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THIRD QUARTER 2010 DEUTSCHE TELEKOM Valuation Metrics 2008 2009 2010E 2011E 2012E Recommendation: SELL Execution P/E 12.4 12.5 11.2 12.6 14.5 Fair Value: EUR 7.60 Reported P/E 12.4 12.5 11.8 13.8 16.2 EV / Sales 1.4 1.4 1.5 1.4 1.5 Share Price: EUR 9.70 EV / EBITDA 4.5 4.6 4.6 4.7 4.9 Upside / Downside -21.7% EV / EBIT 10.0 10.3 9.7 10.5 11.5 FCF Yield 10.0% 9.8% 8.0% 8.5% 8.3% Previous Fair Value EUR 7.60 Dividend yield 8.0% 8.0% 7.2% 7.2% 7.0% % change to fair value 0.0% Bloomberg: DTE GY Key ratios 2008 2009 2010E 2011E 2012E T-One: DTE-XE Model Published On: 01 July 2010 EBITDA margin 31.6% 32.0% 31.8% 31.5% 30.7% EBIT margin 14.3% 14.2% 15.0% 14.2% 13.1% Capex / Revenue 14.1% 14.2% 16.9% 16.7% 16.0% Shares In Issue (Less Treasury) 4,361 Capex / Depreciation 0.82 0.80 1.01 0.96 0.91 Market Cap 42,318 Net Debt / EBITDA 2.0 2.0 2.1 2.2 2.2 Net Debt 40,911 EBITDA / Net Interest 6.6 6.6 6.4 6.2 6.1 Adjustments For Associates & Minorities 0 ROE 9% 9% 9% 8% 7% Enterprise Value 83,229 Net Pension Deficit -5,871 P&L Summary (EUR m) 2008 2009 2010E 2011E 2012E Forthcoming Catalysts Revenue 61,666 64,639 61,990 60,045 58,829 % change -1.4% 4.8% -4.1% -3.1% -2.0% 1Q 2010 results 12 May 2010 EBITDA 19,459 20,668 19,698 18,906 18,049 2Q 2010 results 05 August 2010 % change 0.7% 6.2% -4.7% -4.0% -4.5% 3Q 2010 results 04 November 2010 % margin 31.6% 32.0% 31.8% 31.5% 30.7% Depreciation & Amortisation -10,639 -11,510 -10,416 -10,396 -10,332 EBIT 8,820 9,158 9,282 8,510 7,717 % change 9.1% 3.8% 1.4% -8.3% -9.3% % margin 14.3% 14.2% 15.0% 14.2% 13.1% Associates 0 0 0 0 0 Execution Analyst Operating Profit 8,820 9,158 9,282 8,510 7,717 Will Draper Net Financials -2,936 -3,125 -3,093 -3,053 -2,936 (44) 20 7456 1694 Other Pre-tax Income 0 0 0 0 0 will.draper@executionlimited.com Pre Tax Profit 5,884 6,033 6,190 5,457 4,781 Income Tax Expense -1,889 -2,102 -2,052 -1,801 -1,578 Disconitinued Operations 0 0 0 0 0 Revenue Breakdown (2010E) Minority Interests -569 -541 -557 -618 -643 Net Income 3,426 3,390 3,581 3,038 2,560 Execution Net Income 3,426 3,390 3,781 3,337 2,864 Reported EPS 0.79 0.78 0.82 0.70 0.60 Execution EPS 0.79 0.78 0.87 0.77 0.67 DPS 0.78 0.78 0.70 0.70 0.68 Payout Ratio 99.3% 100.3% 85.3% 99.6% 113.8% Shares In Issue (Less Treasury) 4,361 4,361 4,361 4,325 4,286 Cash Flow Summary (EUR m) 2008 2009 2010E 2011E 2012E USA 26% EBITDA 19,459 20,668 19,698 18,906 18,049 Taxes Paid -520 -928 -1,005 -1,065 -1,095 Operating Profit Breakdown (2010E) Interest Paid / Received -2,257 -2,476 -2,648 -2,563 -2,498 Margin Trends Margin 35% 30% 25% 20% 15% 10% 5% 0% Southern & Eastern Europe 15% Europe 11% Southern & Eastern Europe 14% Europe 12% Systems Solutions 10% USA 23% Systems Solutions 3% Germany 38% Germany 48% 2007 2008 2009 2010E 2011E 2012E EBITDA margin EBIT margin Change in Working Capital 156 118 -344 100 50 Associate & Minority Dividends -548 -856 -319 -454 -514 Other Operating Cash Flow -922 -731 -363 367 625 Operating cash flow 15,368 15,795 15,019 15,290 14,617 Capital Expenditure -8,707 -9,202 -10,506 -10,032 -9,391 Free Cash Flow 6,100 5,708 3,992 4,506 4,408 Acquisitions & Disposals 1,252 591 121 0 0 Dividends Paid To Shareholders -3,402 -3,402 -3,402 -3,053 -3,027 Equity Raised / Bought Back 3 2 0 -347 -373 Other Financing Cash Flow -3,127 -903 -1,662 0 0 Net Cash Flow 826 1,996 -950 1,106 1,008 Balance Sheet Summary (EUR m) 2008 2009 2010E 2011E 2012E Cash & Equivalents 3,026 5,022 4,072 5,177 6,185 Tangible Fixed Assets 41,559 45,468 39,777 38,413 36,572 Goodwill & Intangibles 53,927 51,705 54,813 55,813 56,713 Associates & Financial <strong>Investment</strong>s 3,555 3,740 3,379 3,379 3,379 Other Assets 21,073 21,839 26,564 25,140 24,119 Total Assets 123,140 127,774 128,605 127,922 126,968 Interest Bearing Debt 46,594 51,191 50,940 50,940 50,940 Other Liabilities 33,434 34,646 33,984 33,499 33,256 Total Liabilities 80,028 85,837 84,924 84,439 84,196 Shareholders' Equity 39,997 36,354 38,028 37,964 37,428 Minority Interests 3,115 5,583 5,654 5,519 5,344 Total Equity 43,112 41,937 43,681 43,483 42,772 Net Debt 38,158 40,911 41,899 40,794 39,786 http://www.execution-noble.com Page 32 of 44
THIRD QUARTER 2010 Electrolux Squeezed from all sides We believe Electrolux is unlikely to replicate its strong performance in 2009 for 2010. In 2009 it benefitted from both its US-rebranding and a dramatic fall in its raw materials bill. Fundamentally Electrolux is in a challenged position, with little power over either its suppliers or customers, white-hot competition from Asian manufacturers and a raw materials bill that has increased in 2010, despite recent easing of some material prices. We reiterate our Sell rating and SEK164 price target. Raw materials headwind continues into 2011 Raw materials constitute 17% of sales, and fluctuations in price are a major driver of earnings. Since 2004 Electrolux has absorbed an increase in its raw material bill of Skr7.0bn. In 2009, the company positioned itself for falling raw materials prices by moving to shorter-term contracts. This paid off in 2009, but the company failed to lock in these lower rates for 2010 believing they would continue to fall. We believe 2Q10 will be the first quarter in which Electrolux experiences a headwind and that this will continue through the remainder of 2010 (albeit with little additional risk given 70% of steel required for 2010 has been locked-in with suppliers). Our analysis indicates a Skr1bn raw material headwind in 2010 and a further Skr1.7bn headwind in 2011. Without further restructuring savings, this headwind will directly impact EBIT margins in the same way it can be shown has happened historically. Margin gap to Capital Goods sector has widened Electrolux has narrowed the margin gap to its appliance peers from 270bp in 2000 to 80bp in 2009 through restructuring and brand structure rationalisation, but it has actually increased relative to the Capital Goods sector from 400bp in 2000 to 760bp in 2009. Electrolux’s valuation over the same period has recovered to such an extent that it now trades inline with Cap Goods peers. Fundamentally Electrolux is coming from a weaker position than the broader European Capital Goods due to the characteristics of the appliance industry in which it operates. Absent a change in the structure of the white goods industry we would continue to argue a significant discount for Electrolux relative to the Capital Goods sector. 6.0% EBIT margin will be a challenge to achieve Electrolux introduced a 6.0% EBIT margin goal in 2007 but even with the boost from lower raw materials and ‘crisis management’ initiatives in 2009, it only achieved 4.9% last year. In 2010, operational gearing, restructuring savings and the North American rebranding will help the margin reach 6.1%, we believe, but thereafter we see the margin falling in the absence of another significant restructuring programme and charge. This is not inconsistent with Electrolux’s guidance which is on a pre-restructuring basis, but we believe the market may be overestimating profitability by assuming a 6.0% post restructuring margin. Valuation: Deserves a discount to Capital Goods Sector Electrolux is currently trading on 9.1x2011E EV/EBITA, inline with the European Capital Goods sector average of 9.2x 2011E EV/EBITA. Our target price applies an 8.5x 2011E EV/EBITA multiple on which we find Skr164 per share value. We believe Electrolux deserves this discount because 1. its growth has significantly underperformed the sector over the last 10 years, 2. its margins are structurally lower and under more pressure, 3. its value proposition to customers is weak compared to companies with industrial customers, 4. it has limited emerging market exposure and 5. its financial performance is too heavily dependent on raw materials and factors beyond management’s control. Our DCF valuation yields Skr154 per share value. http://www.execution-noble.com SELL 13% downside Fair Value SEK 164 RIC, Bloomberg Code ELUXb.ST, ELUXB SS Share Price SEK 190 Market Capitalisation $7,516m Free Float 100% $m 2009 2010E 2011E 2012E Sales 109,132 109,123 112,790 116,696 Adjusted EBITA 4,940 6,229 6,205 6,054 Adjusted EPS 11.10 14.22 14.18 13.98 Dividend 4.00 4.60 4.95 4.62 FCF* 5,757 3,647 3,427 4,367 EV Adjustments** 2,168 2,233 2,300 2,369 Net Debt 4,068 1,657 -350 -3,187 * FCF = EBITDA - capex - NWC - int ex. - tax ** Pension, Tax, Equity and non-consolidated assets X (unless stated) 2009 2010E 2011E 2012E EV/Sales 0.4 0.6 0.5 0.5 EV/EBITA Adjusted 8.6 10.0 9.8 9.6 P/E Adjusted 10.6 13.4 13.4 13.6 Dividend Yield (%) 2.1% 2.4% 2.6% 2.4% FCF Yield (%) 15.8% 6.2% 5.8% 7.4% Net Debt/EBITDA 0.5 0.2 0.0 -0.3 Analysts Nick Paton, CFA +44 20 7456 1190 nick.paton@execution-noble.com Rob Virdee +44 20 7456 9222 rob.virdee@execution-noble.com Page 33 of 44
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Page 47 and 48: IMPORTANT INFORMATION Analyst Certi

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