Energy

ursarnold

Global Investor, 01/2007
Credit Suisse

WEF Special Issue

January 2007

Expert know-how for Credit Suisse investment clients

Global Investor

Focus

Energy

Global economy High energy prices to stimulate innovation

Oil versus alternatives Braking the global dependence on oil

Kyoto und emissions Emissions trading as an investment opportunity

Alternative energy Winning sectors in the spotlight


1987

China’s changing face

China’s thirst for oil won’t be quenched for many years. The increasing need for

mobility in China has led to an exponential increase in transport infrastructure. This

boom has made China the second-largest oil consumer in the world, using 6.6 million

barrels a day in 2005, according to the US Energy Information Administration.

China’s oil demand forecast through 2030

As oil demand increases, so will the ratio

of imports to total Chinese oil consumption.

Source: World Energy Outlook 2004, IEA

China’s urban population growing

As the urban population grows, the lifestyle of an

average Chinese is likely to change significantly.

Source: CSFB Research, United Nations World Population Prospects

Million barrels per day %

Chinese population (millions)

15

80

1000

12

60

800

Forecasts

9

40

600

6

20

400

3

0

200

0

–20

0

1990

2000

2010

2020

2030

1950

1960 1970 1980 1990 2000 2010 2020 2030

Production

Demand

Imports as % of demand (r.h.s.)

Urban

Rural


Fossil fuel reserves in 2005

The largest share of proven oil reserves is in the Middle East, at 61.7%. In comparison,

North America accounts for 5%. The biggest natural gas reserves are in Eurasia and

the Middle East. Globally, the most diversified energy source is coal with similar reserves

in North America, Europe and Eurasia, and Asia Pacific.

Source: BP Statistical Review of World Energy June 2006

Oil

Thousand million barrels

40.2

1

Asia Pacific

59.5

2

North America

103.5

S. & Cent. America

114.3

Africa

140.5

Europe & Eurasia

742.7

Middle East

Natural gas

Trillion cubic meters

7.02

S. & Cent. America

7.46

2

North America

14.39

Africa

14.84

1

Asia Pacific

64.01

Europe & Eurasia

72.13

Middle East

Coal

Thousand million tons

0.4

Middle East

19.9

S. & Cent. America

50.3

Africa

254.4

2

North America

287.1

Europe & Eurasia

296.9

1

Asia Pacific

1 Asia Pacific: the continental Asian states of Pakistan, Nepal, India, Bhutan, Bangladesh, Burma, Thailand, Laos, Cambodia, Vietnam, Malaysia, China, Mongolia, North Korea, South Korea and Singapore.

2 North America: Canada, USA and Mexico.

Oil & natural gas production by area

Middle Eastern countries increased their share in global oil production significantly over

the last 20 years, while shares in other regions stayed more or less the same.

Asia Pacific and other regions managed to increase shares in natural gas production.

Source: BP Statistical Review of World Energy June 2006

100

3000

80

2400

60

1800

40

1200

20

600

0

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

0

Oil production by area

Million barrels daily

Natural gas production by area

Billion cubic metres

Africa Europe & Eurasia 1 North America 2 South & Central America Middle East Rest of world

1 Asia Pacific: the continental Asian states of Pakistan, Nepal, India, Bhutan, Bangladesh, Burma, Thailand, Laos, Cambodia, Vietnam, Malaysia, China, Mongolia, North Korea, South Korea and Singapore.

2 North America: Canada, USA and Mexico.


Primary energy consumption in 2005

Major oil reserves are concentrated on just a few regions in the world. Natural gas and especially coal reserves

are much more diversified regionally. China still shows low per capita figures of energy consumption,

although it is the world’s second largest consumer of petroleum products. As the Chinese economy continues

to grow, so too will its energy consumption.

Source: BP Statistical Review of World Energy June 2006, and Le Monde diplomatique Atlas der Globalisierung 2003


Primary energy 1 consumption

Tons oil equivalent per capita

0–1.5 1.5–3.0 3.0–4.5 4.5–6.0 >6.0 no data

Sources

Oil Gas Coal

Large reserves

Medium reserves

Oil

Oil producing and

exporting countries

1

Primary energies are oil, natural gas, coal, nuclear energy and hydroelectricity.


Oil trade flows worldwide in 2005

Major oil trade flows go from the Middle East to Asia Pacific and Japan, and from Russia to Europe.

Oil imports to the USA are predominantly provided by South America and the Middle East.

Source: BP Statistical Review of World Energy June 2006

22.0

287.0

53.3

19.6

23.0

107.1 34.6

96.5

81.8

26.7

97.0

156.1 211.7

67.4

140.9

116.5

369.2

30.3 24.8

37.2

26.8

38.1

28.6

Major trade movements

Trade flows worldwide (million tons) Africa Europe & Eurasia North America South & Central America Middle East

Primary energy consumption by area in 2005

In Europe, consumption of oil and natural gas is about the same. In most other regions,

oil dominates as the energy source. In Asia Pacific, however, coal accounts for almost half

of the energy consumed.

Source: BP Statistical Review of World Energy June 2006

316.5

Africa

501.4

S. & Cent.

America

510.2

Middle East

2801.3

1

North America

2984.0

Europe & Eurasia

3423.7

2

Asia Pacific

Consumption by fuel

Million tons oil equivalent

Oil Natural gas Coal Nuclear energy Hydroelectricity

1 North America: Canada, USA and Mexico.

2 Asia Pacific: the continental Asian states of Pakistan, Nepal, India, Bhutan, Bangladesh, Burma, Thailand, Laos, Cambodia, Vietnam, Malaysia, China, Mongolia,

North Korea, South Korea and Singapore.


2004

Shanghai 1987 and 2004: The city’s progress is clear, but this is just the beginning. In the next decade, it plans to speed construction

of its infrastructure. The focus will be on its ports and the Huangpu river, according to its Development and Reform Commission.

China’s oil use is expected to double over the next 20 years, making the country

increasingly dependent on oil imports. In order to secure future oil supplies,

Chinese oil companies have been investing in exploration in Russia, the Caspian

countries, Indonesia, Africa and Latin America, according to the IEA.

New highway construction

China’s growth has translated into skyrocketing

motorway development.

Source: China Highway Statistics Yearbook 2005

Traffic in China on the rise

Should the development of the past 10 years

continue, the following traffic pattern will result.

Source: China Transportation Association

7000

New highway construction

in km per year

40000

Passengers (million persons)

Freight traffic (million tons)

6000

5000

4000

3000

30000

20000

10000

2000

1000

0

0

45 55 65 75 85 95 05 15

Passengers (est. based on last 10-years’ avg. growth)

Freight traffic (est. based on last 10-years’ avg. growth)

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05


GLOBAL INVESTOR FOCUS

Energy—04

Editorial

Preservation of natural resources > One of the most urgent tasks

of our time is to preserve the planet for future generations.

Some major steps have been taken along this path two years ago.

The Kyoto Protocol came into effect, wherein 141 nations have undertaken

to reduce greenhouse emissions to 5.2% below 1990 levels by

2012. The US Energy Bill, which came into force 2005, was also a

step in the same direction.

These measures came not a moment too soon. The recent natural

disasters have fueled fears about the effects of climate change and

energy security. People have become more aware of using resources

more carefully and taking action to tackle the issues more quickly.

Governments and companies are searching intensively for newer,

cleaner and more sustainable sources of energy, as well as technologies

that effectively reduce the consumption of energy and other

resources. Escalating commodity and energy prices are accelerating

this process, which will in turn have a lasting impact on industries such

as the automotive and aviation sectors, as we are unlikely to see an

end to increasing prices in the future. It is no wonder then that market

observers are witnessing a sudden increase in the number of public

offerings planned by alternative-energy-related companies.

What are the opportunities for investors? What should be the key

considerations when investing in the commodities and energy sectors?

In this Global Investor Focus, we have collected data and assembled

facts on the topic of energy, with comments by experts from a

number of different fields in order to present you with interesting and

thought-provoking material for your next discussion with your personal

relationship manager.

Giles Keating

Head of the Global Economic and Strategy Group,

Head of Research for Private Banking and Asset Management


Glossary

Links

Biomass > Biomass fuel is not derived from crude oil, but from

renewable sources, such as plant oils or organic waste products.

Biofuel is used as a substitute for fossil fuels or as a fuel additive

in Brazil, the USA (ethanol) and Europe.

CO 2 emissions certificates > In line with the Kyoto Protocol, EU

companies are issued with so-called emissions certificates. Each

certificateallowsthemtoproduceonetonofCO 2 emissions. These

certificates can be traded with other companies.

Geothermics > Geothermal energy technologies use the heat of

the earth to produce power. Geothermal resources can be used to

operateheatpumpsorproduceelectricity.

Hybrid technology > A hybrid vehicle is equipped with an internal

combustion engine and an electric motor. The latter can be used to

power the vehicle at lower speeds (in city traffic) and in combination

with the gasoline engine during acceleration and higher speeds.

Kyoto Protocol > On 16 February 2005, the Kyoto Protocol came

into effect, with the goal of combating global warming by reducing

greenhouse emissions. Emissions trading is a key part of the Kyoto

Protocol’s effort to tackle climate change.

Liquefied Natural Gas (LNG) > LNG is natural gas cooled and

condensed into a liquid. Liquefying natural gas reduces the volume

byapproximately600times,makingiteasierandmoreeconomical

to transport and store it.

Microgeneration > is the decentralized generation of power in, for

example, homes or commercial buildings to enable individuals or

businesses to be self-sufficient. In future, excess power could even

be sold back onto the power grid for use elsewhere.

Nuclear energy > Nuclear power stations supply over 16% of the

world’s electricity, with 440 reactors in 31 countries. Although

safety and waste management have been a constant subject of

debatefromtheoutset,nuclearenergyoffersacleanandefficient

way of generating electricity compared to fossil fuel alternatives.

Renewable energy > refers to sustainable energy derived from

non-fossil fuel resources. Renewable sources include wood, waste,

geothermal, tidal, wind, fuel cell, photovoltaic and solar thermal

energy and are essentially inexhaustible.

Smart technology > helps people to optimize resources and better

control their immediate environment. For example, a “smart home”

is one in which all the systems – the heating, the lighting, the alarm,

the computer, the phone, the fridge, the TV – are all linked together

and controlled by computerized micro-controllers.

Solar energy > Sunlight can be used to heat water, run turbines

or directly make electricity using solar cells – also known as photovoltaic

(PV) cells. Solar energy can be stored in batteries or used

to power electric motors.

Wind energy > Wind energy is a safe and popular energy technology,

with around 70,000 wind turbines in operation worldwide.

Wind-powered systems do not deplete natural resources and do

not produce emissions or harmful waste products.

Agency for Natural Resources and Energy

Official website of the Government of Japan

http://www.enecho.meti.go.jp/english/

American Council for Renewable Energy (ACORE)

http://www.americanrenewables.org/

Australian Greenhouse Office,

Department of the Environment and Heritage

http://www.greenhouse.gov.au/index.html

European Association for Renewable Energy (EUROSOLAR)

http://www.eurosolar.org/

Hubert Reeves Site Officiel (French)

http://www.hubertreeves.info/

International Atomic Energy Agency (IAEA)

http://www.iaea.org/

International Energy Agency (IEA)

http://www.iea.org/

National Renewable Energy Laboratory (NREL)

http://www.nrel.gov/

Nuclear Energy Agency (NEA)

http://www.nea.fr/

Organisation for Economic Co-operation

and Development (OECD)

http://www.oecd.org/

Renewable Energy Foundation (REF)

http://www.ref.org.uk/

The Energy Foundation

http://www.ef.org/

The Export Council for Energy Efficiency (ECEE)

http://www.ecee.org/

United Nations Environment Programme (UNEP)

http://www.unep.org/

United Nations Statistics Division - Energy Statistics

http://unstats.un.org/unsd/energy/default.htm

U.S. Department of Energy

Energy Efficiency and Renewable Energy

http://www.eere.energy.gov/

World Business Council for

Sustainable Development (WBCSD)

http://www.wbcsd.ch/

World Council for Renewable Energy (WCRE)

http://www.world-council-for-renewable-energy.org/

World Energy Council (WEC)

http://www.worldenergy.org/


GLOBAL INVESTOR FOCUS

Energy—05

06 High energy prices to stimulate innovation

High energy prices are likely to persist for many years. The good

news is that this will spur the creation of new products.

Table of contents

10 Breaking global dependence on oil will take decades

The surge in oil prices has shifted the spotlight to alternative energy.

How long will it take before these energy sources are viable?

18 Kyoto and emissions trading

Emissions trading takes a business approach to reaching the Kyoto

Protocol requirements, and opens new opportunities for investors.

20 Energy is the No. 1 challenge to sustainable investment

Energy choices are the responsibility of governments and the public.

Making the choice for renewable energy is a decision for the future.

22 No debate about the need for alternative energy sources

A discussion on how the global community is confronted with growing

environmental problems linked to the consumption of fossil fuels.

30 High oil prices: A blessing in disguise for energy savings?

The scarcity of energy resources has forced industries and sectors

to explore new avenues for energy conservation.

38 Catching rays for a bright future

A look at SolarWorld AG, one of the world’s leading manufacturers

of solar power technology.

40 Influx of petrodollars changes the face of Gulf countries

The petrodollar cash fountain is flowing into local, long-term

investment and infrastructure development.

42 A basket of potential alternative energy winners

What stocks are likely to benefit most from the coming alternative

energy boom? We provide a selection of picks from each source.

49 Photovoltaic energy is a clear choice for the future

Photovoltaics might not be the entire solution to the world’s energy

issues, but they are an increasingly important piece of the puzzle.

51 Global Alternative Energy Index in the spotlight

The new Credit Suisse global Alternative Energy Index. This dynamic,

balanced index tracks alternative energy sources worldwide.

52 Authors

54 Disclaimer/Imprint

Cover: A solar test facility

Source: Grafton Marshall Smith / Corbis


GLOBAL INVESTOR FOCUS

Energy—06

High energy prices to

stimulate innovation

One of the mysteries of the global economy is that the energy and commodity sectors have been

investing in refineries at only a modest pace for two to three decades, as if unaware of the boom in

Asia. Meanwhile, the world’s manufacturers, big and small, are expanding operations in Asia at

breakneck speed. Little wonder that energy and commodity prices have risen sharply. The questions

now are: how long can these high commodity prices persist, and how will the industrial sector react?

Giles Keating, Credit Suisse Head of Research for Private Banking and Asset Management / Tobias Merath, Commodity Analyst, Global Economics & Forex

The world’s great energy companies still plan exploration for crude oil

and investment in refineries on the basis of oil prices far below USD

50–60 a barrel. Therefore, the price signals from the demand side

are nowhere near feeding through fully into a supply response, suggesting

that high energy prices are likely to persist for many years.

One possible explanation for this anomaly is that the global

energy sector is one of the world’s most oligopolistic. Substantial

market power in production and exploration, and processing and

distribution is concentrated in the hands of a very small number of

companies. Oligopolies in commodity sectors tend to have a bias to

under-investment because they face asymmetric incentives. If they

keep investments low and demand is then unexpectedly strong, their

profits from the resulting high prices will likely be almost as good as

if they’d foreseen the boom and done more capital spending. However,

if they invest heavily and demand is surprisingly weak, then

their profits can fall sharply as prices collapse in the glut. Figure 1

illustrates the weak investment in the global oil sector – capex to

sales ratios in the large integrated oil majors would have to rise by

50% to regain levels of the 1980s and the early 1990s.

Compare this with the global manufacturing sector. It also contains

many very large oligopolistic companies, but unlike the energy and

commodity sectors, they must compete on innovation, product design,

marketing and distribution in their core businesses. It is essential

that they keep investing in innovative new products, or they

will risk losing market share when their competitors get a new design

to market ahead of them. In contrast to the energy sector, there is

a bias toward over-investment. Figure 2 illustrates this relationship.

Since 1980, total private investment in the USA more than doubled,

but investment in the commodity area still lags behind those levels.

So it seems likely that, in the long term, short-term cycles aside,

investment will continue to be buoyant in manufacturing and relatively

restrained in the energy and commodities complex. With limited

spare capacity (Figure 3), this relatively modest investment rate

implies that energy prices are set to remain elevated. Getting the oil

price down to USD 40 per barrel at current demand levels would

mean that global oil production would have to rise about 20%

from the current 85 million barrels a day, according to our analysis.

This would be over and above the growth of about 2% a year >


GLOBAL INVESTOR FOCUS

Energy—07

Figure 1

Integrated oil stocks capex-to-sales ratio

Source: CSFB oils team research

13

12

11

10

9

8

7

6

5

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

05 06

Figure 2

US investment in commodity infrastructure lags

Source: US Bureau of Economic Analysis

325

Index 1980 = 100

275

225

175

125

75

25

80 85 90 95 00

05

Total private fixed

investment

Mining exploration,

shafts, and wells

An oil storage tank built by the AIOC consortium.


GLOBAL INVESTOR FOCUS

Energy—08

Figure 3

Number of oil rigs still below the level

of the 1970s

Source: CSFB oils team research

5,000

Rigcount

4,000

3,000

2,000

1,000

0

75 79 83 87 91 95 99 03

Figure 4

Diminishing dependence on oil

Source: IMF, Credit Suisse

Oil intensity:

in barrels per mn USD

of PPP-adjusted GDP

7

6

5

4

3

2

1

0

81 83 85 87 89 91 93 95 97 99 01 03 05

Japan China USA EU

This oil tank stores up to 160,000 barrels.


GLOBAL INVESTOR FOCUS

Energy—09

needed to keep up with rising demand, and this seems unlikely even

on a five-year-plus time horizon.

Nor does it seem plausible to compare the current situation to

the one of several decades ago. Then, spikes in oil prices caused a

recession and undermined energy demand. At that time, the price

hikes reflected politically cuts in supply. This time, they are the result

of strong demand from a buoyant global economy, which has vecome

much less energy intensive (see Figure 4) and seem well able to

keep growing in the face of high energy costs.

We therefore believe that the biggest reaction to high energy

prices will come from innovation by manufacturers, rather than from

a large rise in supply of conventional energy, or a short-term decline

in demand. Since innovation is part of the core business model of

large modern manufacturers, it will be natural for them to develop

new products that minimize the use of energy and materials inputs

– or that harness unconventional energy sources. And, while much

of this innovation will initially be relatively modest and incremental,

over time, we are likely to see more radical change.

New inventions can reverse the relative price shift

The explosion of interest in petrol-electric hybrid cars is an early

indication of this trend, and perhaps will be followed by diesel-electric

hybrids offering another quantum leap in efficiency. More radical

steps lie beyond this, such as the development of the current embryonic

market in pure electric vehicles into a mass market for lightweight

urban transport, car-shaped but barely using more materials than a

powered bicycle, and made safe by restrictions on the use of conventional

heavyweight vehicles in towns. Another example is the

development of improved solar energy systems, much of which is

being done by the general manufacturing sector, rather than by the

large integrated energy companies. One of the exciting developments

here is the linkage with other emerging technologies, such as the

use of light-emitting diodes (LEDs), which require far less electricity

than corresponding conventional filament bulbs. As a result, widespread

adoption of solar-powered residential and office lighting – and

to a more limited extent heating – is not a silly projection to make for

ten years from now.

Many more possibilities exist, and we discuss some key examples

in this Global Investor Focus. Our vision is that entrepreneurial

manufacturers, competing on innovation, will respond to the enormous

shift in current relative prices with new products. The emergence of

these products will eventually erode demand for conventional energy

and raw materials, and ultimately reverse the relative price shift. That



The 1970s experience: move up the value chain or die

What was the common denominator of the industrial casualties

in the 1970s?

Excess capacities

High dependence on raw materials prices

High labor costs

Weak competitive position

No pricing power

Who escaped, who suffered?

German companies were the best example of management of the

oil shock. Thyssen moved from commodities steel to stainless

steel and escalators, BMW became an international brand of quality,

Daimler-Benz entered aerospace after purchasing Dornier,

Siemens entered electronics in 1981 through big joint ventures,

for example with Philips and Intel. Conversely, UK companies were

hit by unyielding trade unions, lack of research and development

(R&D) and inflexibility, mostly on the back of government control.

As a result, some companies making a loss survived with subsidies

and several private companies fell into bankruptcy. Only with

Thatcher’s revolution was England able to recover its competitiveness.

Some companies found the key to survival

Some companies made the necessary switch to survive in

Switched from:

Commodities focus (e.g. British Steel)

Volume focus (e.g. Imperial Chemical)

Domestic market/state purchases

(e.g. Westland, British Leyland)

Energy focus (e.g. Rolls Royce)

Consumer focus (e.g. Ferranti)

the 1970s:

to:

Engineering focus (e.g. Thyssen, Krupp,

Hoesch)

Margin focus (e.g. BASF, Bayer)

Export (e.g. German autos Mercedes

or BMW)

Labour focus (e.g. AEG)

Equipment focus (e.g. Linde)

What will happen this time?

Countries unable to adapt to the shock of higher energy costs

and companies lacking flexibility and competitive positions

could meet the same fate as their ancestors, British Leyland or

Manufrance. Export-oriented companies with market-share

growth, the ability to outsource, and a strong record of cost

control will survive. In the long term, some experts fear that European

companies might have difficulty competing due to lower

Mean declines during the 1973, 1978 and 1990 crises

(Oct. 73 – Oct. 74, Oct. 78 – Jan. 80, Aug. 90 – Oct. 90)

Source: Datastream Thomson Financial, Exane BNP Paribas

General Retail

–9.4%

Media

–7.9%

Business Services

Leisure & Hotels

Electrical & Mechanical Equipment

–4.7%

Automobiles

–14.7%

–18.9%

–24.4%


GLOBAL INVESTOR FOCUS

Energy—10

Breaking global dependence

on oil will take decades

The surge in oil prices in the first half of 2006 has once again shifted the spotlight from fossil fuels

onto alternative energy. This trend is hardly new. The burning question is: how long will it take before

these non-oil energy sources can pick up the slack?

Lars Kalbreier, Credit Suisse Head of Equity Trading Research / Hervé Prettre, Trading Strategist, Equity Trading Research

Rising worldwide demand for energy makes alternative energy attractive,

especially when oil prices top 70 dollars a barrel. Despite

the urgent need for viable sources of alternative energy, it will take

decades to wane the world from petroleum – even if the prices reach

new heights. The increase in prices seen since 1999 has not been

a major deterrent for oil consumption; on the contrary, global oil

consumption has tripled since then. The price of oil may have tripled

in the last six years, but the global economy has only grown by an

annual rate of 4.0% in the same period. Because rising oil prices

only have a marginal effect on economic growth, most countries

have found little reason to limit their consumption of crude oil. Only

a long-term rise in oil prices will provide the incentive to develop new

technologies and implement alternative energy sources.

In the 1970s, companies were forced to reduce their oil intensity

because of a supply shock. Today, we face a demand shock. In

the early 1970s, the nationalization of oil assets by several Gulf countries

did not change much in the law of supply and demand. At the

end of the 1970s, the drop in Iranian supplies following the Islamic

Revolution and exaggerations about the new regime’s zeal to export

its revolution triggered a spike that only lasted a few quarters.

Saudi Arabia’s dedication to the USA, energy saving programs, declining

economic growth in Western countries and the tapping of

new oil supplies, like those of the UK and Norway, and later from

Russia, defused the crisis.

Today, sharply rising demand and limited production capacities

are contributing even more to higher oil prices. The situation is

exacerbated by the increased frequency of natural catastrophes, like

Hurricane Katrina. The market is concerned that supply will not keep

up with demand. This time, the oil crisis is a long-term structural

issue, and sustainable solutions lie in alternative energies.

Natural gas: Finally getting worldwide market status

Among the fossil fuels, natural gas is expected to jump in use in the

coming years, as its main use for heating and cooking is highly correlated

with the growing world population. Its substitutable properties

to oil make it the clear winner of a possible oil shortage. Ample

reserves are even likely to encourage end users in Western countries

to favor gas over oil for energy independence purposes. >


GLOBAL INVESTOR FOCUS

Energy—11

In 2004, wind energy in California (above) amounted to 1.5% of the state’s gross system power, according to the California Energy

Commission. In contrast, European Union officials are targeting wind energy to account for 22% of alternative energy generation by 2010.


GLOBAL INVESTOR FOCUS

Energy—12

Finally, natural gas is expected to become a worldwide market

thanks to the Liquefied Natural Gas (LNG) technology. LNG is

expected to be the key growth driver in natural gas consumption.

Since the USA is likely to boost its net imports of gas in the coming

years to offset its depleting reserves, long haul transportation of

natural gas is set for a major expansion. The only viable means of

transporting natural gas is by converting it to LNG, which requires

a liquefaction plant at the departing harbor and a re-gasification

plant at the incoming harbor. According to the International Energy

Association (IEA), natural gas is expected to move from 21.2% of

total energy demand to 25.8% in 2030. World primary consumption

of gas is projected to grow at an average annual rate of 2.7% from

2003 to 2020, and then 2.4% by 2030. Consumption is expected

to jump from 2.1 billion tons to 3.5 billion tons in 2020. In most

regions, demand for gas is growing primarily to meet power generation

needs.

Coal: Demand fueled by three key catalysts

Coal, which accounts for more than half the electricity generated

in the USA, remains the cheapest and most abundant fossil fuel in

the country. Coal is likely to be moved by three catalysts in the short

term. With domestic energy security under ever increasing scrutiny,

coal is likely to become a dominant player in US energy supply.

According to IEA Coal Research, world coal reserves are 985 billion

tons, enough to last 200 years at current production levels. Four

countries account for more than 60% of total world coal reserves:

the United States at 25%, Russia at 16%, China at 11%, and Australia

at 9%. China accounts for 33% of world coal demand, as the

share of coal in total Chinese energy demand is close to 70%.

China and India are expected to constitute more than two-thirds of

incremental demand for coal in the next 20 years.

Nuclear energy: Gearing for a comeback

Nuclear energy still represents 23% of electricity generation in

OECD (Organisation for Economic Co-operation and Development)

countries. This forgotten energy source will likely face a comeback

due to a combination of growth drivers:

The Kyoto Protocol requires OECD countries to reduce carbon

emissions. Today, the market share of carbon-emitting power production

(coal, gas, oil) is 65%, and is assumed to account for 45% of

global energy-related CO 2 emissions by 2030. As signatory countries

have to comply with the Kyoto Protocol, it is likely that they will revise

their policies regarding nuclear power. Unlike most fossil fuels, costs

are expected to remain stable, due to the ample uranium resources

(estimated at 200 years) and their safe geographic location (twothirds

of reserves are in OECD countries).

Existing nuclear power plants need to be renovated. The Western

world’s nuclear plants were mainly built during the 1960s–1990s.

The focus of nuclear power plant builders is expected to shift back

to western countries around 2015–2020, when the nuclear base

there will have to be modernized (a nuclear plant has a lifetime of up

to 50 years). As a result, the market for nuclear energy equipment is

expected to jump in the coming decade.

>

Figure 1

Primary energy intensity by region

Source: IMF, Credit Suisse

0.25

0.20

0.15

0.10

0.05

Toe per USD 1000 of GDP

using PPPs

0

71 74 77 80 83 86 89 92 95 98 01 04 07 10

World

China

India

USA

Eurozone

In the 1970s, companies were forced to reduce their oil intensity.

Figure 2

Petroleum consumption from 1983 to 2005

Source: International Energy Agency (IEA)

12000

10000

8000

6000

4000

2000

Petroleum consumption

in thousands of barrels per day

0

83 85 87 89 91 93 95 97 99 01 03 05 07

India and China

Japan, South Korea, Thailand, Taiwan, Singapore

India’s and China’s oil consumption is rapidly catching up with more

developed Asian countries.


GLOBAL INVESTOR FOCUS

Energy—13

According to IEA Coal Research, world coal reserves are 985 billion tons, enough for more than 200 years at current production levels.


GLOBAL INVESTOR FOCUS

Energy—14

Wind energy: Developing into a viable energy source

Thanks to sustained support from governments, especially in

Germany and Spain, wind energy has become a viable energy source,

serving 0.3% of world energy needs. IEA estimates target a 3%

market share for wind energy by 2030. Germany is the most advanced

of all countries in wind deployment, with a target of 10% of all energy

needs by 2010, up from 6% today. There is potential for even

more rapid growth in the future due to a combination of factors:

The Kyoto Protocol, which requires less CO 2 emissions.

The technological breakthrough in windmills, where the use of

lighter and more resistant alloys can enable the rapid installation of

mini mills in private homes.

The recent development of offshore mills, which have almost 24-

hour wind exposure (unlike the inland mills, which often suffer from

the lack of wind). This could make wind energy cheaper than coal

or natural gas.

The decision by several countries, especially in Europe, to give a

strong backing to wind energy. European Union (EU) officials are

targeting wind energy to account for 22% of alternative energy

generation by 2010, up from 14.5%. For 2030, Europe endeavors

to have 50% of its total alternative energy stemming from wind.

By the end of 2006, we should see around 80,000 megawatts

of installed wind-energy capacity worldwide. Germany has the largest

share of the global wind energy market (30%), followed by Spain

(18%) and the USA (16%). Market growth should be around 22%

this year. Wind energy is expected to grow by an annual rate of 15%

by 2010, according to Credit Suisse Research, and slightly lower

according to the IEA (18%).

Power from wind-driven turbines sounds easier than it really is.

Wind-energy plants are prone to breakdowns and require extensive

maintenance. Weather conditions, salt and highly unpredictable wind

speeds can ravage windmills. For these reasons, wind farms are

considered to be less reliable than hydroelectric, biothermal, nuclear

or fossil-fuel-fired plants, which are capable of providing a more

constant flow of power. More growth potential is possible thanks to

the expected improvement of batteries and storage capacities, however

a high share of wind power is still lost since wind is unpredictable.

Overall, wind farms have potential for efficiency improvement

via new alloys, improved size and optimized location.

Figure 3

OPEC spare capacity

Source: Datastream, CEIC

12

10

8

Millions of barrels per day

Solar energy: Emerging as a growth sector

Solar power is the conversion of sunlight into electricity using photovoltaic

technology or solar thermal power. The solar industry has now

reached critical mass and should be able to benefit from increasing

economies of scale in the coming years. With a market volume of

USD 7 billion growing at a rate of at least 20% to 25% per year for

the next 10 years and expanding profit margins, solar power will

increasingly drive shareholder value for numerous companies. The

coming years will most likely mark the transition from a highly subsidized

niche industry to a mature self-supporting economic sector.

The solar industry is also increasingly going global. After initially

spreading roots in Germany and Japan, it is gaining foot in China,

South Korea and several US states, in particular California. >

6

4

2

0

70 74 78 82 86 90 94 98 02 06

Alarmingly, oil prices continue to be at high levels, although

OPEC is producing almost at full capacity.


GLOBAL INVESTOR FOCUS

Energy—15

Solar energy panels for Luz International, Inc. collect sunlight, which reflects off mirrors into tubes containing oil. The oil is heated and then

pumped into a heat exchanger, which heats water into steam. The steam turns the turbines, thereby producing electricity.


GLOBAL INVESTOR FOCUS

Energy—16

Other countries such as Portugal, Spain and Italy look set to follow

in their footsteps. The solar industry will remain heavily dependent

on public subsidies for the next 10 years in these countries as well.

The solar industry is benefiting from several positive trends that look

unlikely to reverse in the near term:

Increased government backing, as public opinion is sensitive to

environmental issues such as global warming.

Efforts to reduce CO 2 emissions outlined in the Kyoto Protocol.

Rising oil and energy prices.

Low interest rates in most developed countries.

More importantly, many companies in the sector are achieving

profits for the first time this year and margins will continue expanding

through 2007, driven by a 5% annual reduction in costs. The result

is that the solar power market has realistic potential to expand from

USD 7 billion in 2004 to USD 30 billion in 2010, with the industry’s

profit pool expanding from USD 0.8 billion to USD 3 billion .

Japan and Germany are the world’s two largest solar markets,

accounting for nearly half of the global installed solar power capacity.

In both markets, solar power now is competitive with the residential

power grid price thanks to public subsidies. In Germany, the government

instituted buyback rates for solar power of USD 0.69/kWh

compared with normal grid rates of USD 0.17/kWh. The current Alternative

Energy law (EEG) guarantees this tariff for 20 years, with 5%

annual decreases in the buyback rate. In Japan, the government provides

payouts to individual households that purchase solar systems

and banks offer consumer loans or mortgages with 1% to 2% point

reduction for solar homes. With residential power prices averaging

USD 0.25, solar electricity is becoming a competitive energy.

Geothermal energy: Potential is in the facts

Geothermal energy is the thermal energy stored in rocks and fluids

in the earth’s interior. When trapped underground, geothermal reservoirs

can reach temperatures of 370 degrees Celsius. The heated

water then ascends to the earth’s surface, where it can be extracted

by drilling geothermal wells. The energy necessary to operate

a geothermal power plant is typically obtained from several such

wells, which are drilled using established technology that is similar

to that employed in the oil and gas industry.

Electricity generation from geothermal resources in the USA is

currently a USD 1.5 billion-a-year industry in terms of revenues, and

accounts for 19% of all non-hydropower renewable energy-based

electricity generation in the country. The main markets include

residential heating, as well as agriculture, industry, aquaculture and

balneology.

The first geothermal plant was invented in 1904 in Italy, with

roughly the same basic technology as today’s plants. Drilling needs

can be implemented by the numerous oil drilling companies around

the world. The resources are free and cheap to tap. CO 2 emissions

are close to zero.

Geothermal energy has become competitive with natural gas electricity

producers, mostly on the back of subsidies: Under the American

Jobs Creation Act of 2004, geothermal power companies are allowed

to claim a “production tax credit” of 1.8 cents per kWh on electricity

Figure 4

Energy demand: Expected annual growth

rates until 2010

Source: Credit Suisse estimates, IEA

30

25

20

15

10

5

0

%

Total energy

Oil

Natural gas

Nuclear

Energy demand is likely to remain high, led by alternative energies.

Figure 5

Nuclear power: A competitive energy source

Source: Finnish study (2000), European Commission study

100

90

80

70

60

50

40

30

20

10

0

Total cost in EUR/MWh*

32 55

50 1

External costs incurred by the environment (emissions,

dispersion and ultimate impact) make nuclear power appear

even more competitive.

Coal

31 19

Coal Wind Gas Biomass Nuclear

Hydro

Production costs (source: Finnish study)

External costs*

Wind

33 14

Bioenergy

Geothermal

24 4

Solar


GLOBAL INVESTOR FOCUS

Energy—17

produced from geothermal resources. Finally, the limited environmental

damage associated with geothermic energy pushed several states

into mandating its use. As a result, a recent forecast of the US

Department of Energy projects the addition of geothermal installations

with generating capacity totaling 6.8 gigawatts by 2025, a 50% jump

from today’s levels in the USA alone.

Bioenergy: Rediscovering a forgotten source

Bioenergy is not a new source of energy, just a forgotten one. The

first automobiles were fuelled with alcohol, and then during the Great

Depression in the 1930s, soft commodities exporters used their

reserves as fuel, like Brazil using coffee to power its steam locomotives.

During World War II, German troops used “ersatz” fuel to

overcome the lack of oil. The largest use of fossil fuel on a significant

scale was the famous “Pro-alcohol” plan in Brazil during the 1970s.

This plan intended to replace conventional gasoline with sugar cane

alcohol. With 90% of cars equipped at the end of the 1990s, the

plan turned out to be a real success. While this plan was penalized

by lower oil prices in the 1990s, it has gained popularity in the past

few years. The Brazilian government revisited the plan because of

higher oil prices and launched a major new initiative to switch from

gasoline to ethanol two years ago.

With the recent sustained high level of oil prices, bioenergy has

become an opportunity again. The fact that it is mostly mixed with

gasoline makes biomass an easy alternative. Major countries have

started implementing ambitious plans for future biomass use.

The bioenergy market is divided between ethanol, a substitute for

gasoline, and biodiesel, a substitute for diesel. The 42 billion ethanol

market is dominated by Brazil and the US, producing together 69%

of world ethanol output. Brazil itself produces 15 bn liters of ethanol,

mostly based on sugar (50% of domestic sugar production is converted

into ethanol). The US produces 14 bn liters, mostly from corn.

The biodiesel market is much smaller: 2.2 bn liters. Europe has by

far the lion’s share of it, with Italy, Germany and France representing

more than 80% of world output.

Output costs of ethanol are USD 0.60 per liter in Europe, USD

0.30 in the USA, and USD 0.23 in Brazil. This has to be put into

perspective with gasoline prices. Output costs of gasoline are USD

0.2 per liter based on a price of USD 25 per barrel of crude and

roughly three times that amount when oil costs USD 60 a barrel,

according to the Institut Français des Pétroles. Therefore, ethanol

becomes highly profitable with oil prices at their current levels, mainly

in Brazil. In Europe and the USA, producers have so far refused to

make large-scale investments in ethanol distribution due to the uncertainties

associated with oil prices. On the contrary, in Brazil, all the

equipment is already installed, due to the efforts of the 1970s.

Major countries have introduced targets for bioenergy use, with

a view to reducing oil dependency and boosting local agribusiness.

Europe targets 5.75% of total gasoline consumption to be fed by

bioenergy by 2010, from an initial target of 2% in 2005. Biodiesel

is privileged, thanks to significant tax incentives. The USA has

similar objectives, with 4% of transport fuel to be derived from bioenergy

by 2010, and 20% by 2020

Figure 6

LNG shipping fleet

Source: IEA

400

350

300

250

200

150

100

50

0

Number of ships

Liquefaction project developers

Oil & gas companies

Projected

A six-fold increase in LNG trade between 2002 and 2030 will call

for massive investment in new carriers.

Figure 7

Global gas investment

Source: IEA

120

100

80

60

40

20

0

Billion dollars per year

On order

in 2001

in operation (2001) additions 2002–2030

Exploration & development

Distribution

Storage

LNG buyers

Ship owners

1991–2000 2001–2010 2011–2020 2021–2030

Transmission

LNG

E&D will continue to account for most gas investment, but the share

of LNG is jumping in the current decade.


Global Investor focus

Energy—18

Kyoto and Emissions Trading:

The Invisible Green Hand

Just about everything in the world today has a trade value, including emissions. Under the Kyoto

Protocol, 141 countries are legally bound to significantly reduce emissions by 2012. Emissions trading

takes a business approach to reaching this goal, and opens up new opportunities for investors.

Miroslav Durana, Trading Strategist, Credit Suisse Equity Trading Research, Roger Signer, Trading Strategist, Credit Suisse Equity Trading Research

Four years ago, 2000 scientists from 100 countries reported to the

UN-sponsored Intergovernmental Panel on Climate Change (IPCC)

a very clear message: Unless the world’s industrial nations cut their

use of carbon fuels by 70% in a very short time, climate change

would result in different regions by becoming wetter, drier, hotter or

colder with increasing severity. Natural and man-made catastrophes

caused overall economic losses, including property, infrastructure,

business interruption of around USD 230 bn worldwide in 2005

compared to 105 bn in 2004, USD 65 bn in 2003 and USD 40 bn

in 2002, according to Swiss Re.

When it came into force on February 16th 2005, 141 Nations

had ratified the Kyoto Protocol. The agreement legally binds its parties

to reduce collective emissions of greenhouse gases by 5.2% by

2012 compared to 1990 levels – this target represents a 29% cut

compared to the emission levels expected by 2012 without the Protocol.

The emission reduction targets were differentiated to reflect

national circumstances such as climate, geography, demographics,

development patterns, available energy resources and were subject

to political negotiation. Despite its shortcomings, Kyoto is still a

groundbreaking agreement in that it offers an alternative to traditional

regulation. The protocol does not use stringent regulation to

accomplish the targeted reduction, as is often the case in environmental

politics. Instead it relies on trading with so-called emission

certificates and embraces market mechanism to tackle environmental

issues. This is intended to be done in the following manner: First,

the Protocol formulates a general worldwide amount of emissions

for the parties of the contract. The countries, in a second step, allocate

the emissions to the companies by issuing certificates that

allow the emission of a certain amount of greenhouse gases.

The companies are now allowed to trade those certificates according

to their business plans, making emission certificates another

production factor that has to be considered in the companies’

economic decisions. This takes the issue of energy efficiency right

to the top of the companies. In fact, the invisible hand of the Scottish

economist, Adam Smith, is allocating the emission reduction to that

companies that can achieve it most cost-effectively, and hence hurts

the economies the least.

In order to comply with the Kyoto Protocol the European Union

put into effect its new rules concerning carbon-dioxide emissions

on January 1, 2005. Under the EU Emission Trading Scheme so-


GLOBAL INVESTOR FOCUS

Energy—19

called EU Allowance Certificates (EUA) are issued to companies

according to the corresponding National Allocation Plan (NAP) allowing

them to emit a certain amount of Greenhouse Gases: One

Allowance Certificate officially entitles the holder to emit 1 ton of

CO 2

. In the case that an operator does not hold sufficient allowances

to meet its total emissions at the compliance date, a penalty

of per excess ton will apply. Companies not emitting as much

as allocated by the government can sell the spare certificates to

companies that cannot meet their target.

Free markets can handle environmental issues

The vast majority of the EUAs (c. 80%) are traded over the counter

at the moment, with the remaining 20% of EUAs being traded on

one of five exchanges: the European Climate Exchange, Nordpool,

Powernext, EXAA and EEX.

Exchanges provide market participants with a venue to buy and

sell EU allowance certificates and futures like any traditional commodity

– like trading with oil. Volumes have been growing surprisingly

quickly since the launch of the trading scheme and futures

contracts on the Emission Certificates have been added to trading.

The compliance phase 1 which started trading on 1 January 2005

covers 2.1bn tons of CO 2

emissions – around 42% of what is produced

by the EU.

The trading scheme impacts the economy by creating added

costs for polluters to buy emission certificates and, hence, incentives

to invest in emission-lowering technologies. These factors change

the competitive landscape within industry sectors and lead to higher

sales prices and higher purchase cost, especially concerning

electricity. Furthermore, it becomes geared to the oil price as substitution

of oil or gas by coal becomes more expensive because of

coal’s higher CO 2

emissions to produce one unit of energy.

Emissions trading opens a new global market

The first 18 months of EUA trading were marked by rising prices due

to a lack of selling by factories, which drove EUA prices to record

levels of EUR 30. However, since the end of April 2006 EUA prices

have fallen over 70% on speculation that a surplus of allowances

might develop for phase 1 through 2007. Besides political decisions,

oil, gas and coal prices are the most important price drivers of CO 2

allowances (see Figure 1) Carbon dioxide permit prices may be

relatively volatile for the rest of phase 1, mainly due to the expected

volatility in fuel prices, relatively low trading volumes, uncertainties

linked to National Allocation Plans and the impact of Russia and the

Ukraine in Phase 2. In addition many factories across Europe may

be forced to sell their surplus before the start of Phase 2.

Moreover, Europe is not the only place where emissions are

traded. In the US, trading with sulphur dioxide emission allowances

was established in 1995. Furthermore there is carbon emission trading

on a non-compulsory basis on the Chicago Climate Exchange.

By 2012, more countries that signed up to the Kyoto Protocol are

expected to have their own emission trading schemes established,

and especially for developing countries it could be interesting to join

international emission trading as it is argued that there is a relatively

large potential to accomplish cheap emission reductions which

could be sold to OECD countries where it is harder to reduce emission.

It seems a new global market of high importance to economic



Figure 1

EEX period 1 allowance spot price

Source: Bloomberg

35

30

25

20

15

10

5

0

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

EUR

22/04/05

18/05/05

14/06/05

11/07/05

05/08/05

01/09/05

28/09/05

25/10/05

21/11/05

16/12/05

12/01/06

08/02/06

07/03/06

03/04/06

28/04/06

25/05/06

12/06/06

18/07/06

14/08/06

08/09/06

05/10/06

01/11/06

28/11/06

Million tons of CO 2

EEX period 1 allowance spot price

Figure 2

Energy-related CO 2 emissions by region

Source: International Energy Agency

71 80 90 00 10 20 30

World

OECD

Transition economies

Developing countries


GLOBAL INVESTOR FOCUS

Energy—20

Energy is the No. 1 challenge

to sustainable development

Today, renewable energy accounts for only 11% of our current energy use. In order to safeguard

our future and that of the planet, renewable energy must become the source of power for the future.

Energy choices are not only the responsibility of governments, but also of the public. Making

the right choices now is the right step toward combating global warming and its disastrous effects.

Roselyne Bachelot-Narquin / former French Minister for Ecology and Sustainable Development and member of the European Parliament

There can be no development without energy, and yet, this is also

one of the main sources of pollution and natural resource depletion.

Global warming has finally become a dominant topic of the international

agenda now that it is apparent that the resulting ecological

chaos will lead to considerable political and social crises in the future.

Energy choices are at the heart of sustainable development

policies. These choices must form part of the democratic debate,

based on active education of the general public. The public should

be informed of the advantages and disadvantages of available alternatives.

In this context, one major challenge facing public policymakers

is how to break the link between economic growth and the

harmful effects associated with energy consumption. No government

in the world has truly taken on board measures that will bring

about the necessary policy revolution. At best, policymakers describe

phenomena, set targets, sound the alarm, and find scapegoats,

while changing nothing, or putting in place only cosmetic

measures. At worst, there is a prevailing cynicism and negligence,

illustrated by the refusal to sign even the most modest of international

agreements, such as the Kyoto Protocol.

Actions speak louder than words

France is a good example of a country with strong rhetoric on

global warming and commitments at issue level. As indicated in

its 2004 Climate Plan, France believes that the concentration of

carbon dioxide in the atmosphere should not surpass 450 ppm in

order to prevent more than a two degree Celsius temperature rise.

This equates to halving world greenhouse gas emissions by

2050, and reducing French emissions over the same period by 75%.

This sounds promising, however, the public policies being implemented

are extremely modest. Crude oil had to reach 70 dollars a

barrel before an ambitious objective of incorporating biofuels was

proposed.

Meanwhile, it is deplorable that the French State has sold its

shares in motorway companies when the profits from these should

be set aside to finance alternatives to road infrastructure. It must be

stressed that road transport is responsible for 30% of carbon dioxide

emissions, and that these are increasing at an alarming rate: up

21% between 1990 and 2001.

We must admit that, despite its rhetoric, France is not currently

in a position to meet its commitments under the Kyoto Protocol, since

it has failed to keep to the timetable set by the previous national plan

to address climate change.

The other European countries, too, must strengthen their credibility

by abandoning their doublespeak. How can they boast of their

progress in developing so-called clean energies when their electricity

production is also based on coal, the most polluting of fossil fuels?

How can they hypocritically preach an abandonment of nuclear

fuel when they turn to France when supply is short?


GLOBAL INVESTOR FOCUS

Energy—21

The challenge for Europe is clear: to reduce carbon dioxide emissions

by 5.2% between 1990 and 2010 – the Kyoto Protocol target – and

then by 75% by 2050.

This objective requires a proactive and three-pronged approach:

increased efforts aimed at reducing energy consumption, revitalizing

the nuclear energy sector (the least polluting of the basic energy

sources), and promoting the large-scale development of renewable

energies.

Some believe that efforts to reduce energy consumption will

have only a modest impact. In reality, the savings can be considerable,

but achieving these savings requires implementation of a broad

array of initiatives. Energy sector companies will be encouraged to

invest in steps to reduce consumption by measures using mechanisms

such as tradable energy saving certificates. The new attitude

of European citizens must stretch to all aspects of their life, from

using public transport and non-polluting vehicles, to building and

renovating in line with standards of environmental preservation, to

favoring thrifty energy approaches throughout life. Far more information

and public debate will be required for this, along with public

measures involving both the carrot and the stick. This will be a superb

opportunity for participatory democracy.

It would be utopian to believe that the developed nations will

sacrifice growth and full employment for purely environmental considerations.

Growth is more or less directly related to the amount of

energy used by a society and its production system. It will therefore

be necessary to produce more energy, while emitting less greenhouse

gases. The nuclear energy sector can offer this and, as such,

is an essential component of the panoply of European energy

sources that must be revitalized. The technological innovation of

nuclear fusion will play a major role in the nuclear power of tomorrow.

China and India, tomorrow’s giants, have already embarked upon

this nuclear path. There is, however, a price to be paid for the undeniable

advantage of zero greenhouse gas emissions. There are risks

related to technological mastery of the nuclear chain – risks already

present in the state of some of the power stations in eastern European

countries. There are also inherent risks for the future as a

result of waste production. These risks are far from insurmountable.

The first steps are responding to Europe’s safety requirements, in

accordance with the principles of the Aarhus Convention, which

France has incorporated into its Environment Charter.

nature of renewables, and in loadable form, revolutionizing the transport

sector. This sector will still rely heavily on fossil fuels, but biofuels

and “clean” vehicles will limit the environmental impact.

There should be no illusions about hydrogen in the medium term.

It will most certainly take until the second half of the century to see

the great hopes raised by France’s International Thermonuclear

Experimental Reactor (ITER) project being met.

The future is now

Doubters of the absolute necessity to increase the contribution of

renewable energies will find this fact illuminating: in France, electricity

consumption will increase by 60 billion kWh per year between

now and 2010, and the market trend could be to supply this energy

through gas turbines emitting carbon dioxide.

We are not limited to increasing this contribution through wind

power, any more than these energies are limited to producing just

electricity. They can also produce heat and fuels. All renewable

energies will therefore be needed in order to raise their share of

total energy production well beyond the 21% of the European directive,

ideally coming closer to 30%.

To rise to this challenge, we must accept that the laws of the

market alone will not be enough to develop renewable energies. The

only way forward is to substantially increase their use in order to

achieve economies of scale. Questions must also be raised with

regard to feed-in tariffs so that instruments can be constructed that

assist market entry and the industrialization of renewable energies,

even if we have to recognize the fact that there is no effective incentive

method for heat production.

Involving the public while ensuring that the environmental impact

of these energies is neither overlooked nor exaggerated must go

hand-in-hand with solutions addressing their intermittent nature by

minimizing costs and finding new storage methods, and instituting

appropriate tax and financial instruments.

Renewable energies will no doubt continue to surprise us in the

years to come. Preparing for the future means investing in support

of technological innovation around the immense possibilities, both for

the general public and for the European industrialists. And Europe

is indeed the right size to achieve this objective. Renewable energies

clearly constitute the major project for sustainable development over

the coming century.


Renewable energy must be increased

By 2020, the European electricity-system framework will still be a

vast network responsible for balancing production between large

electrical power stations. By then, some of these power stations will

perhaps be based at sea, using the energy of the waves, the tide or

the wind. Others will be based on land, with wind farms, furnaces

using biomass waste produced locally, or other renewable sources

such as the wind, sun or geothermal power. The market and the

technology must be capable of handling the intermittent nature of

this production via back-up or storage capacity. In order to do this,

energy policy will also have to address integrated management of

the European electricity network.

There will also be more microgeneration, coming from fuel cells

or solar cells in buildings and from cogeneration. Fuel cells will

likely play a key role, initially in static form in buildings or industry,

then as a means of storing energy to compensate for the intermittent

Disclaimer: The views stated herein do not necessarily reflect the views of Credit Suisse.

“This interview was originally published in November 2005”.

“It would be utopian to

believe that the developed

nations will sacrifice

growth and full employment

for purely environmental

considerations.” Roselyne Bachelot-Narquin


GLOBAL INVESTOR FOCUS

Energy—22

No debate about the need for

alternative energy sources

Expert discussion > The global community is confronted with a myriad of growing environmental

problems linked to the overwhelming consumption of fossil fuels. What can be done to stem the years

of abuse? Four experts joined a discussion to shed new light on a topic that has been debated

for the past 30 years.

The following discussion was moderated by Lars Kalbreier, Head of Equity Trading Research and Hervé Prettre, Trading Strategist

Christian Ferrazino, Administrative Councillor, Geneva / Hubert Reeves, Astrophysicist / Celina Maria do Valle Pereira, Brazilian Ambassador

to Switzerland / Rainer Scherwey, Head of Real Estate Development, CSAM

Lars Kalbreier: What do you think should be the main goals of

energy policies? Would it be better to save energy or to develop

alternative energies? Or, a combination of the two?

Christian Ferrazino: The most ecological form of energy is

power that we do not consume!

This means that an energy policy focused on renewable energies

must, above all, research and exploit the potential for economies

and the reduction of energy consumption levels. The energy policy

we have detailed for the city of Geneva has already enabled us to

reduce consumption of energy associated with heating our buildings

by 40% over the last 30 years. Today, new energy-efficient building

techniques enable us to reduce the energy consumption levels of

these buildings by 50% or even 75%, at an equivalent cost and with

a superior level of comfort.

In terms of alternative energy sources, we are maximizing our

development of solar energy, which is passive to the extent that it

draws on natural light and simultaneously boosts our calorific contribution,

and active through the provision of clean, hot water. Various

other avenues are being explored, for example, we are constructing

our first wood-fired heater. For its part, the Canton of Geneva has

developed a large-scale program of wood and conventional geothermic-based

heating, in addition to heating projects based on renewable

energy, for example, “Genève Lac Nation”. These projects will

result in the development of a significant infrastructure destined to

nurture energy distribution networks, ostensibly in suburban areas.

Hubert Reeves: Conserving a habitable planet for mankind has

to start small. A drop of water is trivial. But if you turn off the tap

while cleaning your teeth, you will have saved liters of water. If millions

of Europeans do the same, we will have helped to conserve an

incredible subterranean lake! As far as energy is concerned, the

more people who read books and periodicals on the subject, the more

they will begin to become interested in solar-driven water heating and

perhaps this will trigger the decision to install a solar water heater.

We have to get inside the “mindset” of an enlightened consumer.

Every citizen, whatever his or her age, is an agent of change. At the

same time, industrial consumers who decide on renewable energy

sources will no longer be at the mercy of oil. If we do not act on this

front, our own or subsequent generations will be severely >


GLOBAL INVESTOR FOCUS

Energy—23

The Blue Lagoon, Iceland: This man-made lagoon was created by run-off from the Svartsengi power plant, which pumps up the geothermally

heated water from a mile below the surface. After being used to generate both heat and electricity, the excess water flows into the lagoon.


GLOBAL INVESTOR FOCUS

Energy—24

“Every citizen is an agent of change. So too, are industrial

consumers who decide on renewable energy sources in order

to reduce dependence on oil.”

Hubert Reeves, Astrophysicist, bestselling author, and environmentalist

disadvantaged when the oil wells dry up. Companies specialized in

materials utilizing solar power have a splendid future. They have the

time to take advantage and develop the most commercially viable

technologies. I include wind power in this category. Modern windmills

are turning to create a better future for us all.

Celina Maria do Valle Pereira: The Brazilian Government has

just authorized the commercial use of a new fuel. Brazil will now begin

commercial production of biodiesel, a fuel obtained from raw materials

such as castor beans, soybeans and oil palm. With biodiesel, Brazil

embarks on a new cycle in the energy sector, reinforcing the promotion

of renewable sources and of the diversification energy matrix.

The introduction of biodiesel to the domestic market is an important

example of development of alternative energies that will help to

protect the environment.

Hervé Prettre: With regard to government awareness, how do

you judge the current measures taken by governments and the outcome

of the international agreements, such as the Kyoto Protocol?

Christian Ferrazino: Totally inadequate! The reduction in greenhouse

gas emissions must be subject to universal regulation – clear,

pragmatic and efficient – such as the obligation for all new buildings

to conform to the most stringent standards in terms of energy efficiency

and exploiting the potential for “softer” forms of energy.

By the same token, in the area of transportation, fiscal or regulatory

incentives could have a decisive influence on end demand and

hence the development of an automotive sector that is firmly centered

on respect for the environment.

That said, the refusal of certain nation states to apply the Kyoto

treaties serves to highlight the crucial role of cities and local authorities

in this area. The American example is eloquent on this subject:

confronted with the refusal of the federal government to ratify the

Kyoto Protocol, a number of US cities, including New York and

Washington, committed themselves to realizing the targets laid out

in the protocol.

Lars Kalbreier: Governments have been talking about the

necessity to save energy for the past 30 years. What will it take to

get people to listen this time?

Hubert Reeves: Parents’ responsibility goes way beyond

that of the previous century. It is no longer sufficient to take care

of material and educational needs. It is also their responsibility to

save our natural environment by dramatically curtailing greenhouse

gas emissions, and protecting biodiversity by preventing its

erosion.

Only by embracing this responsibility will our children and our

children’s children enjoy the kind of conditions that will be acceptable

in the decades ahead. The 20th century made all of us voracious

consumers of oil and chemical-based products. Our ingrained habits

are a serious handicap.

We have to change many of our habits. But why should we? Our

lives are not in danger.

Life can exist in both extreme cold and heat. Yes, but in what form

of micro-organism? Human life cannot readily withstand extreme

cold or heat.

Life is neither threatened by floods nor drought. Buried seeds can

await rain for years. But flash floods can often uproot houses and

their occupants, and drought conditions mean that we are deprived

of our most vital natural resource: water.

To make a proper assessment and establish reliable forecasts on

the extinction of species, I cite natural scientists and researchers in

biology and ecology. For some time, they have provided alarming

evidence of the progressive extinction of species. The United Nations,

for example, foresees a loss of 25% of the earth’s mammals and

12% of bird life.

Hervé Prettre: So the situation is becoming alarming, do you

think we are witnessing a big change in people’s mentalities?

Christian Ferrazino: When the citizens of Geneva are invited

to express their views on energy-related questions, they will surely


GLOBAL INVESTOR FOCUS

Energy—25

“The car is the servant of our urban

environment, not its master.”

Christian Ferrazino, Administrative Councillor and Head of Town Planning

and Development for Geneva and former mayor of Geneva

make the right choice. In 1986, the people of Geneva came out

against the development of nuclear energy in Switzerland in voting

for a 10-year moratorium. More recently, they have also been opposed

to the liberalization of the electricity market.

The objectives of a more environmentally friendly energy policy

and the development of renewable energy are consistently supported

and shared by a clear majority. The demand for renewable energy

is increasingly important for Geneva, notably via the rating system

“SIG – Vitale Vert.” Here again, the city of Geneva is exemplary: all

buildings conforming to the most stringent standards of energy efficiency

are powered by electricity of this type, i.e. its renewability is

guaranteed by a quality assurance certificate.

The surge in oil prices and consequently gas has meant that

energy and environmental issues have become of great concern to

citizens. One could even argue that some of our citizens feel themselves

in a state of shock. Such situations necessarily lead public

authorities to take the lead and change course dramatically.

Hubert Reeves: Human life is intimately bound to other life

forms. The example of the apple gives us unmistakable evidence.

Nature requires apple trees and bees in order for the flowers to be

impregnated and yield fruit. This process is disturbed by the over-use

of insecticides which means that there are no longer any apples

to harvest.

Habits simply have to change. All citizens, whatever their age,

are agents of change.

Rainer Scherwey: We think that environmental awareness has

changed in the last few years. The “Minergie” label, a quality label

for new and refurbished buildings that was launched in Switzerland

seven years ago, is now increasingly accepted by tenants, investors

and partners of the construction industry. Investors benefit from

greater preservation of real estate values. The significant reduction

in energy consumption preserves the environment and reduces

operating costs. For tenants, “Minergie” means above all an increase

of comfort and quality of life.

Hervé Prettre: What should we do in the short term?

Christian Ferrazino: The policy of the Canton of Geneva aims

at promoting renewable energy in general (hydraulic, electronic,

biomass, geothermic) within the framework of a strategic plan that

envisages the attainment of the following objectives during the period

from 2010 to 2015:

For combustible and carbon based fossil fuels, a reduction of 10%

in consumption and CO 2 emissions relative to 1990.

For electricity, maintaining the 1990 level of consumption.

For its part, the city of Geneva, procures 100% of its electricity

supplies from local energy sources that are not petrol-, gas- or nuclear-based

(for example, “SIG Vitale Jaune” – electricity produced

by hydroelectric factories owned by the Canton and by its incineration

plant out of waste material from Cheneviers).

Hubert Reeves: The most important gestures are decisions

by the government, local cooperatives or private enterprise. These

decisions are all the more likely to be taken if the electorate actively

approves them. Large-scale companies are very adept at capturing

the aspirations of our society. It is better to raise the alarm than

remain passive. It is better to play “Cassandra” and act now to head

off calamity, than blindly wait for events to unfold. It is better to have

someone at the rudder than let the ship steer off-course.

Hervé Prettre: Little seems to have been done in Western

countries as far as curbing one of the main oil consumers, transportation.

Mr. Ferrazino, you refused to open the Auto Show in Geneva

last year as a protest against the car industry. Do you see yourself

as an activist?

Christian Ferrazino: I have made efforts to be coherent in the

policy that I have adopted so that Geneva does not suffocate under

the weight of increasing road traffic. Symbolic actions are, however,

also important in politics. If we don’t take a stand against the proliferation

of 4x4 vehicles, this suggests that we simply have to accommodate

cars. In this regard, I would point out that several towns >


GLOBAL INVESTOR FOCUS

Energy—26

“Renewable sources currently account for 43.8% of Brazil’s

total energy consumption, compared with a world

average of 13.6%. In developed countries, renewable energy

accounts for only 6% of the total.”

Celina Maria do Valle Pereira, Brazilian Ambassador to Switzerland

and cities, including Geneva, have been shaped by the needs of

motorists. The challenge and imperative today is to reverse this

tendency in order to improve the quality of urban life, where the car

is the servant of our urban environment, not its master.

Hervé Prettre: What measures did Geneva take to reduce

vehicle emissions?

Christian Ferrazino: Unfortunately, none to my knowledge.

Alternatively, very simple and immediate steps could be taken. For

example, reintroducing the Sundays that are car free.

Hervé Prettre: Do you think that mentalities are changing with

regard to energy-hungry cars?

Christian Ferrazino: It is inescapable. The fundamental question

is the pace of the change.

Hervé Prettre: Would you open a hybrid show in Geneva ?

Christian Ferrazino: Switzerland – which has been a pioneer

in making catalytic converters mandatory, and encouraging Europe

to follow us – could also seize the initiative in imposing stricter rules

on a market that remains uncontrolled! For my part, I am ready to

participate in all forms of dialogue relating to modes of transportation

in the 21st century in urban environments and their consequences

for health and the state of tomorrow’s planet.

Lars Kalbreier: The best example of wide-scale achievement

is the biodiesel plan in Brazil. Ms. Valle Pereira, can you define it in

more detail?

Celina Maria do Valle Pereira: Biodiesel is a biodegradable fuel

derived from renewable sources such as vegetable oils and animal fats.

The oil or fat is chemically combined with alcohol or methanol in the

presence of a catalyst. Brazil already produces a wide range of oil seeds

that can be used as feedstocks for biodiesel, including castor beans,

African oil palm, sunflower, babassu palm, soybeans, and cotton.

This fuel can be a total or partial substitute for petroleum diesel to

power diesel engines in trucks, tractors, pickups, and passenger cars,

as well as motors that generate power and heat. Petrodiesel blended

with 2% of biodiesel is known as B2. There are stronger blends,

such as B5 and B20, all the way up to “neat” biodiesel or B100.

Lars Kalbreier: What are the main benefits for Brazil?

Celina Maria do Valle Pereira: According to the Minister of

Mines and Energy of Brazil, commercial use of biodiesel starting with

the 2% blend creates a potential internal market of at least 800

million liters per year for the new fuel in the next three years. This will

benefit Brazil’s trade balance by saving up to USD 160 million per

year thanks to the use of B2 instead of imported diesel.

Brazil currently imports 10% of the diesel it consumes. Because

the many vehicles transport cargo and passengers are powered by

diesel, it is used more than any other liquid fuel, accounting for

57.7% of the total, at 38.2 billion liters per year. Biodiesel can also

be used to generate electricity for isolated communities that currently

depend on generators fired by regular diesel oil. Local oil

seeds can be used as feedstocks to produce biodiesel in these

areas. Biodiesel will also create more jobs in rural areas and in

industry. Many more workers will be needed to grow oil seeds, provide

technical assistance to farmers, and build and operate the

industrial facilities that refine the oil and produce, transport and

distribute the fuel.

Hervé Prettre: It is working in Brazil; do you think there is

potential in other countries?

Celina Maria do Valle Pereira: Biodiesel will help improve air

quality in major cities by reducing the amount of exhaust gas emitted

by vehicles when the fuel is used as a partial substitute for petrodiesel.

The use of biodiesel will also enable countries to meet their commitments

under the Climate Convention, and could be used to obtain

carbon credits in accordance with the Clean Development >


GLOBAL INVESTOR FOCUS

Energy—27

A reactor in France shut down for maintenance. As signatory countries have to comply with the Kyoto Protocol, it is likely that they will revise

their policies regarding nuclear power.


GLOBAL INVESTOR FOCUS

Energy—28

“Thanks to technical progress, the house of the future will

use significantly less energy and satisfy the increasing

comfort requirements of users due to the use of computerized

facility management.”

Rainer Scherwey, Head of Real Estate Development

Mechanism (CDM) established by the Kyoto Protocol. With the

advent of commercial production, Brazil is becoming a potential

exporter of biodiesel, which is already in commercial use in the

United States and the European Union. Given the limitations for

production growth in Europe, Brazilian biodiesel enjoys an unprecedented

opportunity to build market share in Europe. Renewable

sources currently account for 43.8% of Brazil’s total energy consumption,

compared with a world average of 13.6%. In the developed

countries, renewable energy accounts for only 6% of the total

on average.

Hervé Prettre: Let’s focus on another main oil consumer: housing.

Oil use for home heating can be reduced by “Minergie” standards.

Mr. Scherwey, can you tell us more about Minergie?

Rainer Scherwey: Minergie is a quality label for new and refurbished

buildings in Switzerland. Specific energy consumption is

used as the main indicator to quantify the required building quality.

“Minergie” defines several standards for buildings: threshold values

for energy consumption, installation and operation of a mechanical

air recycling plant. In addition, the added investment above similar,

conventionally constructed buildings cannot exceed 10%. Thanks

to technical progress, the house of the future will be provided

faster, use significantly less energy, and satisfy the increasing comfort

requirements of users due to the use of computerized facility

management.

Lars Kalbreier: Is “Minergie” just a trend or part of a real political

commitment?

Rainer Scherwey: Together with legal and optional measures,

the cantons want to create incentives for a lasting energy policy.

Along with direct measures, the most important promotion activities

include the promotion of energy from wood, “Minergie” buildings,

modernization of building surfaces and solar collectors. For this

purpose, CHF 53.9 million was made available in 2005.

Hervé Prettre: How is Credit Suisse positioning itself with

regard to “Minergie”?

Rainer Scherwey: The indirect real estate products, such as

the real estate funds of Credit Suisse Asset Management Funds

invest assets tied to a safety mechanism of a lasting net yield for

investors. Different factors affect the decision-making process in a

real estate investment. An analysis of the risks and opportunities

includes factors such as location, architecture, building method,

economy of conception, and so on. With new building projects, in

particular, energy efficiency plays an important role. In October 2002,

we were able to include the “Leonardo” office building in Zurich in

our real estate funds. At that time, this was the largest “Minergie”

office building in Switzerland.

Lars Kalbreier: A few words of conclusion, please.

Christian Ferrazino: The City of Geneva initiated a program

last year designed to increase awareness and educate children about

the problems associated with energy. This program aims to equip

children with a better understanding of their role as future citizens,

especially with regard to transport and the consumption of energy

and manufactured goods. We place great hope in our citizens of

tomorrow, and in the ability of children to become advocates for the

cause based on their own appreciation. Ultimately, are they not our

best ambassadors?

Hubert Reeves: In order to put a brake on the increase in the

average temperature of our planet, and stop the loss of biodiversity,

we must intensify our research and perfect all available alternative

energy systems. This is not so much a question of going backwards,

but rather one of removing the obstacles that have built up in the


Disclaimer: The above discussion is a compilation of views expressed by experts.

Credit Suisse rearranged the texts in the form of a roundtable discussion, without altering

the contents. The contents do not necessarily reflect the views of Credit Suisse.

“This roundtable was originally published in November 2005”.


GLOBAL INVESTOR FOCUS

Energy—29

While you are reading this text,

470,000 liters of

oil & natural gas

have been used

worldwide*

Oil Natural gas

Source: www.willyoujoinus.com

* Reading this text will take about two seconds. The total use has been calculated from the daily worldwide use of 127.8 million barrels (84 million of oil and 43.8 million of natural gas).

Packaging Page 32 > Food Page 32 > Airlines Page 34 > Transportation Page 34 > Housing Page 36 > Automobile Page 37


GLOBAL INVESTOR FOCUS

Energy—30

Highoilprices:Ablessingin

disguise for energy savings?

The increasing scarcity of energy resources will trigger massive changes in the everyday consumption

habits of the public and private sectors. These changes will have severe consequences on

specific sectors. Many sectors are responding with innovate approaches to the energy question.

Olivier P. Müller, Analyst, Equity Sector Research / Hervé Prettre, Trading Strategist, Equity Trading Research / Lars Kalbreier, Head of Equity Trading Research

Markus Mächler, Analyst, Equity Sector Research / Miroslav Durana, Analyst, Equity Trading Research

It may be hard to imagine now, but the shock from high oil prices

will ultimately benefit the economy and the ecosystem. The high oil

prices have forced industries and sectors to explore new avenues

for energy conservation to save costs, and will also stimulate investment

in research and development. The sooner various sectors

confront the problem, the better. For instance in the airline sector,

high kerosene costs might well provoke an acceleration of industry

consolidation, which will benefit the largest traditional and low-cost

carriers.

The housing and industrial sector will design buildings that put

energy efficiency first. For example, solar panels on roofs, and mini

windmills in the garden are likely to become as common as the

mobile phone in future.

In the automotive sector, hybrid cars combining a conventional and

an electric engine, have come out from science fiction into the

mainstream. In California, the demand for hybrid cars is so high that

companies such as Toyota are struggling to cope, while producers

of conventional engine-equipped cars, such as General Motors and

Ford, are sitting on unsold inventories of sport utility vehicles.

The food and packaging industries are also impacted by the oil

price hikes. In the food sector, total energy costs generally represent

5% to 15% of sales, and in some cases as much as 20%. In the

packaging sector, there will be a shift in demand away from products

dependent on costly oil derivatives. The following pages provide

more detail on the industries and sectors likely to undergo the most

changes in response to the energy scarcity.

>


GLOBAL INVESTOR FOCUS

Energy—31

The glassed upper hall of the Berlin Central Train Station is equipped with solar panels over a total surface of 2,700 m 2 comprised of 1,250

modules designed to produce electricity for the building.


GLOBAL INVESTOR FOCUS

Energy—32

Packaging > Hikes in oil prices will stimulate

the production of new packaging materials

Food > 20 cents from the purchase of a

1 euro chocolate bar covers oil-related costs

Our matrix of the 1970s

Excess capacities > plastic bags/packages increasingly reduced due to environmental

concerns.

High dependence on energy prices > up to 50% of total.

Labor costs > above average.

Weak competitive position > commodities.

Pricing power > average.

Our matrix of the 1970s: For retailers

Excess capacities > declining profitability at major retailers.

High dependence on energy prices > up to 20% of total.

Labor costs > above average.

Weak competitive position > discount retailers, pressure from government/consumers.

Lack of pricing power > discounters on the low end, integrated food manufacturers

on the high end.

Rising oil costs have impacted plastic packaging prices and the cost

of the energy needed to run the plants and transport goods to the

market. Higher prices for oil derivatives in the long term will inevitably

cause a shift in input materials used for packaging purposes. In

the short- to mid-term, this will impact the margins of many consumer

goods companies.

Industries directly or indirectly active in packaging will undergo

structural changes as a result. These include sectors such as chemicals,

pulp and paper, but also industrial goods. Given the potential

changes in relative pricing conditions, we expect a shift in demand

away from products dependent on oil derivatives and toward glass

and other replacement materials containing paper or cardboard.

Governmental initiatives, such as those in France to reduce the use

of plastics for environmental reasons, will accelerate that process.

Renewable resource materials likely to gain importance

More importantly, in the long term, demand will be stimulated for

new materials and production technologies which are unrelated to

oil or which involve a less intense and more efficient use of oil, such

as coating technology.

These technologies could be related to glass, cup stock, cellulose,

fiber or metal-based packaging such as multi-laminate films.

We believe that materials from renewable resources are likely to gain

importance. This includes packaging based on sugar residuals, palm

oil, potato or corn starch, biodegradable plastics or polylactic acids

(biodegradable, compostable polyesters derived from renewable

resources). This will create incentives for innovation and lead to increased

investment in research and development.


Food is surprisingly one of the most energy-hungry industries. Pesticides

are made from oil, tractors are heavy energy consumers, and

the transport of packaged foods averages 1,500 miles in the USA.

For large food producers, oil derivative costs represent an average of

4% of sales. On top of the costs carried by food producers, transport

to homes, storage in private refrigerators, heating and waste disposal

also require energy. Therefore, total energy costs generally

represent 5% to 15% of sales, and in some cases as much as 20%.

Oil price shocks reverberate through the food chain

Food producers usually deliver food to selected retail distribution

centers, and are responsible for the cost of transport, which may or

may not be reflected in the prices they charge retailers. The picture

is pretty clear this year: large food producers have successfully

passed on the increase in transportation costs to retailers. Nestlé

(BUY), for example, raised its prices 2.9% in 2006, and Danone

(BUY) followed with its own 1.5% hike.

As a result, bargaining power is shifting somewhat from retailers

to large food producers. Since the biggest pressure on food producers’

pricing power in the past few decades has been retailers’

growing size, we see the oil shock as a catalyst for reversing the

power balance between producers and retailers.

For retailers, the pressure from price increases imposed by large

food producers will be worsened by pricing pressure from discounters,

who carry white brands (no-brand goods manufactured at small

local producers) and are therefore less exposed to pricing pressure

from food manufacturers.

Therefore, the oil shock will likely strengthen the competitive

position of discounters like Aldi and Lidl against traditional retailers,

which will likely have to abandon some excessively low margin products

or entire store locations.

For farmers, the situation is likely to improve somewhat:

The growing share of discounters with a high bias to white brands

will likely improve the fortunes of selected large-scale local farmers.

Discounters will save on transport costs by reaching agreements

with local suppliers with sufficient size – which will also be required

by local politicians before allowing discount retailers to expand in

countries such as Switzerland.

The rising price tag for the transportation of agricultural goods

produced overseas could marginally improve the competitiveness of

local farmers.


GLOBAL INVESTOR FOCUS

Energy—33

NASA’s Helios prototype solar-powered aircraft flies over the Pacific Ocean near Hawaii. Solar cells on its 247-foot (75-meter) wings supply

the plane with electricity to power its propellers.


GLOBAL INVESTOR FOCUS

Energy—34

Airlines > Rising kerosene costs are a


Transportation > Environmentally

friendly engineering systems are underway

Our matrix of the 1970s

Excess capacities > half of capacity in Chapter 11 in the USA and more than 50 airlines

in Europe.

High dependence on energy prices > 15% to 25% of costs.

High labor costs > another 20% to 30% of costs.

Weak competitive position > strong pressure from discount and Chapter 11 airlines.

Lack of pricing power > limited by the Open Skies regulations (to be extended

in the coming quarters in Europe).

Airlines are yet another sector impacted by the spike in oil prices. In

fact, oil represents 15% to 25% of airline costs. As a result, every

USD 1 increase in oil prices adds a whopping USD 1 billion to the

industry’s total fuel bill, according to International Air Transport

Association (IATA) estimates.

The current oil shock is creating an acceleration of powerful

existing trends:

The growing power of traditional large airlines versus the declining

power of mid-sized airlines with financial troubles.

The survival and growth of larger discount airlines like Easyjet (not

rated), Ryanair (not rated) or Southwest (HOLD) and the demise of

younger, and smaller discount airlines.

Large traditional airlines outpace mid-size carriers

The likes of Air France (SELL), British Airways (HOLD) and Lufthansa

(BUY) can better resist the oil shock, thanks to their size and

superior profitability, cost-cutting activities, and their ability to forge

global alliances. However, mid-sized airlines, especially those that

have cash issues, are unlikely to withstand another major shock.

Global alliances are likely to be strengthened and mega mergers are

likely to return. Finally, renewed discussions on liberalizing open

aviation between the EU and USA will likely favor large traditional

airlines relative to weaker mid-sized carriers.

As a result, large traditional airlines will likely see their market

share grow in the long haul business at the expense of mid-sized

weaker airlines. Moreover, more global alliances will be forged.

Established discount airlines will also prevail

The same argument can be used for discount airlines, with the cashrich

established firms most likely to survive. However, the smaller

cash-strapped no-frills airlines might not be able to cope with rising

fuel costs due to their relatively poor cash level. Moreover, a major

wave of bankruptcies among younger, less established no-frill airlines

would alleviate the pricing pressure in the low-cost segment,

which is unparalleled in the traditional airline segment. As a result,

survivors will likely gain significant pricing power. Established lowcost

airlines such as Easyjet, Ryanair or Southwest will see their

market share increase in the short haul segment at the expense of

traditional airlines and privately owned hard discounters.

Our matrix of the 1970s

Excess capacities > US and EU automobile sector.

High dependence on energy prices > true for water transport, producers of SUVs

(General Motors, Ford) and aircraft makers.

High labor costs > US companies on the back of pension liabilities.

Weak competitive position > US automobile sector, US and EU naval shipyards.

Lack of pricing power > US and EU carmakers, US and EU naval shipyards.

The increasing globalization of resources has led to a major boom in the

transportation of freight and passengers. Despite the focus on volume

and speed, innovation has lagged in the last 20 years, although this may

be changing. Fuel cell R&D, for example, is only now receiving an effective

boost, as fuel prices are on the rise. The same goes for other alternative

power sources such as hybrids, ethanol, or natural gas. We are

now seeing the all-out development of more efficient and environmentally

friendlier engine systems on land, water, and in the air. Efficiency

is at the top of the agenda, and we believe this will lead to a flurry of

new vehicle developments.

Shipping works toward cleaner future

About 90% of European exports and 30% of domestic trade is transported

by sea or inland waterways. Around 98% of the world’s merchant

fleet is diesel powered, without many alternatives. However, shipping is

benefiting from developments in diesel technology, which have recently

led to a sharp reduction in emission values (30%–40%), and we

are seeing early attempts at developing hybrid freighters equipped with

diesel engines and wind power.

Road transport takes a new path

As a result of rising fuel prices, gas-guzzling SUVs are facing increasing

sales pressure, while the “clean automobile” is becoming the rising

star in road transportation. Moreover, synthetic oil and fuel from biological

sources (biomass) are close to reaching the market. Biodiesel

is yet another option for vehicles. Although the additional tank makes

natural gas and biogas more expensive for the end-user, the acceptance

of natural gas vehicles is steadily rising in Europe, and countries

like Brazil are encouraging alternative means of propulsion using

ethanol (alcohol). See the interview on Hybrid cars on page 37.

Alternative fuels a long way off for air travel

In the very short term, no change is expected for airlines, since the

development time for aircraft and engines extends over many years

and, with minor adjustments, models can have a life-cycle of up to

30 years. Yet some minor innovations have been recurrent, mostly in

the oil efficiency field. Alternatives to fossil fuels are unlikely to appear

in commercial aviation anytime soon. Tests using hydrogen for airplanes

started as early as 1955, but problems with this technology

are identical to those in the car industry. The fuel needs too much

space, and the range is too small. Ultimately, it works, and since then,

some progress has been made. The US Department of Defense’s

focus on unmanned planes is likely to act as catalyst for the development

of commercial unmanned aircraft, including hydrogen planes.

Despite progress, viable solution remains many years away.


GLOBAL INVESTOR FOCUS

Energy—35

SkySails, GmbH, Germany, developed a unique propulsion system for commercial shipping, which uses free wind power. This fully-automated

system enables vessels to reduce fuel costs by 50% and also cut emissions.


GLOBAL INVESTOR FOCUS

Energy—36

Housing > Generating electricity close to home can pave the way to zero emissions

The solution for reducing carbon dioxide emissions, while at the

same time limiting losses of long-distance electricity transportation,

is to generate electricity close to where it is needed, or “decentralize”

it. A decentralized energy system would see everyday buildings playing

host to devices such as solar panels, small wind turbines, geothermal

heating and cooling systems, and smart technologies in insulation

and heat conveyance within the house. The electricity created

would be used directly by the house or workplace, avoiding the

significant loss that occurs when electricity is transported over long

distances, while offering extra income to residents producing surpluses.

These buildings could become zero emission centers.

Geothermal systems are smart investments

A geothermal system is a modern renewable resource system. In

principle, these systems use the earth’s energy storage capability

to heat and cool buildings, houses and offices, and to provide hot

water. The earth is a huge energy storage device that absorbs up to

45% of the sun’s energy in the form of a clean and renewable energy.

Geothermal systems use this heat during the winter heating season

and return it during the summer cooling season by using a conventional

heat pump. This pump is used to extract the solar energy from

the earth in winter while the process reverses in summer, as the

earth becomes a heat sink. This geothermal process is possible

because the temperature of the soil up to one meter below the

earth’s surface varies with the seasons and, below that one-meter

depth, the earth’s temperature stays nearly the same.

The Environmental Protection Agency found that geo-exchange

systems can reduce energy consumption by over 40% compared to

air source heat pumps, and by over 70% compared to electric heating

systems with standard air-conditioning equipment. Geothermal

systems are, and will become, a more integral part of modern society

in the near and far future.

Smart technology can save energy

While the “smart home” is mostly known for all kinds of gadgets

making life easier, an increasing number of smart applications are

being used for energy-saving purposes. One example is the use of

combined heat and power boilers, which generate electricity and

provide heat and hot water. Principally, there are three benefits to

smart home technology. The first benefit is safety. Smart technology

provides power only to wall outlets that have appliances plugged in

and turned on, and smart home sensors monitor the control circuit

and disconnect power at the first indication of a short circuit or other

failure. If sensors detect gas or water leaks, or other abnormal conditions,

the power controllers will shut down the appropriate appliances

and trigger alarms. A second benefit is convenience. Traditional

wiring provides 220 volts in Europe and 110 volts in the USA. Today’s

consumer electronic devices (e.g. radios and computers) use lower

voltages such as 6, 12 or 24 volts.

Smart technology can provide power at several different voltage

levels automatically, leading to significant energy savings. It also automatically

controls home temperature, humidity and lighting on a

room-by-room basis, leading to further energy savings. The third

benefit is the overall economic savings. Smart technology automatically

adjusts the power to each appliance according to its need.

Moreover, smart home controllers can schedule the operation of

heavy power-consuming appliances such as dishwashers, electric

water heaters or air conditioners to make maximum use of off-peak


Using windpower at home

Mini windmills have become more efficient thanks to technological

improvements in the field of mill strength and conductivity. Subsidies

and tax credits also make mini windmills a viable option from a microeconomic

viewpoint. While the local windmill is unlikely to be able to

meet the needs of high consuming applications in homes, such as

heating or air conditioning, they can cover low-consumption appliances,

such as lighting. A striking example can already be witnessed

in the large fields of the German Pommern region, east of Berlin.

Bismarck’s native land has changed remarkably in the past decade,

with windmills mushrooming around farms.

Solar panels continue expansion

Solar has met with growing success in the private and public sector

in the last decade, with some large-scale implementations already

existing: the roof of the new train station and all the parking meters

in Berlin, the development of more than 100,000 green houses in

Japan, and the communities developed by utilities in California in

response to the legal requirement that all electricity distributors

generate 20% of total power via alternative energy by 2017.


GLOBAL INVESTOR FOCUS

Energy—37

Automobile > Hybrid cars: Investing in efficiency

Consumers can make the biggest environmental impact

with the cars they choose to drive. The concept of a “clean”

car is appealing, but few can afford the current models.

Investors should take a closer look at companies focusing

on environment friendly cars. An interview with automotive

sector specialist, Markus Mächler.

Lars Kalbreier: How much has changed in hybrid vehicles field

since the beginning of 2005?

Markus Mächler: In a relatively short time, the acceptance and

demand for hybrids have increased enormously. European manufacturers,

in particular, have become increasingly committed to

hybrid technology, following the continued increase in demand in the

USA. However, it will still be some time before the corresponding

European models appear on the scene.

Toyota and Honda were the first companies offering hybrid vehicles.

Can European and US manufacturers still catch up with the

Japanese?

Toyota already has its second generation of hybrid vehicles on the

market. But the development of these vehicles is still in the early

stages. To cover the enormous costs, Toyota is prepared to sell individual

licenses to its competitors, which will reduce its headstart

considerably. GM, DaimlerChrysler and BMW aim to launch their first

hybrid vehicles in 2007 years. VW, Audi and Porsche have the same

intention and are also developing a joint system.

If this system is so successful, will we see only hybrid cars on the

road in a few years?

No, we assume that carmakers will offer a range of models, offering

hybrid systems for larger cars. For smaller cars, we expect so-called

“light hybrid systems” to be used. Fully-fledged hybrid systems are

too heavy for small vehicles and the extra weight would cancel out

the advantages. Light hybrids are based on the combination of an

alternator with an electronic system that can also serve as a backup

for gasoline or diesel vehicles when needed.

What would make a customer decide to buy a hybrid car?

The usefulness of the vehicle will also be the deciding factor in the

future. Hybrid cars are optimal for use in urban areas. In city traffic,

autos generate a great deal of kinetic energy (stop-start driving,

traffic lights, etc.), which can be used to run electric motors. People

who drive longer distances in country areas cannot take advantage

of this benefit, and would use up more fuel than necessary because

of the extra weight from the batteries and the electric motor.

What do you expect to be the next step in technology?

We are seeing a lot of effort go into producing synthetic fuels (Synfuel)

out of various regenerative sources like biomass or natural gas.

Volkswagen already has test cars running on Sunfuel ® , which has

the same properties of diesel, but emits just as much carbon dioxide

as is absorbed from the atmosphere by the plants grown to produce

the fuel. The goal is to draw on the benefits of gasoline and diesel

fuels, and to standardize already similar systems.

When will poor gas and diesel engines disappear from the street?

Currently there is no sign for a final termination of gas and diesel

cars on the street. Efficiency and pollution friendliness is likely to

take a significant step forward. To reduce fuel consumption, car

manufacturers try to re-introduce the diesel car into the US. Diesel

quality in the US is about to be improved to a level, where modern

diesel technology as known in Europe can be used. Going one step

further and targeting the even stronger California regulations for

diesel cars, the German manufacturers are introducing the so called

BLUETEC technology. J.D. Power expects in 2015 a market share

of 15% for Diesel cars in the US, close to the share expected

for hybrids.

People have long been extolling the virtues of fuel cells as a source

of power. But we won’t see many of these cars on the street, right?

Fuel cell vehicles have actually been around for years in trials. On

the road, they don’t look much different than other types of cars.

There are two main problems with FCVs: The infrastructure needs

to be built up and this is highly cost intensive, and the cars are too

expensive. There are several hundred vehicles in trial use today, but

tests can only be conducted by companies whose vehicles are

within 200 kilometers of a central charging station.

Should investors be looking for the first manufacturer to launch a

commercially competitive fuel cell vehicle?

A single manufacturer has no chance. Since we are talking about a

completely new system, the transition will probably be gradual and

slow to take root. That’s why Toyota’s hybrid is so successful – because

it is based on a traditional gasoline engine. Furthermore, industry

experts are at odds as to whether Toyota will ever turn a profit with

its first two generations of hybrid vehicles because of the high development

costs. One thing is sure, Toyota is winning market share as

its reputation increases. This will probably also be the case for the


GLOBAL INVESTOR FOCUS

Energy—38

Catching rays for

a bright future

Company profile > SolarWorld AG is one of the world’s leading manufacturers of solar power

technology. It benefits from the fact that it banked on the build-up of systems based on the entire

solar value chain.

SolarWorld, Germany

In 1988, the engineer, Frank Asbeck, today’s CEO of SolarWorld

established an engineering office for industrial plant and equipment in

Bonn. Ten years later, the business activities in the field of solar energy

had been transferred to the newly created firm SolarWorld AG.

In 1999, SolarWorld AG offered 500,000 shares to the public. A

year later, the firm entered into wafer production by acquiring 82%

of the then Bayer Solar GmbH, Freiberg, today called Deutsche

Solar AG. In 2001, as a second strategic step in wafer production,

the Solar Factory GmbH company was established in Freiberg.

The SolarWorld group holds the exclusive license worldwide for

an innovative and low-cost silicon manufacturing process via a cooperative

venture with the US technology group GT Equipment Technologies

Inc. The foundation of Joint Ventures with the Düsseldorf

specialty chemicals firm Degussa AG for the generation of solar

silicon in 2002 was another trend-setting step in the area of raw

material provision. In 2004, SolarWorld AG was included in the

TecDAX Index and received group-wide ISO 9001 certification.

SolarWorld’s corporate strategy is to combine all stages of the

solar industry’s value chain – from raw materials via wafers, cells

and modules all the way to finished kits – in one group of companies.

As an integrated company, SolarWorld benefits from all the solar

added-value processes. The Group controls the development of

solar power technologies at all levels in-house and, at the same time,

increases the profitability of the solar business by tapping the

synergies involved. By taking over the activities of Shell Solar, Solar-

World became the biggest supplier of Solar Products in the US. We

think this is a very important strategic move and further strengthens

SolarWorld’s franchise in the United States, especially in the booming

solar market in California.

Business areas

The company operates in the following business areas:

Silicon: Silicon is used to produce crystalline solar wafers. The

company is further expanding the proportion of internal silicon reprocessing.

Joint Solar Silicon GmbH and a joint venture with Degussa

AG (49% shareholding) are active in the silicon business area.

Wafers: Deutsch Solar AG, a 100% subsidiary of SolarWorld, is

the world’s largest manufacturer of mono- and polycrystalline silicon

wafers for the solar power industry.

Cells: Deutsche Cell GmbH, a 100% subsidiary, is one of the

world’s most important producers of mono- and polycrystalline

solar cells.

Modules: Solar Factory GmbH, Freiberg, a 100% subsidiary, and

GPV (Gällivare PhotoVoltaic AB) Sweden, produce solar modules.

Group-wide module production more than doubled to over 30 MW

in 2004, and further expansions have been launched this year.

Trade: SolarWorld AG, Bonn is offering and distributing solar

power modules, construction kits and complete systems and is almost

exclusively directed at wholesalers.

Financial highlights in 2004

At group level, 2004 sales came to EUR 199 million, and more than

doubled compared with 2003 sales. Consolidated net income was

EUR 18.1 million, earnings per share was EUR 3.14 and dividend per

share was EUR 0.36. Total investments amounted to EUR 32.3 million

in 2004. The number of employees was 684 as of 30 June 2005.

The company’s strategy and objectives

SolarWorld is one of the few fully integrated solar energy companies

with a strong foothold in the upstream segment (wafer, silicon), offering

the highest margins in the value chain with an international strategy.

The company has secured enough silicon supply to pursue its

target of doubling its production capacity. This brings the company

in an advantageous position for the next years versus its main competitors,

since silicon is a key driver of overall production costs.

SolarWorld will likely benefit from lower cell thickness and higher

demand, enabling to cut input costs and to achieve economies of

scale in the coming years.


GLOBAL INVESTOR FOCUS

Energy—39

Germany and Japan are the world’s two largest solar markets, accounting for nearly half of the global installed solar power capacity.


GLOBAL INVESTOR FOCUS

Energy—40



The surge in petrodollars is a cash fountain for Gulf countries. The robust oil price scenario will

be reflected in current account surpluses, averaging 30% of GDP in 2005 and in 2006, according

to the Institute of International Finance (IIF).

Hervé Prettre, Trading Strategist, Equity Trading Research

Rising oil prices enabled oil exporters to record strong oil export

revenues in 2005, and many Gulf countries saw their stock exchange

more than double this year. Yet, 2006 saw a reversal of this equity

performance, with Gulf countries being amidst the world’s poorest

performers. Demand destruction in 2006 in the US as gasoline

prices rose to over USD3/gallon, government-led austerity measures

in China aimed at tackling overinvestment spending and the

OPEC quota cut as of October 2006 indicated that the oil market is

now in oversupply, which frightened many investors in Gulf countries’

equities.

However, we expect oil prices to remain at sustained high levels

in the coming years, on the back of our reacceleration scenario for

the Chinese economy as of mid 2007, long term real GDP growth

above 4% on the back of Emerging Markets’ momentum and risks to

some supplies in geopolitical sensitive regions. We therefore estimate

that oil export revenues will remain solid for gulf countries in

the coming years. Oil export revenues are expected to surpass USD

300 billion in 2006, or about three times the average level in the ten

years up to 2003, and remain above this level in the coming years.

Developing an investment pattern

With the perception of sustained high oil prices, a clear pattern of

local long-term investment and infrastructure development has

emerged. The 1970s pattern, when petrodollars flowed into western

assets, does not appear to be repeating itself this time. Now, the

priority is on local schools, hotels, tourism infrastructures and R&D

centers. In the August 2005 edition of Global Investor, we provided

a detailed overview on how different asset classes are impacted by

this investment pattern. The Washington-based IIF estimates that

spending on projects this year and next will increase by at least four

times the USD 35 billion outlaid in 2002–03. Spending is estimated

to be greatest on infrastructure that will facilitate the development

of service sector activity.

There is also heavy investment in expanding the output of downstream

energy products such as petrochemicals, and manufacturing

that is heavily energy dependent. Finally, the development of local

financial centers is also a key destination of assets: the most advanced

is the Dubai International Financial Center (DIFC), which was

formally established as an independent financial free zone in September

2004. The Dubai International Financial Exchange (DIFX) was

launched in September 2005. May 2005 saw the launch of the

Qatar Financial Center (QFC).

In Bahrain, the government hopes to build on the country’s

position as a leading offshore banking center (hosting the largest

concentration of banks and other financial institutions in the Middle

East), and an emerging hub for Islamic banking through the Bahrain

Financial Harbor. The first phase is due for completion in 2007 and

the whole project will be finished by 2010.

Dubai has become something of a benchmark for diversification.

Over the last few years, the services sector has been the focus of

development, with the opening of large government-funded facilities

devoted to health, education and tourism. Other countries in the

region have attempted to follow Dubai’s lead, investing large sums

in developing tourism and financial services, most notably in Bahrain



Figure 1

US export growth to oil exporters excluding Mexico

Source: US Census Bureau

350

300

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200

150

100

50

0

Percentage change from 2004

Parts for

self-propelled

machinery

Vehicle parts

Computer parts

Construction

equipment

Broadcasting

devices,

cameras

Trucks

Cars

Special-purpose

vehicles

Other wheeled

machinery


GLOBAL INVESTOR FOCUS

Energy—41

Stock traders watch computer monitors at the Kuwait Stock Exchange.


GLOBAL INVESTOR FOCUS Energy —42

Day

Day

Day

Day

Day

Day

1

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3

4

5

6

Day

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20 days of sun energy > The earth receives as much energy from sunlight in twenty

days as is believed to be stored in this planet’s entire reserves of fossil fuels. Scientists

and engineers continue to search for ways to effectively harness energy from the sun.

Source: Shell.com > Shell Renewables > About Shell Renewables > Shell Solar

Alternative Energy Basket Page 43 > Photovoltaic Page 49 > Credit Suisse Global Alternative Energy Index Page 51


GLOBAL INVESTOR FOCUS

Energy—43

Natural Gas

Abasketofpotentialalternative

energy winners

What stocks are likely to benefit most

from the coming alternative energy

boom? Here is a selection of picks for

each energy source.

Equity Trading Research Team / Credit Suisse

Anadarko

APC US, US0325111070

perf. +4.4% from 01.01.2006 to 07.12.2006

Anadarko is an independent gas exploration major. Anadarko’s

proved reserves of 2.5 bn barrels of oil equivalent are evenly

divided between crude oil and natural gas, one of the highest

ratio in major exploration companies to the benefit of nat gas. It

also operates seven gas-gathering systems (more than 3,100

miles of pipeline) in the mid-continent. The size of its reserves

enables it to be at the forefront of natural gas demand in

the US.

Williams

WMB US, US9694571004

perf. +19.9% from 01.01.2006 to 07.12.2006

Williams is a leader in E&P and pipeline transportation of nat

gas. Williams operates 14,600 miles of interstate natural gas

pipeline, including the Transco system, which runs from Texas

to New York. Williams tripled its natural gas reserves in 2001

by buying Barrett Resources and has now proved reserves of

2.7 trillion cu. ft. of natural gas equivalent. The company is engaged

in exploration and production, primarily along the Gulf

Coast, in the East Texas Basin, and in the Rockies. Its advance

in exploration enables it to be at the front stage of nat gas demand

in the US.

BG Group

BG/ LN, GB0008762899

perf. +18.0% from 01.01.2006 to 07.12.2006

BG is a market leader in liquefaction and re-gasification. On top

of strong traditional business (oil and natural gas), expected to

grow at a pace of +6% to +10% per annum until 2012, BG holds

a very solid position in the LNG business. The old Bristish Gas

has proved reserves of 2.2 bn barrels of oil equivalent and distributes

gas to more than 2.7 million customers. BG is therefore

a balanced investment on traditional nat gas and LNG. Its much

valued management team with excellent track record is also a

strong feature of BG.

GazdeFrance

GAZ FP, FR0010208488

perf. +31.0% from 01.01.2006 to 07.12.2006

Gaz de France is the leading European natural gas supplier, serving

about 13.8 million customers, of which 80% in France. Its

principal activities are the exploration, production and distribution

of natural gas and the installation of systems in buildings through

its two divisions Energy Supply & Services and Infrastructures.

As Europe’s regulatory framework is going through a profound

change and energy markets are opening up to competition with

the full liberalization by mid-2007, GdF decided to pursue a

European growth strategy as an integrated energy utility. The

French government is favouring the creation of a strong national

energy supplier with the proposed merger of GdF and the >


GLOBAL INVESTOR FOCUS

Energy—44

multi-utility group Suez, leading to the second-largest power &

gas company. Subject to shareholders’ approval in Q1 2007, the

merger could become effective on 1 July 2007.

Turbine Manufacturing

ABB

ABBN VX, CH0012221716

perf. +58.4% from 01.01.2006 to 07.12.2006

ABB operates through two major divisions – power technologies

and automation technologies – and serves a broad base of utility,

industrial, and commercial customers. The power technologies

division provides the power supply industry with equipment

and services for transmission, distribution, and automation. ABB

is well positioned for future demand from utilities in diversified

power turbines, yet in the short term remains rocked by the news

related to its asbestos liability in the US. US subsidiary. A final

settlement – which could involve payment of more than $1 billion

in obligations – would remove another huge headache for the

company, but ABB has faced legal setbacks to its settlement

plan. Investors should closely watch this issue should they want

to gain exposure to ABB.

Hybrid cars

Toyota Motor

7203 JP, JP3633400001

perf. +14.9% from 01.01.2006 to 07.12.2006

Toyota Motor Corporation with its head quarter in Japan has been

established in 1937. Toyota is behind GM the second largest car

manufacturer by units, selling its products under the Toyota,

Lexus, Daihatsu and Hino brand. Toyota sold more than 8.1 million

cars (all brands) worth YEN 17.8bn in their fiscal year ending

In March 06. Toyota is known for its leading position in hybrid

technology already selling more than 150,000 per year to customers.

Biggest market for Toyota with more than 2.4 million unit

sales is North America, followed by Japan with 1.7 million units.

Production and product development is globally distributed to

fulfil customer needs regionally.

Fuel Cells

Ballard Power

BLD CN, CA05858H1047

perf. +51.2% from 01.01.2006 to 07.12.2006

Ballard Power is a world leader in developing, manufacturing and

marketing proton exchange membrane (PEM) fuel cells for use

in transportation, electricity generation, portable power and

other products. Ballard’s proprietary fuel cell technology is enabling

OEMs to develop and sell competitive environmentally

clean and efficient products. The fundamental component of

these end-user products is the Ballard fuel cell stack. Ballard is

developing a wide range of PEM fuel cell products that address

several high-growth end markets.

Avista

AVA US, US05379B1010

perf. +47.3% from 01.01.2006 to 07.12.2006

Avista is an energy company involved in the production, transmission

and distribution of energy as well as other energy-related

businesses. Avista Utilities is a company operating division that

provides service to 341,000 electric and 298,000 natural gas

customers in three Western states. Avista’s non-regulated subsidiaries

include Advantage IQ, and Avista Energy. The company

is a minority owner in ReliOn, which markets three fuel cell products

for commercial and industrial backup power solutions.

Wind

Among the global market leaders are Vestas with a 32.7% share

of the market and GE Wind with 10.8%. Siemens (6.0% of the

market) is attempting to close the technology gap by way of

acquisitions (Bonus Energy A/S in Denmark) and thus become

one of the major global suppliers of wind energy systems. GE

Wind and Siemens have an advantage over the other providers

in that they have control over a large part of the value added

chain themselves, while the others are highly dependent on suppliers.

(Table 1)

Vestas Wind Systems

VWS DC, DK0010268606

perf. +127.0% from 01.01.2006 to 07.12.2006

Vestas core activities are the marketing, planning, engineering,

installation and servicing of wind energy power plants. The group

provides products ranging from individual turbines and components

to highly complex turnkey wind power systems. Vestas is

the market leader in its segment, providing onshore and offshore

solutions around the world. The group also provides guidance to

customers in connection with the financing and ownership of

wind turbine projects. Wind power plants are one key technology

when it comes to alternative energy generation. Weak points are

the quality of project execution and the limited reliability of installed

base. Vestas generates an annual turnover of EUR

3.58bn (fiscal year 2005) and has close to 12,000 employees.

Gamesa

GAM SM, ES0143416115

perf. +63% from 01.01.2006 to 07.12.2006

Gamesa is an international business and services group, focusing

mainly on the sphere of renewable energy sources. Within the

field of renewable energy, its business is centred on power generating

installations using renewable sources of energy, involving

mainly the development of wind farms, the sale of the wind farms

it develops, designs and manufactures. In 2005 Gamesa generated

with 8186 employees a turnover of EUR 1.745bn, an operating

margin of 18.8% and a net income of EUR 177m. In 2005


GLOBAL INVESTOR FOCUS

Energy—45

Gamesa set up its first own production plant outside Spain, which

is located in the United States. Further projects are ongoing in

the US but as well in China and Portugal. Other activities at

Gamesa contain the development of solar panels. The supply of

aircraft components is no longer labelled to be core.

Nordex

NDX1 GR, DE000A0D6554

perf. +159% from 01.01.2006 to 07.12.2006

With only EUR 209 million in turnover, Nordex is the smallest

wind-energy provider within our coverage. Nordex has his home

base in Germany. In 2005 Nordex reported a loss of more than

EUR 8.1 million. Despite financial difficulties two years ago, the

current situation has improved following a recapitalisation. The

number of employees has exceeded 721. Target growth regions

are in China, France, Portugal and UK. A restructuring program

should help to reach the 10% EBIT margin target in 2008 while

turnover is expected to grow significantly.

Geothermal

Few companies offer a real investment in pure geothermal activities,

since geothermal projects are usually deployed by large

utilities considering the use of geothermal resources proper in a

specific location. Therefore, geothermal activities are a very

limited part of business. Pure geothermal oriented companies

are rather small, and should be considered by risk seeking investors

only for a limited amount.

Abengoa

ABG SM, ES0105200416

perf. +125% from 01.01.2006 to 07.12.2006

Abengoa operates in over 70 countries focussing mainly on Spain

where it generates about 50% of its sales. The company is active

in five business units – bioenergy, solar, environmental services,

information technology and industrial engineering and construction.

By running five business units, Abengoa manages to hedges

itself against the downside risks of the different industries

within the currently strongly volatile alternative energy market.

Oesterreichische Elektrizitaetswirtschafts-AG or Verbund

VER AV, AT0000746409

perf. +34% from 01.01.2006 to 07.12.2006

Verbund generates and distributes electricity. The Company

operates local hydro and thermal power stations. Verbund also

operates a restaurant and hotels, and offers power plant, waterway,

and sewage treatment plant construction services.

Ormat Technologies

ORA US, US6866881021

perf. +48% from 01.01.2006 to 07.12.2006

Ormat is a geothermal power provider and technology vendor.

The company operates approximately 400 megawatts of environmentally

friendly geothermal power as part of its deregu- >

Table 1

World market shares

Source: Company data, Credit Suisse estimates

in % 1998 2005

Vestas 38.9 32.7

GE Wind 16.2 10.8

Gamesa 10.9 17.3

Enercon 13.2 15.1

Siemens/Bonus 5.9 6.0

Nordex 5.2 2.2


GLOBAL INVESTOR FOCUS

Energy—46

lated generation business, which contributes roughly 75% of the

company’s revenues. Ormat also sells generation equipment to

industrial customers, constituting the remaining 25% of revenues.

Ormat is the second-largest geothermal energy provider in the

United States, with its assets located primarily in the Western

US. Ormat Technologies is 77% owned by Ormat Industries, an

Israeli-based concern. President Bush’s next State of the Union

address in late January may once again highlight the need for

alternative sources of energy and provide a positive catalyst for

Ormat shares. Also, the company has been short-listed for bids

that cover 100 megawatts of previously unannounced capacity,

which should sustain the company’s rapid growth.

Bioenergy or Biomass Fuels

Archer Daniels Midland

ADM US, US0394831020

+39.0% from 01.01.2006 to 07.12.2006

Archer Daniels Midland is one of the world’s largest processors

of oilseeds, corn, and wheat. Its main offerings include soybean,

peanut, and other oilseed products. It is also the largest world

producer of ethanol, a renewable bio-fuel for the auto industry.

In 2002 ADM merged with Minnesota Corn Processors, its chief

competitor in the ethanol market; the merger increased ADM’s

ethanol production such that it controls almost half of the US

market. In early 2004 ADM announced a joint research agreement

with Volkswagen AG in order to develop next-generation,

clean, renewable biodiesel fuels for the auto industry. ADM recently

released that it will increase the capacity of North American

plants that crush oilseeds to meet demand for livestock feed

and biodiesel. In the US, the International Energy Agency expects

biofuel consumption to jump from 6.8 7.5 mn tons equivalent

in 2005 to 15 –16.5 mn tons in 2010, in Europe from 2 to 15

mn tons, justifying current capacity increases at ADM.

Headwaters

HW US, US42210P1021

-33% from 01.01.2006 to 07.12.2006

Headwaters develops and deploys alternative fuel and related

technologies e.g. converting fossil fuels such as coal and heavy

oils to alternative energy products. It includes the four divisions

Energy Services, Resources, Construction Materials and Technology

Innovations. The company has experienced dramatic internal

as well as external growth over the last few years increasing

its revenues from 6.7m USD in 1999 to 1.21b USD in 2006.

Cosan SA Industria e Comercio

CSAN3 BZ, BRCSANACNOR6

+61% from 01.01.2006 to 07.12.2006

Located in Brazil, Cosan is the world’s largest sugar alcohol

producer. On the back of higher demand for ethanol, Cosan plans

to raise its sugarcane surface and raise the percentage of sugarcane

processed into fuel to about 50% in five years from 35%

in mid 2006. Cosan already managed to boost revenues by

Figure 1

Strengthening productivity growth

Source: Bureau of Labor Statistics and FRBSF

7

6

5

4

3

2

1

0

–1

–2

49 54 59 64 69 74 79 84 89 94 99 04

Oil shocks

Annual growth

Figure 2

Greater share of resources devoted

to searching for ideas

Source: National Science Foundation

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%

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Oil shocks 1995 = 100%


GLOBAL INVESTOR FOCUS

Energy—47

+65% in 3Q06. Cosan plans a joint venture with other Brazilian

producers to build infrastructure such as pipelines and port terminals

to export ethanol fuel as more countries such as Japan

prepare to add ethanol to their gasoline mix.

Solar energy

Solarworld

SWV GR DE0005108401

+65% from 01.01.2006 to 07.12.2006

Solarworld is a vertically integrated player operating in solar silicon

manufacturing, wafer and cell manufacturing, module assembly,

and sales/trading. The vertical integration and critical

size give the company a strong position for the next years, as the

industry is facing capacity bottlenecks at different levels. Control

of the whole value chain gives the company the opportunity to

boost its margins by optimizing and integrating the different

production steps. Solarworld retains a strong strategic position

and is the leading pure solar energy company. As such, its share

price should command a clear premium relative to its peer group.

As long as demand growth remains high and margins keep expanding

along the value chain, the share price should do well,

despite an already expensive valuation.

SolarWorld is one of the few fully integrated solar energy

companies with a strong foothold in the upstream segment (wafer,

silicon) offering the most appealing margins in the value

chain with an international strategy. The company has secured

enough Silicon supply to proceed with the targeted doubling of

its production capacity. Lower cell thickness and enlarged production

sizes will affect the cost side for the whole industry,

where we expect the key players to benefit over proportionally.

MOTECH INDUSTRIES

6244 TT, TW0006244007

+46% from 01.01.2006 to 07.12.2006

Founded in 1981, Motech Industries started as a manufacturer

of high-end test and measurement instruments such as Digital

Multi Meter (DMM) and power supplies. After 1999, it set up

solar cell department and transforms to a solar cell producer.

Motech is actually the largest photovoltaic cell producer in Taiwan

and plans to expand its business scope horizontally by starting

photovoltaic wafer production from late 2006. This is a

substantial strategic step for the company and guarantees stable

access to raw materials, what is key for the cell and wafer production.

We expect the vertical integration to enable Motech to

enhance its margin expansion. We prefer integrated business

models within the solar industry.

Figure 3

Brentcrudeoilprice

Source: EcoWin

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50

40

30

20

10

Q-CELLS

QCE GR, DE0005558662

+28% from 01.01.2006 to 07.12.2006

Based in Germany, Q-Cell’s core activities include development,

production and marketing of mono- and polycrystalline solar

cells. Being the market leader in the production of solar >

0

83 86 89 92 95 98 01 04 07

Brent prices

Brent prices inflation adjusted

0


GLOBAL INVESTOR FOCUS

Energy—48

cells in Europe and the world wide number two having an estimated

market share of 10%, Q-Cell is already today able to exploit

economies of scale. Having signed silicon purchase contracts

for the next two years, Q-Cell is further increasing its

capacity from 255 MW in 2006 to 330 in 2007. By focussing

exclusively on the cell production within the solar value chain,

management expects Q-Cell to grow faster than its peers, which

are often more integrated.

REC

QCE GR, NO0010112675

+12% from 01.01.2006 to 07.12.2006

Renewable Energy Corporation (REC) is a Norwegian company

active across the entire value chain of the solar industry (silicon

wafers, cells and modules) and was originally part of Orkla ASA,

a diversified industrial conglomerate. Orkla listed REC as a separate

company on the Norwegian stock market in May 2006,

with a market capitalization of around USD 8 bn. REC is a significant

player in the international solar energy market, with a

strong positioning in the attractive upstream business as well as



Table 2

Expected winners and losers

Source: Credit Suisse

The winners

Manufacturers of energy-efficient automobiles



Manufacturers of public transport vehicles



shipbuilding.

Management and energy-specialized consulting firms


agencies and large companies facing the challenges of uncertainty, risk and

significant change.


aerospace and telecom industries globally.

Energy-efficient lighting and electrical equipment


industrial use.

The losers

Manufacturers of inefficient automobiles with excess capacity



Heavy industries: Steel, aluminum.

Stocks at risk include producers with weaker pricing power.



Road construction


Large industrial building contractors



Companies living on R&D allocation


GLOBAL INVESTOR FOCUS

Energy—49

Photovoltaic energy generation

is a clear choice for the future

Photovoltaics may not be the entire

solution to the world’s energy

issues, but this renewable energy

will certainly be an important piece

of the puzzle.

M.Graetzel & A.J.McEvoy, Laboratory for Photonics

and Interfaces, Faculty of Basic Sciences,

Ecole Polytechnique Fédérale de Lausanne

It is often forgotten that Einstein received his Nobel recognition,

not for the theory of relativity, but for more conventional physics,

the Brownian motion of small particles and, of more immediate

interest here, the photoelectric effects in the interaction of light

and matter. The relevant observations were already on record 60

years earlier, and by Einstein’s time one photochemical process,

photography, already had a revolutionary impact.

Since the first images by Daguerre (1837) and the standardization

of the silver halide process by Fox Talbot (1839) photography

had become the standard medium of record so that today

we have images of Lincoln, Bismarck and Victoria, and of the

events in which they were involved. In association with the telegraph,

photography initiated the first communications revolution,

and with steam power launched the globalization process, still

ongoing. After Faraday, there was at the same time the establishment

of the science of electrochemistry. In this context Edmond

Becquerel initiated a convergence of these studies, investigating

the electrical effect of illuminating a silver halide electrode

in an electrolytic cell, also in 1839.

In the history of photonics technology, the theoretical explanation

by Einstein, whereby the energy of light in distinct photons

stimulates the activity of individual electric charges or photons

falls halfway between the first observation of the effect and the

launch of industrial-scale fabrication of solar cells. In the interval

of course the evolution of technology led to innovations of the

highest social impact, such as “talking movies” and television

cameras. It is obvious to everyone that this evolution is accelerating,

with the replacement of photography by the solid state

digital imaging system and the domination of the television market

by the liquid crystal system. The history is also marked by the

competition of the electrochemical devices represented by Becquerel’s

cell and Fox Talbot’s halide suspension with the later

solid state junctions This is a competition which continues with

the challenge of the EPFL photoelectrochemical solar cells to

the established solid state silicon photovoltaic devices.

PV production increases silicon demand

The peak rated power of the total world production of photovoltaic

cells reached 1.2 GW in 2004, an increase of 44% by volume

and 50% by revenue over the previous year. In terms of rated

power this represents a factor of 60 since 1985. The domination

of the market by standard silicon cells is illustrated by the forecast

that despite the challenge of alternative this film concepts,

silicon will still hold 80% of the market in 2010. However the

innovative challengers can expect to represent a production of

2GW peak power rating in that year, easily exceeding the total

PV market today 1 . One consequence of this situation is a silicon

shortage, so that solar cell prices have stabilized and even risen

slightly in contrast to previous expectations of a decrease.

It should also be noted that this growth is concentrated in

countries, particularly Germany, which strongly support solar PV

installation through high utility buyback rates to amortize the installation

costs of up to per rated watt installed. It should not

be presumed that solar photovoltaic systems are installed to

offset conventional generation systems in the electric grid; >


GLOBAL INVESTOR FOCUS

Energy—50

off-grid applications generally represent a higher added value,

providing services through electricity not otherwise available.

Industry standard solar cell is the silicon device. It can benefit

not only from established industrial experience with silicon

for electronic devices, but also from the availability of surplus and

recycled silicon, as the purity specifications can be lower for

solar photovoltaic applications. However new silicon production

plant is now required to satisfy the market expansion. Production

involves energy-consuming high-temperature processing, and in

service a silicon cell may operate for three years before recovering

the energy required for its manufacture.

Dye-sensitized solar cells play bigger roler

Consequently thin-film devices with reduced materials requirements

can find an advantage and are under development. One

such concept is the EPFL dye-sensitized cell. This cell relies on

a different semiconductor, titanium dioxide, and a different structure.

Whereas in the silicon cell charge separation and voltage

generation are associated with a junction between two variants

of silicon, n- and p-, in which the charge carriers are respectively

negative electrons and positively charged sites, or “holes”

with an electron deficit, this new device relies on a contact between

the semiconductor and an electrolyte. Junction formation

does not therefore require high temperature processing. Titanium

dioxide is selected because of its stability in contact with the

electrolyte; this stability has a price of a restricted sensitivity to

solar light. That response is therefore modified by attachment of

an electroactive dye. A dye molecule absorbs a light photon, and

the associated energy transfers an electron to the semiconductor.

The dye molecule, now positively charged, reacts with the

electrolyte and is neutralized, while the electrolyte recovers an

electron from a second electrode in the cell. This electrode in

turn is connected through the external circuit to the semiconductor

component, which releases the electron to it.

The potential of the dye-sensitized solar cell as a practical

device is confirmed by the commercial interest, with several

industries taking licenses on the patents and engaging in scale

up and prototype applications. American and Japanese development

engineers are exploiting the particular adaptability of

the device to flexible polymer substrates, on which the semiconductor

is deposited as a thin film 2 . There is also an engagement

in Australia as well as Japan to erect and evaluate large-area

systems. Japanese researchers have recently and independently

confirmed EPFL results on the photovoltaic efficiency of the

EPFL cell 3 . With the ongoing expansion of the PV market it is

expected that the dye-sensitised cell can find a significant niche.

In competition with conventional devices and other innovations,

and with the escalation of fossil fuel prices as well as environmental

considerations, the EPFL work can and will contribute to


1

Solar Verlag GmbH/PHOTON Consulting, “Solar Annual 2006”.

2

www.konarka.com

3

Y.Chiba et al., Japanese Journal of Applied Physics45 (2006) L638

Figure 1

Use of solar energy increases dynamically

at a yearly growth rate of 33%

Source: SunScreen

700

Annual installation in OECD countries of solar panels in megawatts

Figure 2

Expected development of globally installed

photovoltaic capacity

Source: SunScreen II

3500

Capacity in megawatts at peak capacity

600

3000

500

2500

400

2000

300

1500

200

1000

100

500

0

94 95 96 97 98 99 00 01 02 03 04

0

2004A 2005E 2006E 2007E 2008E 2009E 2010E


Global Investor Focus

Energy—51

Credit Suisse Global Alternative

Energy Index: Presentation

Credit Suisse is launching a global Alternative

Energy Index, named the Credit

Suisse Global Alternative Energy Index

(hereafter: the CSGAE). This index represents

a milestone, since it offers several

key characteristics: tracking of all alternative

energy sources, worldwide exposure

and regular rebalancing.

Miroslav Durana, Trading strategist, Commodities &

Equities Trading Research

Tracking the main alternative energy sources, including

all four renewable sources as defined by the International Energy

Agency. The Alternative energy market encompasses the following

five sectors with equal weight: Natural Gas, Wind, Solar,

bio-energy, and Geothermal & hydropower & fuel cells & batteries.

Hence, the CSGAE will offer balanced exposure to all new energy

sources without bearing the risk of bias to any particular sector.

The CSGAE will facilitate financial participation in an industry

sector whose economic and social importance will grow on a

steady basis due to the expected continuous decline in oil reserves

and growing environmental awareness.

Global coverage: the CSGAE will cover the performance of

the largest 30 companies in the world, six from each sector. The

final number of companies will be determined at the launch date

of the Index based on well-defined index rule book criteria which

consist of market size, free float and average daily trading volume.

of more than USD 3 millions. The CSGAE will thus enable investors

to catch worldwide opportunities and give access in EUR/

USD to some less tradable securities.

Regular rebalancing: the CSGAE components will be regularly

rebalanced by the same quantitative process in order to

select the largest stocks in each sector. The Index rebalancing

will be done on a semi-annual basis to rebalance each sector to

a weight of 20%, keeping equal opportunity and avoiding distortion

from any one sector. This will enable the CSGAE to keep up

with changes in the Alternative energy landscape and include

new IPos: The index will also respond immediately to major corporate

events such as mergers or takeovers, spin-offs and delisting.

Within each sector all companies will be capped to 10% of

total index in order to limit an individual company›s effect on the

whole index. This semi-annual rebalancing will also exclude poor

performers and the CSGAE will therefore remain representative

of the alternative energy universe.

The universe of the eligible companies and the index methodology

will be determined by Credit Suisse. In specific markets,

such as emerging markets, Credit Suisse will include ADR’s instead

of local shares in the index in order to mitigate currency

risks.

Therefore, the CSGAE provides a tradable and investable

indicator that will reflect the expected impressive growth rates in

the Alternative energy market segment. The annual growth rates

of alternative energy sub-segments are expected to range between

30% in the Solar sector, more than 15% in the Wind sector

and above 10% in the Geothermal and bio-energy sectors,

respectively, by 2010 according to the International Energy

Agency (IEA), Global Wind Energy Council and Solarbuzz.

Therefore, the CSGAE can be seen as a global dynamic and

well-balanced index in a growth market with significant potential.


GLOBAL INVESTOR FOCUS

Authors—52

Arthur Vayloyan > Credit Suisse..................................04–05

Arthur Vayloyan is a member of the Credit Suisse Executive Board, and Head

of Private Banking Switzerland. He has been responsible for Credit Suisse

Private Banking’s onshore business in Switzerland since late 2002. He also

manages the offshore business in France, Italy, Germany, Austria, and international

locations in Gibraltar, Guernsey, Monaco and Luxembourg, as well as

collaborating with independent asset managers. After joining Credit Suisse in

1992, he transferred to Private Banking in 1996. Working in the Latin America

market, ultimately as Head of the US, Canadian, Latin American, Spanish and

Portuguese offshore markets. Arthur Vayloyan holds a doctorate in physical

chemistry (special subject nanotechnology ) from the University of Berne, and

an MBA from INSEAD in France.

Giles Keating > Credit Suisse....................................06–09

Giles Keating is a managing director at Credit Suisse Group, where he is Head of

the Global Economic and Strategy Group, Head of Research for Private Banking

and Asset Management, and a member of the Investment Committee in Zurich,

which is responsible for setting the investment strategy for the bank’s discretionary

clients. An economist by profession, Giles started his career with the Confederation

of British Industry where he was head of the Economic Forecasting

department. In 1981, he was a research fellow at the London Business School,

Centre for Economic Forecasting in London. Giles Keating joined Credit Suisse

First Boston in 1986 and held various posts including Chief Economist, Global

Head of Fixed Income Research and Economics, member of Global Fixed Income

Management Committee and Co-Head of the Pensions Advisory and Structuring

Group. In 2004, he became Head of Global Research at Credit Suisse in Zurich.

Giles graduated from Oxford University with a bachelor’s in philosophy, politics

and economics, and holds a master of science in mathematical economics and

econometrics from the London School of Economics.

Lars Kalbreier > Credit Suisse.......................10–17, 22–28, 30–37

Lars Kalbreier, CFA, is a managing director at Credit Suisse, and heads the

Trading Research Group, with teams in Europe and the USA. He joined Credit

Suisse in 2002. Prior to joining the company, Lars was a vice president at JP

Morgan in London, where he was part of the Global Balanced group. He holds

an MS in Finance and Business Administration from HEC Lausanne (Hautes

Etudes Commerciales) and is a Chartered Financial Analyst.

Roger Signer > Credit Suisse.................................18–19, 51

Roger Signer joined Credit Suisse’s Trading Research Team in November 2004,

where he is involved in quantitative and derivatives strategy projects. Prior to

joining Credit Suisse, he worked in the Asset Management department of Bank

Vontobel in New York and Vienna, and in the financial sector research team of

Bank Vontobel in Zurich. Roger holds a master’s degree in Economics and

Finance from the University of St. Gallen.

Roselyne Bachelot-Narquin > Member of the European Parliament ......20–21

Roselyne Bachelot-Narquin is a French regional councilor for the Pays de la Loire

and member of the European Parliament and National Secretary of the UMP

(Union for a Popular Movement). As Chairwoman of the Committee on Regional

Planning and Environment until 2004, and Minister for Ecology and Sustainable

Development in Jean-Pierre Raffarin’s government (2002–2004), she has

devoted a considerable part of her political activities to environmental issues.

Among other things, she initiated the admission of the Loire as a UNESCO World

Heritage site. She has carried out administrative roles for a number of bodies

such as the French Environment and Energy Management Agency or the Water

Agency for Loire-Bretagne. As part of her ministerial responsibilities, Roselyne

Bachelot-Narquin drafted the «Charter of the Environment» for incorporation

into France’s constitution.

Tobias Merath > Credit Suisse...................................06–09

Tobias Merath joined Credit Suisse as commodity analyst in November 2004.

He is responsible for the research coverage of energy, precious metals and base

metals markets. Prior to joining Credit Suisse, Tobias worked in the absolute

return strategies department at Deutsche Bank Asset Management in Frankfurt,

Germany. Previously he was a research assistant at the Institute for Economy

and Environment at the University of St. Gallen and worked at Emissions Trading

Solutions St. Gallen AG. Tobias holds a Masters degree in Economics from the

University of Konstanz, Germany, and studied at the University College Cork in

Ireland.

Christian Ferrazino > City of Geneva..............................22–28

Christian Ferrazino is the Administrative Councillor of the City of Geneva, and

Head of the Department for Town Planning and Development, Construction and

Roads. He was elected to the Executive Council of the City of Geneva in 1999

and was Deputy to the Great Council from 1993 to 2002. Having formerly

worked as a lawyer, he now dedicates himself fully to his political mandate. A

campaigner for the quality of urban life, he fights for the development of pedestrian

areas and green spaces in various districts. In Geneva, he is known for

being one of the foremost advocates of ecological mobility and the reduction of

urban traffic.

Hervé Prettre > Credit Suisse.................. 10–17, 22–28, 30–37, 40–41

Hervé Prettre is a director at Credit Suisse, where he is in charge of Trading

Themes and Strategies in the Equity Trading Research Team. He joined Credit

Suisse as an equity trading research analyst in 2001. Prior to joining the company,

Hervé worked for ABN Amro (Switzerland) where he was Head of the

Equities Advisory Desk (Zurich). Previously, he held the position of Trade Attaché

in the field of Construction, Transport and Environment at the Embassy of

France in Washington, DC. He received an MS in Finance and International

Business Law at ESCP (Ecole Superieure de Commerce de Paris) and a political

science degree at the University Paris-Dauphine.


GLOBAL INVESTOR FOCUS

Authors—53

Hubert Reeves > Centre National de la Recherche Scientifique .........22–28

Born in Montreal, Hubert Reeves resides in France where he is a Director of

Research at the Centre National de la Recherche Scientifique, a position he has

held since 1965. Mr. Reeves’ specialty is in the area of nuclear astrophysics,

and he is an expert on the origin of the light elements. He is also a well-known

popularizer of science, appearing frequently on French television and highly

regarded for his environmental work. He has authored many books that are

bestsellers in France, including Atoms of Silence (1985), and The Hour of Our

Delight (1990). Much of his writing has focused on ecological issues and he

has been a principal player in numerous international conferences and television

programs on the subject. He is a distinguished member of several prominent

environmental associations and councils, including the former Council for the

Rights of Future Generations (Le Conseil pour les Droits des Generations Futures)

and President of Ligue Roc, a league for the preservation of biodiversity.

Celina Maria Assumpção do Valle Pereira > Brazilian Embassy, Bern.....22–28

Celina Maria Assumpção do Valle Pereira became Ambassador Extraordinary

and Plenipotentiary to the Brazilian Embassy in Bern, Switzerland in May 2003.

Prior to that, she was assigned in Geneva as Deputy Permanent Representative

to the UN and Ambassador in Charge of Disarmament Affairs in 2000. Between

1996 and 2000, she served as Chief of Staff of the Undersecretary-General of

the Foreign Service and Director-General of the Department of International

Organizations in Brazil. Since joining the Brazilian Ministry of Foreign Affairs in

1969, Ms. do Valle Pereira has also represented her country in Buenos Aires,

Washington, Ottawa and Paris. She speaks fluent English, French and Spanish,

and holds a BA in French language and literature from the University of Aix-

Marseille in France, and a BA in Romance Languages from Pontifical Catholic

University, Rio de Janeiro, in Brazil.

Rainer Scherwey > Credit Suisse Asset Management.................22–28

Rainer Scherwey joined Credit Suisse Asset Management in November 2001.

He is Fund Manager of the Credit Suisse Real Estate Fund Property Plus, the

first Swiss real estate fund to invest primarily in construction projects in economically

attractive Swiss locations for which building permits have already been

issued and which allows investors to participate in a development’s increasing

value as it progresses. Rainer began his career in real estate management in

1999 when he joined Prof. Hans Kollhoff’s architects’ firm in Berlin. He then

worked at ABB Real Estate Ltd in Baden (Switzerland). As the Fund Manager

of the Credit Suisse Real Estate Fund Property Plus, he is responsible for strategic

decisions regarding the portfolio, in close coordination with the product

team. Rainer holds a Diploma in Architecture from the Swiss Federal Institute

of Technology in Zurich, and an MBA in International Real Estate Management

from the Biberach University of Applied Sciences (Germany).

Markus Mächler > Credit Suisse..................................30–37

Markus Mächler joined Credit Suisse in 1999 as a buy side analyst covering the

German equity market and selected sectors. Between 2001 and 2004, he

headed the former European Equity Research team in Credit Suisse Private

Banking. Since mid-2004, Markus has been covering a number of equity sectors,

including the automotive and capital goods sectors. Before joining Credit

Suisse, Markus worked as an analyst and portfolio manager with Rothschild

Bank in Zurich, and Rothschild Asset Management in London. He received his

degree in business administration (Certified Swiss Business Manager) in 1996

and became a Certified European Financial Analyst (CEFA) in 1999.

Miroslav Durana > Credit Suisse .................................30–37

Miroslav Durana is a vice president at Credit Suisse, where he is in charge of

Trading Themes and Quantitative Strategies in the Equity Trading Research

team. Prior to joining Credit Suisse in 2005, he worked for Union Bancaire

Privée, Lombard Odier Darier Hentsch and the AVS Fund as a financial analyst

in equity and fixed-income asset classes and as a portfolio manager for balanced

and fixed-income portfolios. Miroslav holds an MS and PhD in physics from the

Swiss Federal Institute of Technology in Zurich and Lausanne, respectively, and

an MBA from HEC Lausanne.

Michael Graetzel > Laboratory for Photonics and Interfaces............49–50

Professor Michael Graetzel directs the Laboratory for Photonics and Interfaces

at the EPFL (Swiss Federal Institute of Technology) in Lausanne, Switzerland.

He holds a Ph.D. in Physical Chemistry (summa cum laude) from the Technical

University of Berlin and a Diploma in Chemistry (summa cum laude) from the

Free University of Berlin. He is well known for his development of a new type of

solar cell that produces energy by absorbing light and storing it inside highly

porous organic layers for conversion to energy. He has received numerous

awards and honorary lectureships for his work, and has co-authored over 500

publications, two books and more than 40 patents. Michael Graetzel’s publications

have received over 30,000 citations, ranking him amongst the most

highly cited scientists in the world.

Augustin McEvoy > Laboratory for Photonics and Interfaces............49–50

Augustin McEvoy is a scientific associate in the Laboratory for Photonics and

Interfaces directed by Prof. M. Grätzel. He is a specialist in materials and electrochemical

processes in energy-related systems, particularly fuel cells and

solar cells. He is also associate editor of the Journal of Fuel Cell Science and

Technology, organiser and instructor for European Union activities, and contributing

author to textbooks in the fuel and solar cell areas.

Olivier P. Müller > Credit Suisse. .................................30–37

Olivier Müller is a vice president at Credit Suisse, covering Swiss and European

food manufacturers and retailers, as well as Italian and Nordic banks. He joined

Credit Suisse early in 2003 as an analyst and then moved to Equity Sector

Research Europe. Previously, he worked for the equity portfolio management

team at Winterthur Asset Management, where he started his career. Olivier holds

a masters degree in business administration from the University of Bern, with a

major in finance and management accounting.


GLOBAL INVESTOR FOCUS

Imprint—54

Disclosure appendix

Analyst certification > The analysts identified in this report hereby certify that views about the

companies and their securities discussed in this report accurately reflect their personal views

about all of the subject companies and securities. The analysts also certify that no part of their

compensation was, is, or will be directly or indirectly related to the specific recommendation(s)

or view(s) in this report.

Important disclosures > Credit Suisse policy is to publish research reports, as it deems appropriate,

based on developments with the subject company, the sector or the market that may have

a material impact on the research views or opinions stated herein. Credit Suisse policy is only to

publish investment research that is impartial, independent, clear, fair and not misleading.

For more detail, please refer to the information on independence of financial research, which

can be found at:

https://entry4.credit-suisse.ch/csfs/research/p/d/de/media/independence_en.pdf

The analyst(s) responsible for preparing this research report received compensation that is

based upon various factors including Credit Suisse total revenues, a portion of which are generated

by Credit Suisse Investment Banking business.

The Credit Suisse Code of Conduct to which all employees are obliged to adhere, is accessible

via the website at:

https://www.credit-suisse.com/governance/en/code_of_conduct.html

Rating change history as of 18/12/2006

Company

Rating Date (since)

ABB N (ABBN VX) BUY 07/06/2006

HOLD 14/02/2006

BUY 06/09/2005

HOLD 03/12/2004

BUY 27/01/2004

REST 29/08/2003

AIR FRANCE - KLM (AF FP) SELL 15/11/2006

HOLD 31/08/2006

SELL 05/04/2005

HOLD 14/10/2003

BG GROUP (BG/ LN) BUY 24/07/2006

BUY 09/02/2006

BUY 28/09/2005

BUY 10/05/2005

BUY 18/02/2004

BMW (BMW GR) BUY 13/04/2004

BOUYGUES (EN FP) SELL 27/04/2006

HOLD 22/02/2006

BUY 03/11/2005

HOLD 02/03/2005

BUY 26/11/2003

BRITISH AIRWAYS HOLD 04/11/2005

(BAY LN)

HOLD 10/11/2003

CAP GEMINI (CAP FP) BUY 26/07/2006

HOLD 24/02/2006

BUY 29/09/2005

HOLD 06/05/2004

BUY 05/09/2003

DAIMLERCHRYSLER HOLD 27/04/2006

(DCX GY)

BUY 28/07/2005

HOLD 15/11/2004

BUY 10/12/2003

DANONE (BN FP) BUY 22/02/2006

HOLD 20/07/2005

BUY 26/04/2005

HOLD 15/01/2004

FORD MOTOR (F US) HOLD 28/07/2006

SELL 11/10/2005

HOLD 08/07/2005

SELL 06/08/2004

Company

Rating Date (since)

GAMESA (GAM SM) HOLD 13/12/2006

GAZ DE FRANCE (GAZ FP) HOLD 07/09/2005

GENERAL MOTORS HOLD 25/05/2006

(GM US)

SELL 11/10/2005

HOLD 08/07/2005

SELL 13/10/2004

HONDA MOTOR CO HOLD 27/10/2004

(7267 JP)

KYOCERA (6971 JP) BUY 23/08/2006

HOLD 07/03/2006

BUY 04/10/2005

HOLD 26/07/2005

BUY 20/04/2005

SELL 27/01/2005

BUY 17/05/2004

NESTLE N (NESN VX) BUY 15/01/2004

HOLD 16/09/2003

NORDEX (NDX1 GR) HOLD 14/12/2006

Q-CELLS (QCE GR Equity) HOLD 12/12/2006

SHARP CORP OSAKA HOLD 14/12/2005

(6753 JP)

BUY 17/08/2005

HOLD 25/07/2005

SIEMENS R (SIE GY) BUY 15/12/2004

HOLD 24/02/2004

SOLARWORLD (SWV GR) BUY 13/11/2006

HOLD 20/06/2006

SOUTHWEST AIRLINES HOLD 27/06/2005

(LUV US)

BUY 23/02/2005

TOKUYAMA (4043 JP) BUY 02/03/2005

TOYOTA MOTOR (7203 JP) BUY 09/02/2006

HOLD 06/10/2005

BUY 06/02/2004

US STEEL (X US) HOLD 29/09/2006

BUY 03/04/2006

HOLD 04/08/2005

BUY 30/07/2004

VESTAS WIND SYSTEMS HOLD 20/06/2005

(VWS DC)

SELL 29/11/2004

HOLD 22/08/2003

VOLKSWAGEN (VOW GR) HOLD 03/02/2004

Fundamental and/or long-term research reports are not regularly produced for (NORDEX). Credit

Suisse reserves the right to terminate coverage at short notice. Please contact your Relationship

Manager for the specific risks of investing in securities of these companies.

Credit Suisse has managed or co-managed a public offering of securities for the subject

issuer (ABB N, AIR FRANCE - KLM, Anadarko Petroleum Corp., BMW, China Shipping Development,

DAIMLERCHRYSLER, DANONE, FORD MOTOR, GENERAL MOTORS, HONDA MOTOR CO,

NESTLE N, SOUTHWEST AIRLINES, TOYOTA MOTOR, Williams Companies) within the past three

years.

Credit Suisse has managed or co-managed a public offering of securities for the subject

issuer (ABB N, AIR FRANCE - KLM, Anadarko Petroleum Corp., BMW, China Shipping Development,

DAIMLERCHRYSLER, DANONE, FORD MOTOR, GENERAL MOTORS, HONDA MOTOR CO, NES-

TLE N, TOYOTA MOTOR, Williams Companies) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject issuer (ABB N,

AIR FRANCE - KLM, Anadarko Petroleum Corp., BMW, China Shipping Development, Cosan,

DAIMLERCHRYSLER, DANONE, FORD MOTOR, GENERAL MOTORS, HONDA MOTOR CO, NESTLE

N, Reckitt Benckiser, SIEMENS R, TOYOTA MOTOR, Williams Companies) within the past 12 months.

Credit Suisse expects to receive or intends to seek investment banking related compensation

from the subject issuer (ABB N, AIR FRANCE - KLM, Anadarko Petroleum Corp., Avista Corp, BG

GROUP, BMW, BOUYGUES, BRITISH AIRWAYS, CAP GEMINI, China Shipping Development, Cosan,

DAIMLERCHRYSLER, DANONE, FORD MOTOR, GAMESA, GAZ DE FRANCE, GENERAL MOTORS,

Headwaters, Inc., HONDA MOTOR CO, KYOCERA, MOTECH INDUSTRIES INC, NESTLE N, Q-CELLS,

Reckitt Benckiser, SHARP CORP OSAKA, SIEMENS R, SOUTHWEST AIRLINES, TOKUYAMA,

TOYOTA MOTOR, US STEEL, VOLKSWAGEN, Williams Companies) within the next three months.

As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the

securities of the subject issuer (Anadarko Petroleum Corp., Archer Daniels Midland Inc., Ballard

Power Systems, FORD MOTOR, GENERAL MOTORS, HONDA MOTOR CO, KYOCERA, SHARP

CORP OSAKA, SOUTHWEST AIRLINES, TOYOTA MOTOR, US STEEL).

Credit Suisse holds a trading position in the subject issuer (ABB N, AIR FRANCE - KLM, Anadarko

Petroleum Corp., Archer Daniels Midland Inc., Avista Corp, BG GROUP, BMW, Ballard

Power Systems, BOUYGUES, BRITISH AIRWAYS, CAP GEMINI, China Shipping Development,

Cosan, DAIMLERCHRYSLER, DANONE, FORD MOTOR, GAMESA, GAZ DE FRANCE, GENERAL

MOTORS, Headwaters, Inc., HONDA MOTOR CO, KYOCERA, MOTECH INDUSTRIES INC, NESTLE

N, Q-CELLS, Reckitt Benckiser, SHARP CORP OSAKA, SIEMENS R, SOLARWORLD, SOUTH-

WEST AIRLINES, TOKUYAMA, TOYOTA MOTOR, US STEEL, VOLKSWAGEN, Williams Companies,

VESTAS WIND SYSTEMS, NORDEX).

As at the end of the preceding month, Credit Suisse beneficially owned 1% or more of a class

of common equity securities of (CAP GEMINI, China Shipping Development, GENERAL MOTORS,

Q-CELLS, SIEMENS R, VOLKSWAGEN).

Swiss American Securities Inc. disclosures

Swiss American Securities Inc. or its affiliates has managed or co-managed a public offering of

securities for the subject issuer (ABB N, AIR FRANCE - KLM, Anadarko Petroleum Corp., BMW,

China Shipping Development, DAIMLERCHRYSLER, DANONE, FORD MOTOR, GENERAL

MOTORS, HONDA MOTOR CO, NESTLE N, TOYOTA MOTOR, Williams Companies) within the

past 12 months.

Swiss American Securities Inc. or its affiliates has received investment banking related

compensation from the subject issuer (ABB N, AIR FRANCE - KLM, Anadarko Petroleum Corp.,

BMW, China Shipping Development, Cosan, DAIMLERCHRYSLER, DANONE, FORD MOTOR,

GENERAL MOTORS, HONDA MOTOR CO, NESTLE N, Reckitt Benckiser, SIEMENS R, TOYOTA

MOTOR, Williams Companies) within the past 12 months.

Swiss American Securities Inc. or its affiliates expects to receive or intends to seek investment

banking related compensation from the subject issuer (ABB N, AIR FRANCE - KLM, Anadarko

Petroleum Corp., Avista Corp, BG GROUP, BMW, BOUYGUES, BRITISH AIRWAYS, CAP GEMINI,

China Shipping Development, Cosan, DAIMLERCHRYSLER, DANONE, FORD MOTOR, GAMESA,

GAZ DE FRANCE, GENERAL MOTORS, Headwaters, Inc., HONDA MOTOR CO, KYOCERA,

MOTECH INDUSTRIES INC, NESTLE N, Q-CELLS, Reckitt Benckiser, SHARP CORP OSAKA,

SIEMENS R, SOUTHWEST AIRLINES, TOKUYAMA, TOYOTA MOTOR, US STEEL, VOLKSWAGEN,

Williams Companies) within the next three months.

As of the date of this report, Swiss American Securities Inc. acts as a market maker or liquidity

provider in the equity securities of the subject issuer (ABB N, Anadarko Petroleum Corp.,

Archer Daniels Midland Inc., Avista Corp, DAIMLERCHRYSLER, FORD MOTOR, GENERAL

MOTORS, Headwaters, Inc., HONDA MOTOR CO, SIEMENS R, SOUTHWEST AIRLINES, TOYO-

TA MOTOR, US STEEL, Williams Companies).

As at the end of the preceding month, Swiss American Securities Inc. or its affiliates beneficially

owned 1% or more of a class of common equity securities of (CAP GEMINI, China Shipping

Development, GENERAL MOTORS, Q-CELLS, SIEMENS R, VOLKSWAGEN).

Swiss American Securities Inc. or its affiliates holds a trading position in the subject issuer

(ABB N, AIR FRANCE - KLM, Anadarko Petroleum Corp., Archer Daniels Midland Inc., Avista

Corp, BG GROUP, BMW, Ballard Power Systems, BOUYGUES, BRITISH AIRWAYS, CAP GEMINI,

China Shipping Development, Cosan, DAIMLERCHRYSLER, DANONE, FORD MOTOR, GAMESA,

GAZ DE FRANCE, GENERAL MOTORS, Headwaters, Inc., HONDA MOTOR CO, KYOCERA,

MOTECH INDUSTRIES INC, NESTLE N, Q-CELLS, Reckitt Benckiser, SHARP CORP OSAKA,

SIEMENS R, SOLARWORLD, SOUTHWEST AIRLINES, TOKUYAMA, TOYOTA MOTOR, US STEEL,

VOLKSWAGEN, Williams Companies, VESTAS WIND SYSTEMS, NORDEX).

Additional disclosures for the following jurisdictions

Hong Kong: Other than any interests held by the analyst and/or associates as disclosed in this

report, Credit Suisse Hong Kong Branch does not hold any disclosable interests. Qatar: Any

securities included in this report are not being offered or sold publicly in Qatar, and may not be

offered or sold to the public generally in Qatar. Russia: The research contained in this report does

not constitute any sort of advertisement or promotion for specific securities, or related financial

instruments. This research report does not represent a valuation in the meaning of the Federal

Law On Valuation Activities in the Russian Federation and is produced using Credit Suisse valuation

models and methodology. United Kingdom: For fixed income disclosure information for

clients of Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited, please call

+41 44 333 12 11.

For further information, including disclosures with respect to any other issuers, please refer

to the Credit Suisse Global Research Disclosure site at:

https://entry4.credit-suisse.ch/csfs/research/p/d/de/disclosure_en.html

Guide to analysis

Rating Allocation as of 18/12/2006

Overall

Investment banking interests only

BUY 43.34% 43.53%

HOLD 52.05% 52.36%

SELL 4.27% 3.90%

RESTRICTED 0.34% 0.21%

Relative performance > At the stock level, the selection takes into account the relative attractiveness

of individual shares versus the sector, market position, growth prospects, balance-sheet


GLOBAL INVESTOR FOCUS

Imprint—55

structure and valuation. The sector and country recommendations are “overweight,” “neutral”, and

“underweight” and are assigned according to relative performance against the respective regional

and global benchmark indices.

Absolute performance > The stock recommendations are BUY, HOLD and SELL and are

dependent on the expected absolute performance of the individual stocks, generally on a 6–12

months horizon based on the following criteria:

BUY

HOLD

SELL

RESTRICTED

TERMINATED

BUY

HOLD

SELL

RESTRICTED

10% or greater increase in absolute share price

variation between –10% and +10% in absolute share price

10% or more decrease in absolute share price

In certain circumstances, internal and external regulations exclude certain

types of communications, including e.g. an investment recommendation during

the course of Credit Suisse engagement in an investment banking transaction.

Research coverage has been concluded.

Corporate and emerging market bond recommendations > The recommendations are based

fundamentally on forecasts for total returns versus the respective benchmark on a 3–6 month

horizon and are defined as follows:

Expectation that the bond issue will be a top performer in its segment

Expectation that the bond issue will return average performance

in its segment

Expectation that the bond issue will be among the poor performer

in its segment

In certain circumstances, internal and external regulations exclude certain

types of communications, including e.g. an investment recommendation during

the course of Credit Suisse engagement in an investment banking transaction.

Credit ratings definition > Credit Suisse assigns rating opinions to investment-grade and

crossover issuers. Ratings are based on our assessment of a company’s creditworthiness and

are not recommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB) is

dependent on our assessment of an issuer’s ability to meet its financial commitments in a timely

manner.

AAA

Best credit quality and lowest expectation of credit risks, including an

exceptionally high capacity level with respect to debt servicing. This capacity

is unlikely to be adversely affected by foreseeable events.

AA

Obligor’s capacity to meet its financial commitments is very strong

A

Obligor’s capacity to meet its financial commitments is strong

BBB

Obligor’s capacity to meet its financial commitments is adequate, but

adverse economic/operating/financial circumstances are more likely to lead

to a weakened capacity to meet its obligations

BB

Obligations have speculative characteristics and are subject to substantial

credit risk due to adverse economic/operating/financial circumstances resulting

in inadequate debt-servicing capacity

For the AA, A, BBB, BB categories, creditworthiness is further detailed with a scale of High, Mid,

or Low, with High being the strongest sub-category rating. An Outlook indicates the direction a

rating is likely to move over a two-year period. Outlooks may be positive, stable or negative. A

positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings

for which outlooks are “stable” could be upgraded or downgraded before an outlook moves to

positive or negative if circumstances warrant such an action.

Credit Suisse HOLT > The Credit Suisse HOLT methodology does not assign ratings to a security.

It is an analytical tool that involves use of a set of proprietary quantitative algorithms and

warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are

consistently applied to all the companies included in its database. Third-party data (including

consensus earnings estimates) are systematically translated into a number of default variables

and incorporated into the algorithms available in the Credit Suisse HOLT valuation model. The

source financial statement, pricing, and earnings data provided by outside data vendors are

subject to quality control and may also be adjusted to more closely measure the underlying economics

of firm performance. These adjustments provide consistency when analyzing a single

company across time, or analyzing multiple companies across industries or national borders. The

default scenario that is produced by the Credit Suisse HOLT valuation model establishes the

baseline valuation for a security, and a user then may adjust the default variables to produce

alternative scenarios, any of which could occur. The Credit Suisse HOLT methodology does not

assign a price target to a security. The default scenario that is produced by the Credit Suisse

HOLT valuation model establishes a warranted price for a security, and as the third-party data

are updated, the warranted price may also change. The default variables may also be adjusted to

produce alternative warranted prices, any of which could occur. Additional information about the

Credit Suisse HOLT methodology is available on request.

For technical research > Where recommendation tables are mentioned in the report, “Close”

is the latest closing price quoted on the exchange. “MT” denotes the rating for the medium-term

trend (3 – 6 months outlook). “ST” denotes the short-term trend (3 – 6 weeks outlook). The ratings

are “+” for a positive outlook (price likely to rise), “0” for neutral (no big price changes expected)

and “-“ for a negative outlook (price likely to fall). Outperform in the column “Rel perf” denotes

the expected performance of the stocks relative to the benchmark. The “Comment” column

includes the latest advice from the analyst. In the column “Recom” the date is listed when the

stock was recommended for purchase (opening purchase). “P&L” gives the profit or loss that has

accrued since the purchase recommendation was given.

For a short introduction to technical analysis, please refer to Technical Analysis Explained at:

https://entry4.credit-suisse.ch/csfs/research/p/d/de/techresearch/media/pdf/trs_

tutorial_en.pdf

Global disclaimer/important information

References in this report to Credit Suisse include subsidiaries and affiliates. For more information

on our structure, please use the following link:

http://www.credit-suisse.com/who_we_are/en/structure.html

The information and opinions expressed in this report were produced by Credit Suisse as of

the date of writing and are subject to change without notice. The report is published solely for

information purposes and does not constitute an offer or an invitation by, or on behalf of, Credit

Suisse to buy or sell any securities or related financial instruments or to participate in any particular

trading strategy in any jurisdiction. It has been prepared without taking account of the objectives,

financial situation or needs of any particular investor. Although the information has been obtained

from and is based upon sources that Credit Suisse believes to be reliable, no representation is

made that the information is accurate or complete. Credit Suisse does not accept liability for any

loss arising from the use of this report. The price and value of investments mentioned and any

income that might accrue may fluctuate and may rise or fall. Nothing in this report constitutes

investment, legal, accounting or tax advice, or a representation that any investment or strategy is

suitable or appropriate to individual circumstances, or otherwise constitutes a personal recommendation

to any specific investor. Any reference to past performance is not necessarily indicative

of future results. Foreign currency rates of exchange may adversely affect the value, price or

income of any products mentioned in this document. Alternative investments, derivative or structured

products are complex instruments, typically involve a high degree of risk and are intended

for sale only to investors who are capable of understanding and assuming all the risks involved.

Investments in emerging markets are speculative and considerably more volatile than investments

in established markets. Risks include but are not necessarily limited to: political risks; economic

risks; credit risks; currency risks; and market risks. An investment in the funds described in this

document should be made only after careful study of the most recent prospectus and other fund

information and basic legal information contained therein. Prospectuses and other fund information

may be obtained from the fund management companies and/or from their agents. Before entering

into any transaction, investors should consider the suitability of the transaction to individual circumstances

and objectives. Credit Suisse recommends that investors independently assess, with

a professional financial advisor, the specific financial risks as well as legal, regulatory, credit, tax

and accounting consequences. The issuer of the securities referred to herein or a Credit Suisse

company may have acted upon the information and analysis contained in this publication before

being made available to clients of Credit Suisse. A Credit Suisse company may, to the extent

permitted by law, participate or invest in other financing transactions with the issuer of the securities

referred to herein, perform services or solicit business from such issuers, and/or have a

position or effect transactions in the securities or options thereof.

Distribution of research reports > Except as otherwise specified herein, this report is distributed

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(BaFin), disseminates research to its clients that has been prepared by one of its affiliates.

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Kingdom: This report is issued by Credit Suisse (UK) Limited and Credit Suisse Securities (Europe)

Limited. Credit Suisse Securities (Europe) Limited and Credit Suisse (UK) Limited, both authorized

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within Credit Suisse. The protections made available by the Financial Services Authority for private

customers do not apply to investments or services provided by a person outside the UK, nor will

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meet its obligations.

UNITED STATES: NEITHER THIS REPORT NOR ANY COPY THEREOF MAY BE SENT, TAKEN

INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON.

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This report may not be reproduced either in whole or in part, without the written permission

of Credit Suisse. © 2006 CREDIT SUISSE

IMPRINT Publisher Credit Suisse Global Research, P.O. Box 300, CH - 8070 Zurich, Director: Giles Keating Editor Lars Kalbreier, Hervé Prettre Editorial support Michèle Bodmer, Ross

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