Equity Research

EQUITY RESEARCH European Equity Strategy | 29 June 2012

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.

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

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EPFR current allocation/ MSCI Europe neutralweighting (versus range since July 2006)

Overweight

Underweight

Source: EPFR

Yu-chieh Chiang, CFA

+44 (0)20 3134 4217

[email protected]

Barclays, London

Edmund Shing, PhD

+44 (0)20 7773 4307

[email protected]

Barclays, London

Dennis Jose

+44 (0)20 3134 3777

[email protected]

Barclays, London

Joao Toniato

+44 (0)20 7773 4813

[email protected]

Barclays, London

mailto:[email protected]




Barclays | European Strategy Elements

29 June 2012 2

EQUITY STRATEGY VIEWS ON A PAGE Market View Investment Thesis Index Target

2012 year end

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

End-2012: SXXP +12% to 275, SX5E +22% to 2650

Themes Investment Thesis Trade Date Trade Idea Performance

Swiss 10 To benefit from the depreciation of the Swiss franc 26 July 2011 OW Swiss 10, UW SX5E +21%

Overweight UK

Better global exposure, overweight exposure to Healthcare Oils and Mining, positive on weak GBP

11 November 2011

OW FTSE 100, UW SX5E +5%

Sovereign risk rebound

Prefer Insurance to Banks to play a reduction in sovereign risk.

3 February 2011 OW SXIP, UW SX7P +36%

European quality dividend aristocrats*

Selection of 20 high quality stocks that have consistently increased their dividends over the last 10 years (BBG ticker: BCIIDIVA Index)

2 December 2011 OW European Quality Dividend Aristocrats, UW SX5E

+13%

European Consumer Dragons*

Selection of 12 consumer stocks to take advantage of the megatrend - the Chinese consumption upgrading (BBG ticker: BCIIDRAG Index)

20 January 2012 OW European Consumer Dragons, UW SX5E

+11%

European Select Twenty*

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)

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 Neutral Wgt.

Ratings Chg Key attributes for the ratings

Automobiles & Parts 2.2% Market Weight EM central banks in easing mode, commodity cost pressures easing

Banks 11.1% Underweight Sovereign and profitability concerns remain, valuation only “cheapish”

Basic Resources 4.2% Market Weight Slowdown in EM, prefer to stay away from earnings volatility

Chemicals 4.8% Overweight EM exposure, productivity improvement, stronger pricing power

Construction & Materials 2.3% Underweight Euro austerity measures, expensive valuations, high leverage

Financial Services 1.4% Market Weight Weak fund flows and exchanges volumes, but remains potent beta play

Food & Beverage 9.1% Market Weight EM exposure, valuation inexpensive vs. other safe haven assets

Health Care 11.7% Overweight Defensive sector, valuation not stretched, US/USD exposure

Industrial Goods & Services 10.4% Market Weight Structurally we favour the sector but tactical risks to confidence emerging

Insurance 5.3% Market Weight Low real interest rates, sovereign risk concerns, inexpensive valuation

Media 2.4% Overweight US and EM exposure, US consumer rebound, reasonable valuation

Oil & Gas 9.4% Overweight Structural support from higher oil prices and macro volatility

Personal & Household Gds. 6.4% Market Weight EM exposure, expensive valuation, earnings momentum faltering

Real Estate 1.4% Overweight Robust commercial real estate rebound, inflation hedge

Retail 3.4% Market Weight Improving consumer outlook in the UK, but Europe is concerning

Technology 3.0% Underweight ↓ Earnings concerns, valuation relatively expensive Telecommunications 5.1% Overweight ↑↑ Dividend risks diminishing, inexpensive valuation, seasonality

Travel & Leisure 1.4% Underweight Fiscal consolidation, valuation relatively expensive

Utilities 4.9% Market Weight 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 two-notch downgrade. Source for all tables: Barclays Research


29 June 2012 3

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

30Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12

60

40

50

60

70

80

100

120

140Eurozone Manufacturing PMI US ISM ManufacturingChina Manufacturing PMI European Cyclicals/Defensives (rhs)

Cyclicals: Basic resources + IndustrialsDefensives: Healthcare + Utilities

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

Figure 4: Tech saw the worst earnings momentum

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Source: Datastream 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 3-month 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

https://live.barcap.com/go/publications/content?contentPubID=FC1834387


29 June 2012 4

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

Figure 6: Consensus GDP forecasts also declining

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Eurozone 2013e consensus GDP % y/yUS 2012e consensus GDP % y/yUS 2013e consensus GDP % y/y

STOXX 600 2013e consensus EPS growth

STOXX 600 2012e consensus EPS growth

Current bottom-up consensus EPS growth forecasts 2012e: 3%, 2013e: 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 5

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 guidance1.

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 6

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 *

Name ** Sector Market cap, €m

Previous earnings surprise

(%)

(Number of Upgrades -

Downgrades) as % total

Disagree-ment

between analysts

Relative price

moment. 1M

Earnings Quality Rel.

Sector Next report

date Latest

report dateP/E

2012eP/E

2013e

THYSSENKRUPP (XET) Ind. Gds & Svcs 6186 -354.4 -14% 13.0 -15% -1.4 10/08/2012 15/05/2012 - 7.9

NEXANS Ind. Gds & Svcs 799 -82.9 -20% 2.5 -10% -1.4 25/07/2012 25/04/2012 10 6.3

VESTAS WINDSYSTEMS Oil & Gas 794 -149.0 -4% 9.9 -23% -0.1 22/08/2012 02/05/2012 14.7 10.1

PRYSMIAN Ind. Gds & Svcs 2322 -42.9 -13% 2.3 -4% -0.3 07/08/2012 10/05/2012 8.7 7

BWIN PARTY DIGITAL ENTM. Travel & Leisure 1215 -5.2 -12% 1.7 -5% -4.5 31/08/2012 16/05/2012 9.2 9

ARCELORMITTAL Basic Resources 17591 -23.8 -14% 2.6 -1% 0.7 25/07/2012 10/05/2012 9.2 5.4

ORKLA Ind. Gds & Svcs 5655 -3.6 -25% 2.7 0% -0.5 20/07/2012 30/04/2012 10.2 9.9

HUSQVARNA 'B' Pers & Hhld Goods 1536 -2.0 -6% 1.9 -9% 0.4 19/07/2012 26/04/2012 11 9.1

EURASIAN NATRES.CORP. Basic Resources 6442 -4.6 -4% 2.2 -11% 0.7 15/08/2012 01/04/2012 5.2 4.8

NYRSTAR Basic Resources 737 -29.9 -12% 3.0 -13% 1.7 27/07/2012 01/04/2012 7 3.5

AURUBIS (XET) Basic Resources 1657 -21.2 -6% 1.9 -5% 0.8 14/08/2012 14/05/2012 7.3 7.5

SEB Pers & Hhld Goods 2396 -4.1 -27% 1.1 -12% 0.9 25/07/2012 26/04/2012 9.9 9

AFREN Oil & Gas 1263 -3.1 -14% 3.5 -17% 1.6 30/08/2012 15/05/2012 4.6 5.8

CARREFOUR Retail 9624 -0.8 -3% 3.1 -4% -0.7 30/08/2012 12/04/2012 9.7 8.7

RENTOKIL INITIAL Ind. Gds & Svcs 1627 -1.3 -11% 1.0 -7% -0.2 03/08/2012 04/05/2012 8.9 7.8

KUEHNE+NAGEL INTL. Ind. Gds & Svcs 9591 -7.5 -7% 1.4 -10% 1.0 16/07/2012 16/04/2012 18.7 16

VERBUND Utilities 3064 -9.3 -14% 1.7 -4% 1.1 25/07/2012 03/05/2012 12.6 12.5

GROUPE EUROTUNNEL Ind. Gds & Svcs 3335 91 -11% 13.4 -5% -0.3 23/07/2012 18/04/2012 135.2 91.5

PORSCHE AML.HLDG. (XET) Autos & Parts 5870 -98 0% 2.1 -4% 0.9 02/08/2012 15/03/2012 3.9 3.3

ALFA LAVAL Ind. Gds & Svcs 5434 -5 -9% 1.1 -5% 0.8 17/07/2012 23/04/2012 13.7 12.6

GALP ENERGIA SGPS Oil & Gas 7209 -1 -17% 1.9 -6% 1.4 27/07/2012 27/04/2012 21.1 15.4

ARKEMA Chemicals 3064 9 -10% 1.3 -10% 0.0 01/08/2012 10/05/2012 6.6 5.9

EVRAZ Basic Resources 4295 -36 -5% 2.0 -14% 4.0 30/08/2012 27/04/2012 7.4 5.4

METSO Ind. Gds & Svcs 3808 -3 -12% 1.1 -8% 1.1 26/07/2012 26/04/2012 9.1 8.5

STRAUMANN HLDG. Healthcare 1793 -1 -20% 1.2 -13% 1.5 21/08/2012 22/02/2012 20 16.8

FLSMIDTH & CO.'B' Const. & Material 2165 -14 -7% 0.6 -6% 0.6 15/08/2012 15/05/2012 9.4 8.5

BASF (XET) Chemicals 48725 -0.9 -14% 1.0 -7% 1.0 26/07/2012 27/04/2012 9.1 8.3

IMI Ind. Gds & Svcs 3212 4.3 -14% 1.2 -9% 0.8 23/08/2012 02/03/2012 9.5 8.9

ACERINOX 'R' Basic Resources 1998 -17.6 -9% 3.3 -5% 4.0 24/07/2012 27/04/2012 12.9 9.4

TNT EXPRESS Ind. Gds & Svcs 4998 -42 0% 3.8 3% -1.1 30/07/2012 02/05/2012 33.6 21.6

* 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 7

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 8

SECTORS: IMPROVING THE SIGNAL-TO-NOISE RATIO According to EPFR fund data, investors are underweight Telecom by % 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.

22

Figure 8: Investors underweight Telecoms and Overweight Tech

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EPFR current allocation/ MSCI Europe neutralweighting (versus range since July 2006)

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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.





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29 June 2012 9

Figure 9: European Telecoms: dividend policy changes Dec 11- Jun 12

Previous dividend policy New dividend policyDate

changedCurrent

share priceDivi yield

old Divi yield

new Notes

Telefonica 2012E €1.50 (but had been €1.75)

2012 €1.30, (up to €0.90 in script) Jun-12Dec-11

9.76 15.4% 13.3%

France Telecom

2010-2012: dividend floor of

EUR1.40/share, with a promise of a flat dividend in 2013

provided the operating environment

remained the same.

2011 divi of EUR1.40/share unchanged, but changed 2012/13 dividend guidance to 40%-45% of

OpFCF, which implies a range of EUR1.20-EUR1.40/share.

Feb-12 9.94 14.1% 12.1% New divi yield is based on

€1.20

Telekom Austria

€0.76 in 11/12; 55% of FCF from 2013 with a minimum of

€0.76

€0.38 in 2011/2012and 55% payout of FCF from 2013.

Dec-11 7.77 9.8% 4.9%

Telecom Italia

15% growth on from 2010 divi of €5.8c (ie €6.7c in 2011)

€900m floor, or €4.3c (ords) Feb-12 mkt cap 13500

7.4% 6.7% Yield 2011

KPN 2012E €409m buyback (consensus estimates) =

ca€0.3/share; €0.95 2013E divi

Zero buy-back; would not commit to 2013 divi; BARC 2013E divi

estimate is €0.90

Jan-12 7.32 16.4% 12.3% Dividend yield + buyback

Portugal Telecom

€ 0.65 €0.325+0.07€ (buy back) Jun-12 3.42 19.0% 11.5% Dividend yield + buyback

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

-20-360 -180 -90 -30 30 90 180 360

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Performance vs FTSE 350

Source: Barclays, Bloomberg

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 10

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

Figure 12: Dividend yield at a historical high

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median 5.7%8.8% today

Source: Thomson Reuters, Barclays Source: Datastream

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 11

Figure 13: Not expensive on the long-term earnings growth priced in for Telecoms

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. SER

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PRS IN HE

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Implied nominal EPS growth (annualised)

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

602004 2005 2006 2007 2008 2009 2010 2011 2012

80

100

120

140

160 Perf (vs. STOXX 600) of Telecoms by investing only in H1Perf (vs. STOXX 600) of Telecoms by investing only in H2

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 12

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

Figure 16: PE premium at the high end of history

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2009 2010 2011 2012

Tech STOXX 600

3-month earnings revisions (avg. of FY1 and FY2, %)

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2004 2005 2006 2007 2008 2009 2010 2011 20120%

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80%Tech rel. market PE premium (rhs)Tech 12m fwd PESTOXX 600 fwd 12m PE

Source: Datastream Source: Datastream

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 13

Figure 17: Historically Tech has underperformed after high PE premium

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0%

20%

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80%

2004 2006 2008 2010 2012

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

Source: Datastream

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 14

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 15

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 and Procedures, please refer to https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.

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 3-Negative (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 12-month 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) Alfa Laval AB (ALFA.ST) Alstom (ALSO.PA)

Assa Abloy AB (ASSAb.ST) Atlas Copco AB (ATCOa.ST) Cookson Group plc (CKSN.L)

Electrolux AB (ELUXb.ST) GEA Group AG (G1AG.DE) IMI Plc (IMI.L)

Invensys PLC (ISYS.L) Legrand SA (LEGD.PA) Metso OYJ (MEO1V.HE)

Philips Electronics N.V. (PHG.AS) Rotork PLC (ROR.L) Sandvik AB (SAND.ST)

Schneider Electric SA (SCHN.PA) Siemens AG (SIEGn.DE) SKF AB (SKFa.ST)


29 June 2012 16

Smiths Group PLC (SMIN.L) Sulzer AG (SUN.S) Weir Group (WEIR.L)

European Food Retail

Ahold (AHLN.AS) Carrefour (CARR.PA) Casino (CASP.PA)

Colruyt (COLR.BR) Delhaize (DELB.BR) DIA (DIDA.MC)

Jeronimo Martins (JMT.LS) Metro AG (MEOG.DE) Morrison (MRW.L)

Ocado (OCDO.L) Sainsbury (J) plc (SBRY.L) Tesco (TSCO.L)

European Transportation

Air France-KLM (AIRF.PA) Deutsche Lufthansa AG (LHAG.DE) Deutsche Post AG (DPWGn.DE)

DSV A/S (DSV.CO) easyJet PLC (EZJ.L) FirstGroup Plc (FGP.L)

Go-Ahead Group Plc (GOG.L) International Consolidated Airlines Group (ICAG.MC)

International Consolidated Airlines Group (ICAG.L)

Kuehne & Nagel International AG (KNIN.VX)

National Express Group Plc (NEX.L) Panalpina AG (PWTN.VX)

PostNL NV (PTNL.AS) Ryanair Holdings PLC (RYA.L) Stagecoach Group Plc (SGC.L)

TNT Express NV (TNTE.AS)

North America Oil & Gas: E&P (Large Cap)

Anadarko Petroleum (APC) Apache Corp. (APA) Canadian Natural Resources (CNQ.TO)

Canadian Oil Sands Ltd. (COS.TO) Cenovus Energy Inc. (CVE.TO) Devon Energy (DVN)

EnCana Corp. (ECA) EOG Resources (EOG) Kosmos Energy Ltd. (KOS)

MEG Energy (MEG.TO) Newfield Exploration (NFX) Nexen Inc. (NXY.TO)

Noble Energy (NBL) Occidental Petroleum (OXY) Pioneer Natural Resources (PXD)

QEP Resources (QEP) Range Resources Corp. (RRC) Southwestern Energy Co. (SWN)

Talisman Energy (TLM) Ultra Petroleum Corp. (UPL) WPX Energy (WPX)

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 17

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 18

IMPORTANT DISCLOSURES CONTINUED

Alfa Laval AB (ALFA SS / ALFA.ST) Stock Rating Sector View

SEK 113.40 (28-Jun-2012) 3-UNDERWEIGHT 2-NEUTRAL

Rating and Price Target Chart - SEK (as of 28-Jun-2012) Currency=SEK

Date Closing Price Rating Price Target

08-Feb-2012 132.60 135.00

17-Aug-2011 117.50 3-Underweight 140.00

Closing Price Target Price Rating Change

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

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125

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175

16-Feb-2011 130.60 1-Overweight 150.00

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 andPower may take longer to recover.

https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=7332687&legend=Alfa%20Laval%20AB&shortlegend=ALFA.ST&currency=SEK&enddate=20120628&begindate=20110628&userId=fountaib&appName=RPS


29 June 2012 19


Carrefour (CA FP / CARR.PA) Stock Rating Sector View

EUR 14.04 (28-Jun-2012) 3-UNDERWEIGHT 1-POSITIVE

Rating and Price Target Chart - EUR (as of 28-Jun-2012) Currency=EUR


27-Jan-2012 18.26 3-Underweight 15.00

31-Aug-2011 18.56 22.00

14-Jul-2011 21.82 26.00

11-Jul-2011 22.59 27.00

01-Dec-2010 32.90 2-Equal Weight 33.20

22-Sep-2010 39.67 1-Overweight 41.93

30-Nov-2009 28.23 27.52

Closing PriceTarget PriceRating Change


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08-Sep-2009 27.92 3-Underweight 25.33


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 theprevious 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 anaffiliate.

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 givenstructural 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 the1.0-2.5% 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 thesector 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 givemore 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 cashproceeds.

* 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

https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=5641567&legend=Carrefour&shortlegend=CARR.PA&currency=EUR&enddate=20120628&begindate=20110628&userId=fountaib&appName=RPS


29 June 2012 20


EnCana Corp. (ECA) Stock Rating Sector View

USD 20.36 (28-Jun-2012) 2-EQUAL WEIGHT 2-NEUTRAL

Rating and Price Target Chart - USD (as of 28-Jun-2012) Currency=USD


30-Apr-2012 20.94 14.00

22-Feb-2012 19.87 16.00

26-Jan-2012 19.68 17.00

30-Nov-2011 20.05 22.00

10-Oct-2011 19.64 23.00

21-Sep-2011 21.64 26.00

10-Aug-2011 24.38 29.00

22-Jul-2011 30.49 31.00

08-Jul-2011 30.52 30.00

21-Apr-2011 32.56 32.00

29-Mar-2011 34.18 31.00

11-Feb-2011 31.45 30.00

03-Feb-2011 32.17 28.00

16-Dec-2010 27.94 27.00

28-Oct-2010 27.64 28.00

21-Oct-2010 27.65 30.00

22-Sep-2010 27.92 32.00

22-Apr-2010 31.82 34.00

14-Apr-2010 31.82 32.00

20-Jan-2010 33.79 2-Equal Weight



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01-Dec-2009 29.48 1-Overweight 19.80


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 hedgegains/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.

https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=ECA&legend=EnCana%20Corp.&shortlegend=ECA&currency=USD&enddate=20120628&begindate=20110628&userId=fountaib&appName=RPS


29 June 2012 21


Kuehne & Nagel International AG (KNIN VX / KNIN.VX) Stock Rating Sector View

CHF 97.05 (28-Jun-2012) 3-UNDERWEIGHT 1-POSITIVE

Rating and Price Target Chart - CHF (as of 28-Jun-2012) Currency=CHF


02-May-2012 N/A 105.00

16-Dec-2011 105.90 3-Underweight 110.00

14-Oct-2011 104.90 120.00

20-Sep-2011 107.90 125.00

19-Jul-2011 112.20 130.00

14-Jul-2011 119.00 135.00

02-Mar-2011 120.60 140.00



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20-Jan-2011 125.90 2-Equal Weight 145.00


Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Kuehne & Nagel International AG in thepast 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 withinthe 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 anaffiliate.

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 ofCHF 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 assumptionsis 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 toour assumptions about demand, industry and various competitive forces in air and sea freight, in particular. We may be forced to makesubstantial and frequent changes to our profit exceptions, targets and recommendations.

https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B142S60&legend=Kuehne%20&%20Nagel%20International%20AG&shortlegend=KNIN.VX&currency=CHF&enddate=20120628&begindate=20110628&userId=fountaib&appName=RPS

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 andeach 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 ofmerchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays will not treat unauthorized recipients ofthis 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 anticipatedsavings 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 bereliable, 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 inthis publication. The analyst recommendations in this publication reflect solely and exclusively those of the author(s), and such opinions were preparedindependently of any other interests, including those of Barclays and/or its affiliates. This publication does not constitute personal investment advice or takeinto account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for allinvestors. Barclays recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independentadvisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economicmarkets (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 haveprofessional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into onlywith 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 arepresentative 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 regulationspermit otherwise.

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