. Therefore it is less likely that it will issue any warnings in the near future. GEA Group just had a presentation and confirmed its FY guidance.

29 June 2012

5

Barclays | European Strategy Elements

Companies excluded from the screen due to having warned in 2012 are: Nokia, Aixtron, Clariant, Vallourec, Kloeckner & Co, SBM Offshore, Kesko, Philips Electronics, Siemens and Skanska. Although they have already issued profit warnings this year, it is still likely to see further warnings as market conditions or a company's business model do not change overnight. These screens are purely quantitative and do not reflect Barclays’ views on the stocks listed. Please refer to our notes on the screen on page 15 for important disclosures on the screen. Figure 7: Profit warning screen – Top 30 non-financial names *
Previous (Number of Disagree- Relative earnings Upgrades ment price Earnings Market surprise Downgrades) between moment. Quality Rel. Next report Latest P/E P/E cap, €m (%) as % total analysts 1M Sector date report date 2012e 2013e 6186 799 794 2322 1215 17591 5655 1536 6442 737 1657 2396 1263 9624 1627 9591 3064 3335 5870 5434 7209 3064 4295 3808 1793 2165 48725 3212 1998 4998 -354.4 -82.9 -149.0 -42.9 -5.2 -23.8 -3.6 -2.0 -4.6 -29.9 -21.2 -4.1 -3.1 -0.8 -1.3 -7.5 -9.3 91 -98 -5 -1 9 -36 -3 -1 -14 -0.9 4.3 -17.6 -42 -14% -20% -4% -13% -12% -14% -25% -6% -4% -12% -6% -27% -14% -3% -11% -7% -14% -11% 0% -9% -17% -10% -5% -12% -20% -7% -14% -14% -9% 0% 13.0 2.5 9.9 2.3 1.7 2.6 2.7 1.9 2.2 3.0 1.9 1.1 3.5 3.1 1.0 1.4 1.7 13.4 2.1 1.1 1.9 1.3 2.0 1.1 1.2 0.6 1.0 1.2 3.3 3.8 -15% -10% -23% -4% -5% -1% 0% -9% -11% -13% -5% -12% -17% -4% -7% -10% -4% -5% -4% -5% -6% -10% -14% -8% -13% -6% -7% -9% -5% 3% -1.4 -1.4 -0.1 -0.3 -4.5 0.7 -0.5 0.4 0.7 1.7 0.8 0.9 1.6 -0.7 -0.2 1.0 1.1 -0.3 0.9 0.8 1.4 0.0 4.0 1.1 1.5 0.6 1.0 0.8 4.0 -1.1 10/08/2012 15/05/2012 25/07/2012 25/04/2012 10 7.9 6.3 10.1 7 9 5.4 9.9 9.1 4.8 3.5 7.5 9 5.8 8.7 7.8 16 12.5 91.5 3.3 12.6 15.4 5.9 5.4 8.5 16.8 8.5 8.3 8.9 9.4 21.6

Name ** THYSSENKRUPP (XET) NEXANS VESTAS WINDSYSTEMS PRYSMIAN BWIN PARTY DIGITAL ENTM. ARCELORMITTAL ORKLA HUSQVARNA 'B' EURASIAN NATRES.CORP. NYRSTAR AURUBIS (XET) SEB AFREN CARREFOUR RENTOKIL INITIAL KUEHNE+NAGEL INTL. VERBUND GROUPE EUROTUNNEL PORSCHE AML.HLDG. (XET) ALFA LAVAL GALP ENERGIA SGPS ARKEMA EVRAZ METSO STRAUMANN HLDG. FLSMIDTH & CO.'B' BASF (XET) IMI ACERINOX 'R' TNT EXPRESS

Sector Ind. Gds & Svcs Ind. Gds & Svcs Oil & Gas Ind. Gds & Svcs Travel & Leisure Basic Resources Ind. Gds & Svcs Pers & Hhld Goods Basic Resources Basic Resources Basic Resources Pers & Hhld Goods Oil & Gas Retail Ind. Gds & Svcs Ind. Gds & Svcs Utilities Ind. Gds & Svcs Autos & Parts Ind. Gds & Svcs Oil & Gas Chemicals Basic Resources Ind. Gds & Svcs Healthcare Const. & Material Chemicals Ind. Gds & Svcs Basic Resources Ind. Gds & Svcs

22/08/2012 02/05/2012 14.7 07/08/2012 10/05/2012 31/08/2012 16/05/2012 25/07/2012 10/05/2012 8.7 9.2 9.2

20/07/2012 30/04/2012 10.2 19/07/2012 26/04/2012 15/08/2012 01/04/2012 27/07/2012 01/04/2012 14/08/2012 14/05/2012 25/07/2012 26/04/2012 30/08/2012 15/05/2012 30/08/2012 12/04/2012 03/08/2012 04/05/2012 11 5.2 7 7.3 9.9 4.6 9.7 8.9

16/07/2012 16/04/2012 18.7 25/07/2012 03/05/2012 12.6 23/07/2012 18/04/2012 135.2 02/08/2012 15/03/2012 3.9

17/07/2012 23/04/2012 13.7 27/07/2012 27/04/2012 21.1 01/08/2012 10/05/2012 30/08/2012 27/04/2012 26/07/2012 26/04/2012 21/08/2012 22/02/2012 15/08/2012 15/05/2012 26/07/2012 27/04/2012 23/08/2012 02/03/2012 6.6 7.4 9.1 20 9.4 9.1 9.5

24/07/2012 27/04/2012 12.9 30/07/2012 02/05/2012 33.6

* Please see important notes to our methodology on page 15. ** Ranked highest to lowest based on the scoring of our profit warning screen methodology. Source: Barclays Research, DataStream.

Some of our analysts highlight issues relating to specific companies: Prysmian: Given the continuing strength from the utilities business where the company's order backlog provides visibility for the next 12 (high voltage) to 36 (submarine) months and synergies delivered from the Draka acquisition, we see limited risk to numbers. The guidance already accounts for the slowdown in low voltage business - although this has been stable for the first half.
29 June 2012 6

Barclays | European Strategy Elements

Porsche: The company’s future is largely driven by the performance of Volkswagen and the outcome of a number of ongoing court cases. Accelormittal: Guidance on half-yearly earnings has been very conservative and therefore earnings should come towards the bottom end of guided range.

29 June 2012

7

Barclays | European Strategy Elements

SECTORS: IMPROVING THE SIGNAL-TO-NOISE RATIO
According to EPFR fund data, investors are underweight Telecom by 22% versus MSCI Europe benchmark and overweight Tech by 80% (Figure 8). We recommend the other way around. We upgrade Telecoms to Overweight from Underweight and downgrade Technology to Underweight from Marketweight. Figure 8: Investors underweight Telecoms and Overweight Tech
100% 80% 60% 40% 20% 0% -20% -40% -60% -37% -22% -14% -14% -13% -11% -8% 23% 39% EPFR current allocation/ MSCI Europe neutral weighting (versus range since July 2006)

Overweight
80%

Underweight Healthca re Energy Cons Staples Financi als Industri als Utilities Materi als Telecom Svcs. Cons Di sc. IT

Source: EPFR, Barclays Note: EPFR Global provides fund flows and asset allocation data-tracking for traditional and alternative funds domiciled globally with $12trn in total assets.

Upgrade Telecoms to Overweight from Underweight
Why we were Underweight Telecoms
We downgraded the sector to Underweight from Overweight in December 2011 (European Strategy Elements: Signal strength fading for Telecoms, 8 December 2011) for the following reasons: 1) Dividends at risks; 2) Funding concerns; 3) Austerity bites; 4) Regulatory risks; 5) Negative seasonality; and 6) Valuations not that cheap. Why do we now Overweight Telecoms? What has changed? Although a few structural concerns remain for the Telecom sector, such as fiscal austerity pressuring on consumer spending and a general deflationary trend in communication prices, we see a few sector drivers that have changed. Diminishing dividend risks, relatively inexpensive valuation, positive seasonality and increased M&A activity in the sector have become supportive for the sector and we now see risks as more to the upside and this leads us to upgrade the sector. We upgrade the Telecoms sector for the following reasons: 1. Diminishing dividend risks: The risk of dividend cuts is one of the key reasons we downgraded the sector in December 2011 (European Strategy Elements: Signal strength fading for Telecoms, 8 December 2011). However, we think the worst is probably behind us as a few Telecom operators have cut their dividends – early this year or the cuts have already largely been expected by the market. Figure 7 below summarises dividend cuts since December 2011. (Please see our Telecom team’s note discussing dividends: Telecommunications: Addicted to dividends, 8 December, 2012). Going forward, our telco team sees Telefonica and France Telecom as stocks that are likely to further cut their dividend.
29 June 2012 8

Barclays | European Strategy Elements

Figure 9: European Telecoms: dividend policy changes Dec 11- Jun 12
Previous dividend policy Telefonica France Telecom Date Current New dividend policy changed share price Jun-12 Dec-11 Feb-12 9.76 9.94 Divi yield old 15.4% 14.1% Divi yield new 13.3% 12.1% New divi yield is based on €1.20 Notes

2012E €1.50 (but had been 2012 €1.30, (up to €0.90 in script) €1.75) 2010-2012: 2011 divi of EUR1.40/share dividend floor of unchanged, but changed 2012/13 EUR1.40/share, with a promise dividend guidance to 40%-45% of of a flat dividend in 2013 OpFCF, which implies a range of provided the EUR1.20-EUR1.40/share. operating environment remained the same. €0.76 in 11/12; 55% of FCF from 2013 with a minimum of €0.76 15% growth on from 2010 divi of €5.8c (ie €6.7c in 2011) €0.38 in 2011/2012and 55% payout of FCF from 2013. €900m floor, or €4.3c (ords)

Telekom Austria Telecom Italia KPN

Dec-11

7.77

9.8%

4.9%

Feb-12 Jan-12

mkt cap 13500 7.32

7.4% 16.4%

6.7%

Yield 2011

2012E €409m buyback Zero buy-back; would not commit (consensus estimates) = to 2013 divi; BARC 2013E divi ca€0.3/share; €0.95 2013E divi estimate is €0.90 € 0.65 €0.325+0.07€ (buy back)

12.3% Dividend yield + buyback 11.5% Dividend yield + buyback

Portugal Telecom

Jun-12

3.42

19.0%

Source: Barclays Research, Company. Prices as at close of 27 June 2012

We highlight that we see the announcement of dividend cuts as a good buying signal. UK stocks outperform the FTSE 350 by 34% on average, one year following a dividend cut. The phenomenon is evident in continental Europe as well. In addition, it does not pay to wait for the final cut. Our analysis shows that attempting to forecast the final dividend cut does not yield benefits. The underperformance is actually priced in prior to the announcement of the first cut. Therefore, even if these companies continue to cut their dividends, the story does not change (see European Strategy Elements: The anatomy of a dividend cut, 13 January 2012 for more details). Figure 10: Stocks outperform following the announcement of a dividend cut
40 30 20 10 0 -10 -20 -360 -180 -90 -30 30 90 180 360 Days before dividend cut
Source: Barclays, Bloomberg

Average total return Median total return Dividend cut announcement

Performance vs FTSE 350

Days after dividend cut

2. M&A pick-up reflects cheap valuation: M&A activity has been rather muted this year in Europe. However, on a relative basis, we observe a moderate pick-up in activity this quarter for the European Telecoms sector (Figure 11). Examples of recent activity are America Movil’s acquisition of 27.7% of KPN and also an intention to acquire 22.7% of Telekom
29 June 2012 9

Barclays | European Strategy Elements

Austria. Our Telecoms analysts think that valuation has been the major driver for AMX's decision to invest in KPN and Telekom Austria (AMX: Expansion Strategy in Europe - Main Highlights from Management, 21 June 2012). 3. Valuation looks inexpensive: The Telecom sector does not look expensive compared to history or to the market. Its 12-month forward dividend yield is at 8.8%, close to the highest level since 2004 while the dividend risk has decreased significantly compared to a few months ago (Figure 12). Figure 11: Telecoms deals picking up relative to the market
30% 25% 8% 20% 15% 10% 4% 5% 0% 2004 2% 2004
Source: Datastream

Figure 12: Dividend yield at a historical high
10% Telco vs market - 12m fwd div yld sprd (rhs) Telco 12m fwd div yld Telco 12m fwd div yid his. median 5% 4% 3% 2% 1% 0% -1% 2006 2008 2010 2012

Telecoms as % of European M&A value of transactions (3 month average)

6%

median 5.7%

8.8% today

2006

2008

2010

2012

Source: Thomson Reuters, Barclays

Compared to other sectors, the Telecom sector also looks inexpensive. Based on our implied earnings growth model, the current PE implies a long-term growth rate that is slightly below the market, which was 2% higher than the market six months ago. It now becomes one of the lowest among the defensive sectors on this measure (Figure 13). The aim of the implied earnings growth model is to get a sense of the level of 10-year growth rates priced into the different STOXX sectors based on current market valuations (please see European Strategy Elements: Is the sector price right?, 13 April 2012 for more details). As for earnings, the earnings momentum has stabilised as we see significant downgrades versus 3-months ago but much milder versus 1-month ago (Figure 4). We think that earnings risks are relatively milder for defensive sectors such as Telecoms versus cyclicals. Our Telecoms analysts believe intensifying competition would be a potential sector-specific risk though.

29 June 2012

10

Barclays | European Strategy Elements

Figure 13: Not expensive on the long-term earnings growth priced in for Telecoms
10% 8% 6% 4% 2% 0% -2% -4% TE CHNOLOGY MEDIA F OOD & BEV TR AVEL&LEIS IND GD/SRV STOXX 600 CONSTR&MATS PRSNL/HHOLD AUTOS&PARTS
11

9% 8%

8% 8% 5% 5% 5% 5% 4%

Implied nominal EPS growth (annualised)

4% 4% 3% 3% 3% 1% 1% 1%

-1% BANKS HE ALTHCARE OIL & GAS UTILITIES BASIC RES TELECOM INSURANCE CHEMICAL RETAIL FIN. SERV.

-2%

Source: Datastream

4. Positive seasonality: We observe a distinct seasonal trend in the performance of the Telecoms sector, characterised by significant underperformance during the first half of the year, followed by a recovery in the second half. Our Telecoms analysts attribute this to disappointing guidance in H1. The regular recurrence of this trend over the past few years, gives us an additional reason to turn Overweight (Figure 14). Figure 14: Investing in Telecoms in H2
160 140 120 100 80 60 2004 Perf (vs. STOXX 600) of Telecoms by investing only in H1 Perf (vs. STOXX 600) of Telecoms by investing only in H2

2005

2006

2007

2008

2009

2010

2011

2012

Source: Datastream, Barclays Note: For H1 12 perf measured on 1st Jun, 2012

Telecoms now with reduced risks and better valuation
Although we do not expect the structural issues in the sector to go away soon, we believe reduced dividend risks, relatively inexpensive valuation, increased M&A activity, and positive seasonality in H2 should support the sector. Therefore, we now see risks as being to the upside and this leads us to upgrade the sector.

Downgrade Technology to Underweight from Marketweight
Earnings concerns and the relatively expensive valuation make us turn more cautious on the Tech sector. In addition, structurally, we think that the Tech sector, particularly the Tech hardware subsector, faces fiercer global competition than other European sectors.

29 June 2012

Barclays | European Strategy Elements

Earnings concerns: Recent profit warnings from Infineon and a spate of warnings from Nokia surprised the market on the down side. The sector has seen volatile and relatively weak earnings momentum (Figure 15) and actually, the Tech sector has seen the worst earnings revisions among European sectors (Figure 4). Figure 15: Tech saw much harsher downward EPS revisions
10 3-month earnings revisions (avg. of FY1 and FY2, %) 5 25 0 -5 -10 -15 10 -20 Tech -25 2009
Source: Datastream

Figure 16: PE premium at the high end of history
30 Tech rel. market PE premium (rhs) Tech 12m fwd PE STOXX 600 fwd 12m PE 80% 70% 60% 50% 40% 15 30% 20% 10% 0% 5 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Datastream

20

STOXX 600 2012

2010

2011

Valuation looks stretched: The tech sector is a very global sector and thus we do not doubt the global growth exposure should give the sector a premium valuation versus the market. However, the sector looks relatively expensive both compared to history and versus other sectors. The premium of the 12-month forward PE for the Tech sector versus the market has increased significantly to 54%, which is at the high end of history (Figure 16). The Tech sector is also the most expensive sector on forward PE. Based on our implied earnings growth model, current PE implies a long-term growth rate that is 5% higher than the market (Figure 13). One might argue that the Tech sector looks expensive on PE because Nokia’s earnings forecasts have fallen sharply. However, the sector looks relatively expensive with or without Nokia. Nokia now accounts for less than 5% of the STOXX Technology index (SX8P) and the 12-month forward PE ex Nokia is at 13.4x versus 14.5x for the standard Tech index. Looking at earnings downgrade risks and current relatively expensive valuation together, the Tech sector seems to be even more vulnerable. Since 2004, when the PE premium to the market is at high levels, the Tech sector tended to underperform not long afterwards (Figure 17) while the “E” part of the P/E does not look to be supportive. Global competition: Structurally, we think that the Tech sector, particularly Tech hardware, faces fiercer global competition (US, Asia) than other European sectors. The product cycle of Technology is much shorter than other sectors and requires continuous innovation turning into profitability. Tech software fared relatively better than hardware in this respect though, as products are stickier and companies such as SAP have secured leading positions (see European Strategy Essay: Sector maps for a cycle ride, 12 December 2011 for more information).

29 June 2012

12

Barclays | European Strategy Elements

Figure 17: Historically Tech has underperformed after high PE premium
110 100 60% 90 80 70 20% 60 50 2004
Source: Datastream

Tech/STOXX 600 total return Tech rel. market PE premium (rhs)

80%

40%

0% 2006 2008 2010 2012

Prefer Software to Hardware and selectivity is key
However, we believe Tech can still offer growth but selectivity is key. Our Tech analysts prefer to focus on structural growth stories, as they see in payments (Gemalto, Wirecard) and smartphones/tablets (ARM, Dialog, Imagination). They also prefer names with product/tech cycle driven growth, namely SAP and ASML. Finally, restructuring stories in tech tend to be challenging, but they expect good execution and value in Atos. Our Tech analysts remain cautious on the IT services sector given its heightened exposure to Europe's weak economy and a lack of competitive differentiation. They are also cautious on consumer tech broadly (PCs, handsets, TVs) and the related semis, as macroeconomic pressures are weighing on trends. They anticipate further profit warnings, building on those from the likes of Nokia, Infineon, RIM and HTC so far in 2Q. Trends in telecom infrastructure have been sluggish for some time, but our Tech analysts do not see any sign of these improving in the near future. Outside of the U.S., where capex continues, telecom operators in Europe are spending cautiously due to economic weakness while technology and regulatory impediments remain in too many Asian markets. All in all, the relatively high PE premium to the market versus history and earnings risks make us turn more cautious on the Tech sector. In addition, structurally, we think that the Tech sector, particularly Tech hardware, faces fiercer global competition (US, Asia) than other European sectors. However, we believe Tech can still offer growth but selectivity is key. We also prefer Tech Software to Hardware.

29 June 2012

13

Barclays | European Strategy Elements

NOTES ON THE PROFIT WARNING SCREEN
Given the limitations of relevant information, the numbers above can be no more than a simple estimate. Therefore, our screen above should be viewed in this context. When examining the screen above, please note: All data is based on DataStream data and is as at 28 June 2012. The screens are based on the latest financial and price data at the relevant data vendors and take no account of other qualitative information or public announcements that could impact the companies. These screens are no more than a numerical estimate of whether the chance of a downgrade may be material. Careful studying of the company’s financials, its business prospects and its current guidance would be required to establish further details.

29 June 2012

14

Barclays | European Strategy Elements ANALYST(S) CERTIFICATION(S) We, Edmund Shing, Dennis Jose, Yu-chieh Chiang and Joao Toniato, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. IMPORTANT DISCLOSURES Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barcap.com or call 212-526-1072. The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities. Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting payment or reimbursement by any covered company of their travel expenses for such visits. In order to access Barclays Statement regarding Research Dissemination Policies https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html. and Procedures, please refer to

The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise. Materially Mentioned Stocks (Ticker, Date, Price) Alfa Laval AB (ALFA.ST, 28-Jun-2012, SEK 113.40), 3-Underweight/2-Neutral Carrefour (CARR.PA, 28-Jun-2012, EUR 14.04), 3-Underweight/1-Positive EnCana Corp. (ECA, 28-Jun-2012, USD 20.36), 2-Equal Weight/2-Neutral Kuehne & Nagel International AG (KNIN.VX, 28-Jun-2012, CHF 97.05), 3-Underweight/1-Positive Guide to the Barclays Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the "sector coverage universe"). In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating 1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12month investment horizon. 3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company. Sector View 1-Positive - sector coverage universe fundamentals/valuations are improving. 2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. 3-Negative - sector coverage universe fundamentals/valuations are deteriorating. Below is the list of companies that constitute the "sector coverage universe": European Capital Goods ABB Ltd. (ABBN.VX) Assa Abloy AB (ASSAb.ST) Electrolux AB (ELUXb.ST) Invensys PLC (ISYS.L) Philips Electronics N.V. (PHG.AS) Schneider Electric SA (SCHN.PA) 29 June 2012 Alfa Laval AB (ALFA.ST) Atlas Copco AB (ATCOa.ST) GEA Group AG (G1AG.DE) Legrand SA (LEGD.PA) Rotork PLC (ROR.L) Siemens AG (SIEGn.DE) Alstom (ALSO.PA) Cookson Group plc (CKSN.L) IMI Plc (IMI.L) Metso OYJ (MEO1V.HE) Sandvik AB (SAND.ST) SKF AB (SKFa.ST) 15

Barclays | European Strategy Elements Smiths Group PLC (SMIN.L) European Food Retail Ahold (AHLN.AS) Colruyt (COLR.BR) Jeronimo Martins (JMT.LS) Ocado (OCDO.L) European Transportation Air France-KLM (AIRF.PA) DSV A/S (DSV.CO) Go-Ahead Group Plc (GOG.L) Kuehne & Nagel International AG (KNIN.VX) PostNL NV (PTNL.AS) TNT Express NV (TNTE.AS) North America Oil & Gas: E&P (Large Cap) Anadarko Petroleum (APC) Canadian Oil Sands Ltd. (COS.TO) EnCana Corp. (ECA) MEG Energy (MEG.TO) Noble Energy (NBL) QEP Resources (QEP) Talisman Energy (TLM) Distribution of Ratings: Barclays Equity Research has 2355 companies under coverage. 43% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 53% of companies with this rating are investment banking clients of the Firm. 42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% of companies with this rating are investment banking clients of the Firm. 13% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 40% of companies with this rating are investment banking clients of the Firm. Guide to the Barclays Research Price Target: Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period. Barclays offices involved in the production of equity research: London Barclays Bank PLC (Barclays, London) New York Barclays Capital Inc. (BCI, New York) Tokyo Barclays Securities Japan Limited (BSJL, Tokyo) São Paulo Banco Barclays S.A. (BBSA, São Paulo) Hong Kong Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong) Toronto Barclays Capital Canada Inc. (BCCI, Toronto) Johannesburg 29 June 2012 16 Apache Corp. (APA) Cenovus Energy Inc. (CVE.TO) EOG Resources (EOG) Newfield Exploration (NFX) Occidental Petroleum (OXY) Range Resources Corp. (RRC) Ultra Petroleum Corp. (UPL) Canadian Natural Resources (CNQ.TO) Devon Energy (DVN) Kosmos Energy Ltd. (KOS) Nexen Inc. (NXY.TO) Pioneer Natural Resources (PXD) Southwestern Energy Co. (SWN) WPX Energy (WPX) Deutsche Lufthansa AG (LHAG.DE) easyJet PLC (EZJ.L) International Consolidated Airlines Group (ICAG.MC) National Express Group Plc (NEX.L) Ryanair Holdings PLC (RYA.L) Deutsche Post AG (DPWGn.DE) FirstGroup Plc (FGP.L) International Consolidated Airlines Group (ICAG.L) Panalpina AG (PWTN.VX) Stagecoach Group Plc (SGC.L) Carrefour (CARR.PA) Delhaize (DELB.BR) Metro AG (MEOG.DE) Sainsbury (J) plc (SBRY.L) Casino (CASP.PA) DIA (DIDA.MC) Morrison (MRW.L) Tesco (TSCO.L) Sulzer AG (SUN.S) Weir Group (WEIR.L)

Barclays | European Strategy Elements Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg) Mexico City Barclays Bank Mexico, S.A. (BBMX, Mexico City) Taiwan Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan) Seoul Barclays Capital Securities Limited (BCSL, Seoul) Mumbai Barclays Securities (India) Private Limited (BSIPL, Mumbai) Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

29 June 2012

17

Barclays | European Strategy Elements

IMPORTANT DISCLOSURES CONTINUED

Alfa Laval AB (ALFA SS / ALFA.ST)
SEK 113.40 (28-Jun-2012) Rating and Price Target Chart - SEK (as of 28-Jun-2012)
175

Stock Rating 3-UNDERWEIGHT Currency=SEK Date 08-Feb-2012 17-Aug-2011 16-Feb-2011 Closing Price 132.60 117.50 130.60 3-Underweight 1-Overweight Rating

Sector View 2-NEUTRAL

Price Target 135.00 140.00 150.00

150

125

100

75

50 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Target Price Jul- 11 Jan- 12 Jul- 12

Closing Price

Rating Change

Link to Barclays Live for interactive charting Barclays Bank PLC and/or an affiliate trades regularly in the securities of Alfa Laval AB. Valuation Methodology: Our price target is SEK 135 and is based on 10x our 2012E EBITA. Risks which May Impede the Achievement of the Barclays Research Price Target: The main downside risk for Alfa is that it cannot compensate for raw material increases through pricing, mix and greater efficiency. There is further risk in that the longer cycle businesses of Marine and Power may take longer to recover.

29 June 2012

18

Barclays | European Strategy Elements

IMPORTANT DISCLOSURES CONTINUED

Carrefour (CA FP / CARR.PA)
EUR 14.04 (28-Jun-2012) Rating and Price Target Chart - EUR (as of 28-Jun-2012)

Stock Rating 3-UNDERWEIGHT Currency=EUR Date Closing Price 18.26 18.56 21.82 22.59 32.90 39.67 28.23 27.92 3-Underweight 2-Equal Weight 1-Overweight Rating 3-Underweight

Sector View 1-POSITIVE

Price Target 15.00 22.00 26.00 27.00 33.20 41.93 27.52 25.33

45

27-Jan-2012 31-Aug-2011 14-Jul-2011 11-Jul-2011 01-Dec-2010 22-Sep-2010 30-Nov-2009 08-Sep-2009

40

35

30

25

20

15

10 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12

Closing Price Target Price Rating Change

Link to Barclays Live for interactive charting Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of Carrefour in the previous 12 months. Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Carrefour in the past 12 months. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Carrefour. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Carrefour within the past 12 months. Carrefour is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate. Carrefour is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate. Valuation Methodology: Our principal valuation methodology for Carrefour is a DCF. We use a common methodology for all our companies (formulaic fade rates, capex fading towards depreciation etc). The two key inputs – apart from WACC, which is necessarily somewhat subjective – are for the terminal margin and growth rates. For Carrefour we assume a terminal EBIT margin of 3.0%, which we think is realistic given structural constraints on company's margins (formats, real estate, payment terms, franchises). Bear in mind Carrefour's structural margin disadvantage from its negative working capital, franchises and formats. We assume 1.5% terminal sales growth, which is in the middle of the 1.0-2.5% range that we use for companies in the sector – reflecting its exposure to a mix of mature European markets and developing markets. This gives a valuation of EUR 15. Our sum of the parts gives a valuation of EUR 22. However given that the market is not valuing any stocks in the sector at close to the theoretical SOP valuation (and we do not feel Carrefour is likely to sell off any large divisions in the short term) we give more weight to our DCF value. Hence we set out target price at EUR 15. Risks which May Impede the Achievement of the Barclays Research Price Target: The four key risks we see to our 3-Underweight stance on Carrefour are as follows: * A change in senior management may bring a wave of optimism regarding potential operational improvements. * Blue Capital (which owns a c16% stake) may decide to push forward some structural changes at Carrefour, raising hopes of significant cash proceeds. * Any sustained improvement in French market share may provoke hope of material profit recovery * Non-food sales are currently very weak, any uptick in European consumer confidence would provide a boost to Carrefour's sales line

29 June 2012

19

Barclays | European Strategy Elements

IMPORTANT DISCLOSURES CONTINUED

EnCana Corp. (ECA)
USD 20.36 (28-Jun-2012) Rating and Price Target Chart - USD (as of 28-Jun-2012)

Stock Rating 2-EQUAL WEIGHT Currency=USD Date Closing Price 20.94 19.87 19.68 20.05 19.64 21.64 24.38 30.49 30.52 32.56 34.18 31.45 32.17 27.94 27.64 27.65 27.92 31.82 31.82 33.79 29.48 2-Equal Weight 1-Overweight Rating

Sector View 2-NEUTRAL

Price Target 14.00 16.00 17.00 22.00 23.00 26.00 29.00 31.00 30.00 32.00 31.00 30.00 28.00 27.00 28.00 30.00 32.00 34.00 32.00 19.80

36

30-Apr-2012 22-Feb-2012 26-Jan-2012 30-Nov-2011 10-Oct-2011 21-Sep-2011 10-Aug-2011 22-Jul-2011 08-Jul-2011 21-Apr-2011 29-Mar-2011 11-Feb-2011 03-Feb-2011
Jan- 10 Jul- 10 Jan- 11 Target Price Jul- 11 Jan- 12 Jul- 12

33

30

27

24

21

18

15

12 Jul- 09

16-Dec-2010 28-Oct-2010 21-Oct-2010 22-Sep-2010 22-Apr-2010 14-Apr-2010 20-Jan-2010 01-Dec-2009

Closing Price

Rating Change

Link to Barclays Live for interactive charting Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of EnCana Corp. in the previous 12 months. Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by EnCana Corp. or one of its affiliates. Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from EnCana Corp. in the past 12 months. Barclays Bank PLC and/or an affiliate trades regularly in the securities of EnCana Corp.. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from EnCana Corp. within the past 12 months. EnCana Corp. is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate. EnCana Corp. is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate. Valuation Methodology: Our price target of $14 is derived by applying a multiple on our forward-year hedge-adjusted pre-interest cash flow (PICF) estimate to obtain an implied Enterprise Value (EV). The estimate for forward-year PICF is based on a natural gas price of $3.50/MMBtu (HH) and an oil price forecast of $95.00/bbl (WTI). To calculate a target stock market value, we subtract projected year-end 2012 net debt, FAS143 asset retirement obligation. Our target EV is based on 2013 PICF before hedging impacts; and our target price treats estimated hedge gains/losses as a financial instrument (i.e. valued at one times the forecast gains/losses). Risks which May Impede the Achievement of the Barclays Research Price Target: Our mid-cycle price deck forecast used to derive target prices is $95.00/bbl for oil and $4.25/MMBtu for gas. Should commodity prices, production levels, or leverage differ materially from our estimates, our price target would be affected.

29 June 2012

20

Barclays | European Strategy Elements

IMPORTANT DISCLOSURES CONTINUED

Kuehne & Nagel International AG (KNIN VX / KNIN.VX)
CHF 97.05 (28-Jun-2012) Rating and Price Target Chart - CHF (as of 28-Jun-2012)

Stock Rating 3-UNDERWEIGHT Currency=CHF Date 02-May-2012 Closing Price N/A 105.90 104.90 107.90 112.20 119.00 120.60 125.90 2-Equal Weight 3-Underweight Rating

Sector View 1-POSITIVE

Price Target 105.00 110.00 120.00 125.00 130.00 135.00 140.00 145.00

150

16-Dec-2011
140

14-Oct-2011 20-Sep-2011 19-Jul-2011

130

120

14-Jul-2011 02-Mar-2011 20-Jan-2011

110

100

90

80

Jul- 09

Jan- 10

Jul- 10

Jan- 11 Target Price

Jul- 11

Jan- 12

Jul- 12

Closing Price

Rating Change

Link to Barclays Live for interactive charting Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Kuehne & Nagel International AG in the past 12 months. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Kuehne & Nagel International AG. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Kuehne & Nagel International AG within the past 12 months. Kuehne & Nagel International AG is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate. Kuehne & Nagel International AG is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate. Valuation Methodology: Our CHF 105 price target for Kuehne + Nagel values the company at 12.8x EV/EBITDA our 2012 EBITDA estimate of CHF 967m or on P/E at 23.6x. Since 2003, KNIN shares have traded at a median 22.1x on P/E and range from 13.6x to 27x. Our P/E assumptions is supported by a 5-year DCF that assumes a WACC of c8.1% and long term growth rate of 4.0%. Risks which May Impede the Achievement of the Barclays Research Price Target: Investing in Kuehne & Nagel, and freight and logistics in general, is risky. Our outlook is predicated on historical trading patterns and our current profit expectations. Those expectations are sensitive to our assumptions about demand, industry and various competitive forces in air and sea freight, in particular. We may be forced to make substantial and frequent changes to our profit exceptions, targets and recommendations.

29 June 2012

21

DISCLAIMER This publication has been prepared by the Corporate and Investment Banking division of Barclays Bank PLC and/or one or more of its affiliates (collectively and each individually, "Barclays"). It has been issued by one or more Barclays legal entities within its Corporate and Investment Banking division as provided below. It is provided to our clients for information purposes only, and Barclays makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays will not treat unauthorized recipients of this report as its clients. Prices shown are indicative and Barclays is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. Without limiting any of the foregoing and to the extent permitted by law, in no event shall Barclays, nor any affiliate, nor any of their respective officers, directors, partners, or employees have any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or other financial loss, even if notified of the possibility of such damages, arising from any use of this publication or its contents. Other than disclosures relating to Barclays, the information contained in this publication has been obtained from sources that Barclays Research believes to be reliable, but Barclays does not represent or warrant that it is accurate or complete. Barclays is not responsible for, and makes no warranties whatsoever as to, the content of any third-party web site accessed via a hyperlink in this publication and such information is not incorporated by reference. The views in this publication are those of the author(s) and are subject to change, and Barclays has no obligation to update its opinions or the information in this publication. The analyst recommendations in this publication reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any other interests, including those of Barclays and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors. Barclays recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. This communication is being made available in the UK and Europe primarily to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at, and therefore should only be relied upon by, persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Bank PLC is authorised and regulated by the Financial Services Authority ("FSA") and a member of the London Stock Exchange. The Corporate and Investment Banking division of Barclays undertakes U.S. securities business in the name of its wholly owned subsidiary Barclays Capital Inc., a FINRA and SIPC member. Barclays Capital Inc., a U.S. registered broker/dealer, is distributing this material in the United States and, in connection therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019. Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulations permit otherwise. Barclays Bank PLC, Paris Branch (registered in France under Paris RCS number 381 066 281) is regulated by the Autorité des marchés financiers and the Autorité de contrôle prudentiel. Registered office 34/36 Avenue de Friedland 75008 Paris. This material is distributed in Canada by Barclays Capital Canada Inc., a registered investment dealer and member of IIROC (www.iiroc.ca). Subject to the conditions of this publication as set out above, Absa Capital, the Investment Banking Division of Absa Bank Limited, an authorised financial services provider (Registration No.: 1986/004794/06. Registered Credit Provider Reg No NCRCP7), is distributing this material in South Africa. Absa Bank Limited is regulated by the South African Reserve Bank. This publication is not, nor is it intended to be, advice as defined and/or contemplated in the (South African) Financial Advisory and Intermediary Services Act, 37 of 2002, or any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice or service whatsoever. Any South African person or entity wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Absa Capital in South Africa, 15 Alice Lane, Sandton, Johannesburg, Gauteng 2196. Absa Capital is an affiliate of Barclays. In Japan, foreign exchange research reports are prepared and distributed by Barclays Bank PLC Tokyo Branch. Other research reports are distributed to institutional investors in Japan by Barclays Securities Japan Limited. Barclays Securities Japan Limited is a joint-stock company incorporated in Japan with registered office of 6-10-1 Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a registered financial instruments firm regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143. Barclays Bank PLC, Hong Kong Branch is distributing this material in Hong Kong as an authorised institution regulated by the Hong Kong Monetary Authority. Registered Office: 41/F, Cheung Kong Center, 2 Queen's Road Central, Hong Kong. This material is issued in Taiwan by Barclays Capital Securities Taiwan Limited. This material on securities not traded in Taiwan is not to be construed as 'recommendation' in Taiwan. Barclays Capital Securities Taiwan Limited does not accept orders from clients to trade in such securities. This material may not be distributed to the public media or used by the public media without prior written consent of Barclays. This material is distributed in South Korea by Barclays Capital Securities Limited, Seoul Branch. All equity research material is distributed in India by Barclays Securities (India) Private Limited (SEBI Registration No: INB/INF 231292732 (NSE), INB/INF 011292738 (BSE), Registered Office: 208 | Ceejay House | Dr. Annie Besant Road | Shivsagar Estate | Worli | Mumbai - 400 018 | India, Phone: + 91 22 67196363). Other research reports are distributed in India by Barclays Bank PLC, India Branch. Barclays Bank PLC Frankfurt Branch distributes this material in Germany under the supervision of Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This material is distributed in Malaysia by Barclays Capital Markets Malaysia Sdn Bhd. This material is distributed in Brazil by Banco Barclays S.A. This material is distributed in Mexico by Barclays Bank Mexico, S.A. Barclays Bank PLC in the Dubai International Financial Centre (Registered No. 0060) is regulated by the Dubai Financial Services Authority (DFSA). Principal place of business in the Dubai International Financial Centre: The Gate Village, Building 4, Level 4, PO Box 506504, Dubai, United Arab Emirates. Barclays Bank PLC-DIFC Branch, may only undertake the financial services activities that fall within the scope of its existing DFSA licence. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. Barclays Bank PLC in the UAE is regulated by the Central Bank of the UAE and is licensed to conduct business activities as a branch of a commercial bank incorporated outside the UAE in Dubai (Licence No.: 13/1844/2008, Registered Office: Building No. 6, Burj Dubai Business Hub, Sheikh Zayed Road, Dubai City)

and Abu Dhabi (Licence No.: 13/952/2008, Registered Office: Al Jazira Towers, Hamdan Street, PO Box 2734, Abu Dhabi). Barclays Bank PLC in the Qatar Financial Centre (Registered No. 00018) is authorised by the Qatar Financial Centre Regulatory Authority (QFCRA). Barclays Bank PLC-QFC Branch may only undertake the regulated activities that fall within the scope of its existing QFCRA licence. Principal place of business in Qatar: Qatar Financial Centre, Office 1002, 10th Floor, QFC Tower, Diplomatic Area, West Bay, PO Box 15891, Doha, Qatar. Related financial products or services are only available to Business Customers as defined by the Qatar Financial Centre Regulatory Authority. This material is distributed in the UAE (including the Dubai International Financial Centre) and Qatar by Barclays Bank PLC. This material is distributed in Saudi Arabia by Barclays Saudi Arabia ('BSA'). It is not the intention of the publication to be used or deemed as recommendation, option or advice for any action (s) that may take place in future. Barclays Saudi Arabia is a Closed Joint Stock Company, (CMA License No. 09141-37). Registered office Al Faisaliah Tower, Level 18, Riyadh 11311, Kingdom of Saudi Arabia. Authorised and regulated by the Capital Market Authority, Commercial Registration Number: 1010283024. This material is distributed in Russia by OOO Barclays Capital, affiliated company of Barclays Bank PLC, registered and regulated in Russia by the FSFM. Broker License #177-11850-100000; Dealer License #177-11855-010000. Registered address in Russia: 125047 Moscow, 1st Tverskaya-Yamskaya str. 21. This material is distributed in Singapore by the Singapore branch of Barclays Bank PLC, a bank licensed in Singapore by the Monetary Authority of Singapore. For matters in connection with this report, recipients in Singapore may contact the Singapore branch of Barclays Bank PLC, whose registered address is One Raffles Quay Level 28, South Tower, Singapore 048583. Barclays Bank PLC, Australia Branch (ARBN 062 449 585, AFSL 246617) is distributing this material in Australia. It is directed at 'wholesale clients' as defined by Australian Corporations Act 2001. IRS Circular 230 Prepared Materials Disclaimer: Barclays does not provide tax advice and nothing contained herein should be construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. © Copyright Barclays Bank PLC (2012). All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Barclays. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, E14 5HP. Additional information regarding this publication will be furnished upon request.

Sign up to vote on this title
UsefulNot useful