INDUSTRIAL SECTOR SPANISH COMPANY NOTE. ABG - Cp: 21.6; Tp: 18.6/sh. (Initiation of coverage) Rating: Reduce Market Cap.: 1.95bn

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1 INDUSTRIAL SECTOR JBCapitalMarkets Analyst: León Izuzquiza, tel SPANISH COMPANY NOTE ABENGOA Valuation reflects more the opportunities than the risks Transformation into a concession-type company could deliver value but involves risk Reduce. (ABG.MC/ABG SM) Years P/E (x) P/CF (x) EV/EBITDA (x) P/BV (x) Div. Yield (%) ABG - Cp: 21.6; Tp: 18.6/sh. (Initiation of coverage) Rating: Reduce Market Cap.: 1.95bn Performance (%) Last ( ) M -3.3 Rec.: Reduce 2011e M +3.9 Tp ( ): e YTD 17.6 Source: Bloomberg, JB Capital Markets Although we think Abengoa should be able to implement its 4.4bn capex plan through 2013 without financial obstacles, the current market price seems to reflect the full value creation potential, but ignoring the existing execution risks. Although short term sentiment has improved due to its Biofuels and Solar CSP exposure, we do not believe these activities are the best way to play the renewables theme. We resume coverage of Abengoa with a 18.6/share target price and a Reduce recommendation. Visibility at the expense of high leverage. From its traditional Engineering/Construction beginnings, Abengoa is rebalancing its business towards infrastructure type assets, (target 40% of 2013 revenues vs. 22% today). This has raised net debt from 78% of 2005 market cap to c.300% in 2010, with an upward trend given its 4.4bn capex plan until We see the plan as financially viable but think the market price already reflects it, ignoring execution risks (exceeding the budget, delays in its execution, cash flows shortfalls, negative working capital developments etc). Note that in the past Abengoa has made diversification attempts (wind power, telecom via Xfera, IT, biofuels) that were not fully developed. Renewables appeal seems overstated. Since the recent events in Japan, the stock has Abengoa relative performance Abengoa Ibex MJ J A S O N D J F M A M J J A S O N D J F M A Source: Thomson Financial Datasteram outperformed the IBEX by +4%, to a total +18% on However, we do not see Abengoa s business model as providing the ideal exposure to the renewables theme, being very dependent of biofuel and concentrating solar power (thermosolar). Unattractive valuation: we obtain a 18.6/share SOTP target price, representing 13.9% potential. We believe that our valuation is lower than consensus due to both operating (lower multiples for most businesses) as well as financial issues (we deduct off-balance sheet debt and take minorities at market rather than book value). Execution of its entire capex plan could generate additional value of 1.8/share, increasing our target price to 20.4/share. We resume coverage with a Reduce recommendation. - Contacts: Research: tel Sales: tel Sales trading: tel This is a research report destined only for JB Capital Markets institutional clients. Please refer to full disclosure at the back of this report.

2 CONTENTS Summary and investment case...3 Engineering and construction (E&C)...4 Concession-type infrastructures...7 Environmental services...11 Consolidated estimates and consensus...15 Financial position and CAPEX plan...19 Valuation and rating...22 Ratios...24 Sensitivity analysis...25 Newsflow...26 Shareholder structure and liquidity...26 Basic equity story

3 SUMMARY AND INVESTMENT CASE After a number of failed past diversification attempts, Abengoa seems to have finally focused on renewable energies, and especially concentrating solar power plants (thermosolar), as the means to diversify away from its core construction and engineering business. The company has reorganised its corporate structure, now reporting numbers via three units: engineering and construction, concession type infrastructures (mainly electricity transmission and solar power) and industrial activity (including biofuels and waste management), rather than the prior five (Engineering and construction, environmental services, bioenergy, solar and IT). Abengoa s target is for recurrent concession-type asset EBITDA to account for 40% of EBITDA by 2013 vs. the 22% of The above diversification drive has led to a very significant investment effort, based both on nonrecourse project debt as well as a sharp increase in recourse corporate debt (used to finance a large part of the equity contribution to the projects). Abengoa plans to invest 4.356bn in ( 1.332bn in electricity transmission, 2.264bn in solar power, 273m in cogeneration, 290m in biofuels and 196m in desalination), funded by 2.675bn in non-recourse debt, 400m of partner s equity and 1.281bn in Abengoa equity contributions. One of the main factors that could have an impact on whether Abengoa is able to comfortably complete its investment cycle is the performance of working capital, which currently finances a large part of the Abengoa balance sheet, including heavy use of non-recourse factoring (lowering receivables on the balance sheet) and reverse factoring (increasing the volume of payables). We believe that the sharp rise in the order backlog (including work on Abengoa owned assets) has also been a contributor to working capital financing via significant client advances. On our current estimates Abengoa should be able to complete its investment phase without breaching its covenants (3x recourse debt/recourse EBITDA, with breach of covenants potentially leading to significant equity issuance), although it has also noted that it has a plan B, consisting of making greater use of minorities to fund investments and divest mature assets/ipo some of the units, in order to cover any funding shortfall. Although an active asset rotation policy could be a useful complement to operating cash flow generation, it entails significant execution risk, especially in view of still tight financing markets. The recent AGM has also approved the possibility of issuing B and C shares, although management has stated that it has no concrete plans to make use of the authorisation. We value Abengoa on the back of a SOTP exercise, using recent transactions in electricity transmission, and concentrating solar power and biofuels, as well as peer ratios for the engineering and construction business (once adjusted for non-comparable assets and EBITDA). We include in our valuation only the capex for 2011, as we believe that there is the risk that the company may fall short of our cash generation targets/may face tougher financing markets than expected, leading to the need for equity issuance. We deduct from the valuation both the on-balance sheet debt and the off-balance sheet debt in the form of factoring and reverse factoring. We deduct the minorities at a similar market value to that of the group stakes. This leads to a target price of 18.6/share, which could increase to 20.4/share should we include the value potentially created by execution of the full capex plan. Our valuation is lower than consensus as we use a lower multiple for the engineering and construction business (although backed by adjusted peer numbers) and for the biofuels business (on which we have doubts as a long term business). Our valuation of the electricity transmission and concentrating solar power assets is also lower than that suggested by Abengoa in its recent Investor Day, being backed by recent third party transactions. We also believe that our valuation is lower than peers due to taking into account the Abengoa off-balance sheet debt (factoring and reverse factoring) as well as a market value for minorities (rather than book value which we believe is the norm). Although we believe that the current positive market view of renewable stocks, could lend support to the share price, we believe that current stock levels already discount full execution of the company s considerable capex plans without fully taking into account the execution risks. We resume coverage of Abengoa with a reduce recommendation and an 18.6/share price target. 3

4 ENGINEERING AND CONSTRUCTION (E&C) This division comprises three main activities: (i) traditional Industrial engineering activities, (ii) Information and Technology Services, (iii) Water treatment facilities construction, as well as a marginal Solar technology and knowledge transfers activity. Industrial Engineering Through this division, Abengoa builds mechanical and electrical infrastructures for the Energy sector (mainly the development, funding, engineering, design and construction of power and industrial plants with emphasis on the solar and biofuels sectors), delivers "turn key" telecommunications networks and projects integration as well as developing related Installation works including maintenance. The geographical breakdown of revenues is: Europe 41%, LatAm 39%, US and Canada 10%, other countries 10%. In recent years, Abengoa has continuously increased its sales figures, reaching a record of 3.42bn in This is directly linked to the positive performance of the backlog, which is at historic highs, mainly due to the good performance of the Peruvian, Chilean, Brazilian and Mexican markets. In addition to the positive performance of the business in those countries, as a result of the lack of electrical infrastructure, the rise in sales was also related to the boom in construction of renewable electricity generation plants, mainly concentrating solar power (thermosolar or CSP) and photovoltaic (PV) plants in the recent past. Nonetheless, we believe both these drivers of past growth are not likely to be maintained in the coming years. Brazil is a relatively mature market, where competition has grown and electrical infrastructure needs have decreased sharply. In Spain the boom would seem to be over, and the current installed capacity still has to be digested. Public investment in transmission lines in other LatAm countries or the US could arise as new business opportunities for Abengoa, but bearing in mind the complex regulatory environment in the US and the legal security issues of other LatAm countries we do not believe they will be enough to sustain similar growth to that of the past. Abengoa s current backlog supports significant levels of revenues for the coming three years, but to maintain the current sales performance, we estimate that Abengoa would need to sign contracts for 3.1bn/year, which is above the 2.4bn/year recent year average. Assuming that the Spanish boom is over, that the example of the PV and CSP development in Spain are not a good guide to the future of this technology in other countries, that the infrastructure needs in LatAm have declined and competition has grown, in our estimates we apply a +33% revenues growth in 2011 ( 4.5bn vs. the 4.2bn revenues targeted by the company with the current backlog only), +5% in 2012 ( 4.8bn vs. 3.5bn with the current backlog) and a CAGR of -10% with a long term annual revenue figure of 3.5bn. These estimates would correspond to an estimated average annual contracting of 2.4bn (vs. an average of 2.4bn in recent years). Backlog and revenue evolution ( m) 6,000 5,000 4,000 3,000 2,000 1,000 Backlog evolution average annual backlog New Orders Current backlog e 12e 13e 14e 15e However, the high levels of backlog achieved have been partly the result of the company having a greater focus on revenues than on EBITDA, thus leading to pressure on prices and negative impact on Abengoa s EBITDA margins, despite the mix remaining similar to past years (with energy contracts representing 79% of the total activity). We expect that the inertia of already signed contracts will impact on the margins of the next two years. Bearing this in mind, and considering that Abengoa hedges different risks in its contracts (exchange rates, interest rates and raw material prices) we estimate Abengoa s EBITDA margin will be at the midpoint of its 8%-10% target, applying an 9.0% EBITDA margin in 2011 and over the long term. We have valued this Business Unit using a 4.5x EV/EBITDA multiple on the estimated 2011 EBITDA figure. This is the standard construction and engineering multiple we use for other companies, obtaining a 1.072bn EV valuation. This 4.5x EV/EBITDA 11 multiple compares to the average 7.6x on which peers mentioned by Abengoa are trading 4

5 (Tecnicas Reunidas, Duro Felguera and Fluor). However, we believe Elecnor and Duro Felguera would be the closest comparables, once adjusted for noncomparable EBITDA/debt. Abengoa E&C peers ( m) Elecnor Duro Felguera Market Cap 1, Minorities (at 1.5x book value) Net debt EV 1, Projects or manufacturing facilities Real estate investment Other Fin Inv Equity stakes Adjusted EV EBITDA EV/EBITDA (x) EBITDA from projects or manufacturing Adj. EBITDA (minus projects, + 10% exgrowth) EV/adjusted EBITDA (x) Source: Stock Exchange Commission, JB Capital Markets As regards this division it should also be noted that Abengoa carries out a significant part of the work for its own assets (in % of overall revenues were for internal projects). Note that out of the bn E&C backlog at end-2010 (out of the total backlog of 9.274bn), 47% was external (for third parties or for projects where Abengoa has a minority stake), 14% was 100% internal and 39% was partly internal. Relative to the 2010 sales this would represent 1.7x coverage of external sales and 5x of internal ones, with the total 2010 E&C revenues covered 2.6x by the total backlog. E&C internal and external work 29 (%) ( m) 2,500 External work (rhs) Internal work (rhs) 27 2, Internal as % of total 23 1, Source: Abengoa and JB Capital Markets 1, In the case of own projects, the accounting for the construction and engineering work is different depending on the nature of the future asset, differentiating if the project can be included within the IFRIC12 rule (public services concessions, with a private-public nature with prices and services regulated by the grantor) or not. Projects which are 0 under the umbrella of this rule (as for example the construction of a transmission line) are considered third party assets, where the owner will pay Abengoa a sum during the period of the concession. Thus, the Abengoa construction business can recognise the margin on the project and the concession type asset division feature the asset as an intangible (if the cash-in risk is fixed) or as receivable account (if the amount to be received is linked to inflation or any other risk factor). If the assets for which the work is undertaken cannot be included within the IFRIC12 scope, the project is considered as an internal one, eliminating it in the consolidation process, without generating any margin for the company (although contributing to supporting overheads). These differences are important especially in terms of working capital, considering that the company is very proactive in the factoring of receivables and reverse factoring of payables and the work done for own projects does not allow these kinds of financial activities, according to the company. However, although the net effect on factoring/reverse factoring levels may be neutral the fact is that internal projects are likely to be the source of advances to the E&C division, mostly financed on the basis of non-recourse financing (thus helping the company to be within the 3.0x Corporate Debt/Corporate EBITDA covenant). Information and Technology Services Abengoa participates in the IT business through a 40% stake in its Telvent subsidiary, listed in the NASDAQ, which is fully consolidated in its accounts. Telvent offers information services and technological solutions in 3 main areas: 1) Energy, ensuring the efficient and optimized management of electrical energy oil and gas assets 2) Transportation, helping to manage road, rail and maritime transport infrastructures, reducing contaminating emissions and improving mobility 3) Environment and Agriculture, helping to adapt to and cushion the effects of climate change on population and biodiversity. Its operations are carried out in 24 countries, with the US (31% of the total sales) and Europe (48%) being the most relevant markets. Revenue growth rates have decreased in the past two years, due to the challenging economic environment, given that 60% of revenues come from public administrations/institutions. With the energy related contracts growing at double digit (33% of total revenues) and the expected recovery in transport revenues (another 33% of the total, more dependent on public expenditures and affected in this context), 5

6 we believe that Telvent can achieve at least low single digit growth rates in the medium term, with a +3.8% e CAGR. At the EBITDA level, the change experienced in its activities portfolio (from a traditional mix to a information systems implementation model) has led to improved EBITDA margins, rising from levels below 10% to 15.4% in 2009 and 17.4% in These sales represent 15% of total revenues at the current time, with a 30% target in the medium term. The cost structure is lean, and the synergies relating to the acquisitions have already been captured, with the room to improve margins through cost containment being limited. Overall, we forecast an EBITDA margin of 16-18% through e. On the corporate side, no more acquisitions are expected in the short term, with an organic growth strategy, focusing efforts on the above-mentioned change of business mix. Considering the c.60% free float, we have valued this unit at the market price of Telvent (TLVT US). On this basis, we value at 305m equity value Abengoa s stake. The implicit valuation ratios is 8.3x EV/EBITDA 11 (on our estimates). There are no pure listed peers for Telvent, but a reasonably similar peer would be the Spanish listed Indra (which trades at 9.1x EV/EBITDA 11 on consensus estimates). Other competitors are Siemens, Areva or ABB, but their ratios do not offer a useful comparison given the modest weight of the IT business in their consolidated figures. Water treatment plant construction Through this activity, Abengoa focuses on the engineering and construction activities for water infrastructure projects, via five business lines: 1) Desalination of sea water 2) Water purification, treatment and reutilisation. 3) Industrial water treatment. 4) Hydraulic works, such as cleaning up or modernisation of irrigation lands and 5) Hydraulic Infrastructures. The visibility of the sector is high, with a current backlog of 1.0bn, and with expected double digit sector growth rates for the coming years. According to the Global Water Market publication, total investment expected to be executed in should amount to over US$3.0trn. The investment plans in the main markets where Abengoa operates (China, India, USA, Gulf Region ) amount to US$1.364trn, and Abengoa has targeted projects worth c.us$13.0bn in the short term. However, as an engineering business model, EBITDA margins are low, having reached 4.3% in 2010, compared to those of its peers, 9.4% Acciona Agua in 2010, and the 10.8% released by Tetratech in 2010 and 11.7% in the 1Q 11. Tetratech s mix of revenues (33% Engineering and consulting services, 24% technical support services, 13% Engineering and architecture and 35% refurbishment and Construction management with a 5% of eliminations), more focused on consulting services than Abengoa activity (100% construction) would justify the different profitability levels. In our estimates, we assume +5.2% Revenues e CAGR and a 7.0% average EBITDA margin through As a construction activity, we value this division on the same 4.5x EV/EBITDA ratio as the engineering and construction activity. Applying this ratio to our 2011 estimate we obtain a 87m EV for the unit. The fact that the main competitors in this business are large international companies within industrial groups (Acciona Agua, OHL s Inima or Veolia Water) and the wide spread in the range of trading multiples for the listed peers (between 27x EV/EBITDA 11 for Hyflux, as a market leader, to the 7.8x of Tetratech) limit the usefulness of a possible multiples comparison. Although Befesa has recently agreed to sell its water project engineering and construction business to Abengoa s Abeinsa subsidiary for 159m (equity value of 144.3m) or 14.4x the 11m EBITDA published for the activity in 2010, we do not assign much credibility to this internal transaction as a valuation benchmark. Solar In this area Abengoa records the sale of technology components, knowledge transfers to third parties and other related solar developments. Although 2010 results were positive ( 27m) Abengoa guidance is for future results to be more in line with the 2009 ones ( 3m EBITDA) so its weight in Abengoa s P&L should be residual going forward, making thus a negligible contribution to the division s valuation We enclose the financial estimates for all these businesses in the next table. 6

7 Engineering and Construction estimates ( m) e 2012e 2013e 2014e 2015e CAGR'10/15e Total Revenues 2, , , , , , , , % Growth 11.6% 18.8% 25.3% 21.6% 4.6% -5.9% -5.8% -5.6% ow: Industrial Engineering 1, , , , , , , , % ow: Eliminations , , , , , , , % ow: Water construction % ow: IT % ow: Solar n.a % TOTAL EBITDA % growth% 226.6% 54.1% 25.5% -0.5% 1.7% -4.1% -6.2% -6.4% Margin% 10.2% 13.3% 13.3% 10.9% 10.6% 10.8% 10.7% 10.6% ow: Industrial Engineering % ow: Water construction % ow: IT % ow: Solar n.a % Total Depreciation n.a. n.a EBIT n.a. n.a % CONCESSION-TYPE INFRASTRUCTURES This division may be divided into two activities: (i) concessions properly speaking and (ii) owned Solar plants. Concessions Abengoa operates industrial plants, conventional and renewable electricity plants, transmission lines and telecommunications turn-key projects, with revenues coming from LatAm (64%), Europe (31%) and Africa (5%). The activities and their contribution are as follows: (i) Transmission lines (76% of revenues): Abengoa operates 4,413 Km of electricity transmission lines through 21 projects in Brazil, Chile and Peru. The sector has experienced sharp growth in Brazil in recent years, given the lack of infrastructures and the long distances from the generating assets to the consumer population areas, as well as the positive macro evolution. Additionally, the increased legal safety introduced by ANEEL, the National Electric Energy Agency, has allowed international investors to profit from this process. There is planned expansion amounting to over 36,000km through 2017 to cover expected electricity consumption in the country, but considering current Abengoa plans (obtain a 13% of that expansion plan) and increasing competition in the sector, we expect low growth rates in the medium long term. (ii) Electricity generation assets (19% of revenues). The company is currently building one cogeneration plant in Mexico and a Solar Plant in Algeria, with start of operations expected for 2011 and 2012 respectively. The current investments effort amounts to a total of 244m. (iii) Water assets (the remaining 5%): management and operation of water infrastructures and facilities under concession agreements, especially desalination and water treatment plants. Abengoa currently operates three plants in Spain, Algeria and India, with a total capacity of 375,000 m3/day. Furthermore, it is developing a portfolio which should become fully operational in 2012, with an extra 400,000 m3/day spread between two plants in Algeria, which should start operations in 1Q 11 and 3Q 11 and another 100,000 m3/day plant in China, which should be operational in 1Q The origin of these activities is related to the Engineering and Construction area. With the aim of signing contracts for that core division, Abengoa offers the possibility of becoming the owner of the asset. Thus, engineering backlog is assured and regulated/high visibility assets come into its Balance sheet. We do not see the cash flow derived from these businesses as negative, but the fact that Abengoa keeps signing these contracts would seem to confirm the maturity of the construction sector, in line with our previous statements. The concessions activity is the key activity through which Abengoa plans to develop the bulk of its growth strategy. The company states these businesses have a 10-15% IRR return for shareholders, with high levels of EBITDA margin (up to 85% in transmission lines and 40-50% in desalination plants), with limited risk according to the company given their regulated 7

8 activity nature, providing recurrence to the company s cash flows. To value this division, the main input is the already invested capital adjusted for the accumulated depreciation of the operating assets. We value these concessions at 3.0bn applying a 10% premium to their asset value. This multiple, is equivalent (under a 80% ND/20% equity capital structure) to a 1.5x P/BV (in turn equivalent to discounting cash flows to shareholders providing a 15% IRR on the original investment at a 9% discount rate, similar to the cost of the bond issues made by the Abengoa parent company to fund investment in the equity of concession type assets). Note that in December 2010 a relevant benchmark transaction took place when Elecnor sold 7 stakes in Brazilian electricity transport companies with a book value of m for m (i.e. P/BV of 1.18x). We apply the same multiple to the stakes in concessions where Abengoa has a lower than 50% stake, but consider them as a financial investment for purposes of our SOTP valuation. In its recent Investor Day Abengoa stated that it believed its power transmission assets could be valued at an enterprise value of 2.814bn or 1.3x their book value (assuming WACC of 7.3% for Brazil and 7-7.1% for Mexico). In the following table we show the current asset investments held by Abengoa. Abengoa concession assets Kind of project Activity Country Operative/ Under C. % control Years of contract Asset investment ( m) accumulated depreciation ( m) Transmission lines ATN Transmission Peru UC 100% ATE Transmission Brazil O 100% ATE II Transmission Brazil O 100% ATE III Transmission Brazil O 100% ATE IV Transmission Brazil O 100% ATE V Transmission Brazil O 100% ATE VI Transmission Brazil O 100% ATE VII Transmission Brazil O 100% Abengoa Trnsmision Sur Transmission Brazil C 100.0% Etim Transmission Brazil O 25.0% Linha Verde Transmission Brazil UC 25.5% Manaus Transmission Brazil UC 50.5% Norte Brasil Transmission Brazil UC 25.5% NTE Transmission Brazil O 50.0% STE Transmission Brazil O 50.1% Electric Energy Abengoa Cog. Tabasco Cogeneration Mexico UC 100.0% Solar Plant One Solar Argelia UC 66.0% Desalination plants IDAM Cartagena Desalination Spain O 38.0% Chennai Water Desalination India O 25.0% Aguas de Skikda Desalination Argelia O 34.0% Myah Barh Honaine Desalination Argelia UC 51.0% Quingdao Desalination China UC 92.0% Sharitket Tenes Desalination Argelia UC 51.0% Infrastructures Hospital Costa del Sol Construction Spain O 50.0% Hospital del Tajo Construction Spain O 20.0% Inapreu Construction Spain O 50.0% Source: Abengoa annual reports, JB Capital Markets Solar In this area Abengoa is involved in the production of electric energy through mainly Concentrating Solar Power (thermosolar or CSP) and Photovoltaic (PV) technologies. The company currently manages a portfolio of 193MW operating portfolio in Spain (11.7 MW PV and 181MW CSP) and owns a 50% stake in a 150MW CSP in Algeria, which should start operations during 1H 11. In addition Abengoa has 960MW of CSP plant capacity in different stages of development in Spain and in the US, and a 20% stake in a 100MW plant, which is under construction in Saudi Arabia. 8

9 Spain s parliament has recently approved Royal Decree Law 14/2010, which modified the regulatory framework for solar electricity generation. The aim of this decree is to contain the regulated costs of the energy system by 4.6bn in , impacting mainly on the solar area, where the plan foresees a 3,111bn cost reduction (69% of the total), shared out between PV energy (48% of the total) and CSP Energy (21%). We believe this cut makes sense and is justified in a context where electricity sector costs and revenues have to be balanced. The premiums paid in Spain per consumed MWh stand at 16.5, compared to 8.8 in Germany or 3.6 in Denmark, with this kind of electricity generation being the beneficiary of 43% of total premiums of the electricity system in 2009, despite having only generated 7% of the total electricity in that year (44% and 9% respectively in 2010). The measures to be applied are different for each type of technology. For the PV plants, a limitation in the number of hours with right to premiums is set for a 3 year period, with the remainder of generation being sold at the wholesale market price. As partial compensation the number of years over which the premium can be collected was raised from 25 to 28. In the case of CSP, the pool plus premium remuneration system has been eliminated in favour of a regulated tariff for all the plants listed in the pre-registry during one year. Additionally, a 1 year delay in the entry into operation of the plants listed in the pre-registration and a limitation on the number of hours per year that can receive premiums of the system have been introduced. Although both technologies (PV and CSP) share negative points from a competitiveness point of view (the energy has to be bought by the system and has a high remuneration) there are some differences which should be pointed out: the CSP plants receive 3% of total premiums (vs. 41% PV) while generating 0.8% of the annual energy sold (vs. 7.7% PV) and they does not represent such a fragmented generation capacity, with the associated higher transport costs for the system. In this sense, CSP plants represent <0.01% of the total number of generation facilities in Spain (vs. 93% for the PV). We do not foresee additional major regulatory changes impacting the sector in the near future. Nonetheless, bearing in mind the highly subsidised nature of the assets, we do not consider in our valuation all the Abengoa targeted CSP pipeline, taking into account only: 1) The current capacity in operation in Spain. 2) The plants in advanced stages of construction, already listed in the pre-registry, and with financing facilities signed by Abengoa. 3) We assign 0 value to all projects in which construction has not started and have not closed their financing (despite being included in the preregistry). After this initial approach, the operating hypotheses included in our estimates are: 1) A 4.0m CAPEX/MW for future investment, except for the Solana plant where we use a 5.21m estimate in line with the company s guidance. 2) year useful life for the plants. 3) 22% average load factor (1,900 hours/year) 4) Regarding the selling price of the energy we assume the regulated tariff in Spain ( /MWh) and a market price of 50MWh, both updated annually with a 1.5% inflation rate. 5) We assume an initial O&M cost of 0.11m/MW (with 1.5% inflation rate updating), placing the EBITDA margins in a 70-80% range during the life of the plant. 6) In the case of the US and Algeria plants, where no information regarding the selling prices (through PPAs) is disclosed, we have assumed a 7.0% IRR for the equity for the US plant and a 9.0% for the Algerian one, in line with the guidance of the company. This IRR compares to the average 9.3% implied for the Spanish plants under the above assumptions. In the next table, we show the different Abengoa plants in the operating/under construction stages, with the probability of success we assign them (100% to the operating plants or those included in the pre-registry with the financing facilities closed and 0% to the others, as already explained), the year of entry into operations, their peak capacity and the estimated equity IRR under our assumptions. 9

10 Solar capacity Type of plant Country Location Name Status Probability Year Capacity Equity (Mw) IRR (e) Photovoltaic Spain Solucar Sevilla PV Operating 100.0% % Photovoltaic Spain Rest of Spain Casaquemada Operating 100.0% % Photovoltaic Spain Rest of Spain Operating 100.0% % CSP Spain Solucar PS- 10 Operating 100.0% % CSP Spain Solucar PS- 20 Operating 100.0% % CSP Spain Solucar Solnova 1 Operating 100.0% % CSP Spain Solucar Solnova 3 Operating 100.0% % CSP Spain Solucar Solnova 4 Operating 100.0% % Hybrid Solar -gas Argelia Hassi R'mel Operating 100.0% % CSP Spain Écija Helioenergy Under Construction. Included in pre-registry 100.0% % CSP Spain Extremadura Solaben 2 y 3 Under Construction. Included in pre-registry 100.0% % CSP Spain Sevilla Solnova 2 y 5 Not pipeline 0.0% % CSP Spain Extremadura Solaben 1y 6 Pre-registred. No financing signed 0.0% % CSP Spain Castilla-La Mancha Helios 1 y 2 Pre-registred. No financing signed 0.0% % CSP Spain Carpio Solacor 1 y 2 Under Construction. Included in pre-registry 100.0% % CSP USA Arizona Solana Financing and PPA signed. Under construction 100.0% % CSP USA California Mojave dessert Only PPA signed. 0.0% % Source: Abengoa and JB Capital Markets Under the above assumptions our DCF model delivers a valuation of 3.4bn for the division ( 2.1bn ex the Solana Plant). However, and given the still high degree of uncertainty regarding the execution of the capex plan, it might be simpler to value the unit on the basis of recent transactions and current invested capital. In this respect, we value this division at a 10% premium to the total net value of its assets, leading to a 1.93m EV. Note in any event that if Abengoa estimates an IRR for equity of 9.3% and is financing the equity investments in these projects at a cost of 8-9%, this would represent a generous valuation, especially as the listed renewables stocks trade at below their theoretical valuations. In this respect the most relevant benchmark valuation transaction has been the recent sale by Acciona to Mitsubishi of a 15% stake in its Acciona Termosolar subsidiary (200MW) for 45.79m. This deal would imply valuing the company at an EV/MW of 5.04m (equity of 305.3m and debt of 702.8m) vs. book value of 4.57m (i.e. 1.1x EV/Asset value). In comparison, Acciona in its last investor day talked about a fair value of 6.23m/MW in Spain and 5.05m/MW in the US. For its part, Abengoa in its recent Investor Day valued its CSP plants at 6.87m/MW (on the assumption of 7% WACC, 2,270 gross hours of operation, 80% EBITDA margin and 30 year useful life), which represents a 28% premium to the 5.38m/MW of the gross value of operating plants. The following are the operating estimates for the division. Concession type assets ( m) e 2012e 2013e 2014e 2015e CAGR'10/15e Total Revenues % growth% n.a % 46.7% 43.0% 31.4% 32.0% 4.6% 7.7% ow: Concessions % ow: Solar % TOTAL EBITDA % growth% n.a % 45.5% 48.0% 31.4% 37.7% 3.9% 9.4% Margin% 13.4% 64.4% 63.9% 66.1% 66.1% 69.0% 68.5% 69.6% ow: Concessions % ow: Solar % Total depreciation EBIT % 10

11 ENVIROMENTAL SERVICES This division may be divided into two activities: (i) Industrial waste management and (ii) biofuels production. Industrial waste management This unit is specialised in the integral management of industrial wastes, specifically, recycling of aluminium, steel dust and stainless steel and the management of other industrial wastes, with 49% of revenues being generated in Spain and 51% in other European markets. Abengoa buys (or even receives money for collecting steel in some cases) the wastes of the industrial companies, treats them and sells the resultant product (sometimes to the same players). As a whole, this is a very industrial related business whose growth drivers are mainly the demand for steel and aluminium, the volumes treated and the margins obtained per tone. Given regulatory pressure to protect the environment (with Europe being the most regulated market) and the non-core nature of recycling for the aluminium/steel manufacturers, this activity has a certain degree of visibility and recurrence. Considering 2011 prospects, the sector visibility is high. The World steel association forecasts that world steel demand will grow 5.3% in 2011 (5.7% in the EU), although still being cautious for the 2H 11 evolution. This production levels should represent 75% of the 2007 peak, thus not being a too demanding figures. Additionally, in its FY 10 Results presentation, Arcelor Mittal has anticipated a slow and progressive recovery in the last quarter of 2010, which it expects to continue in 2011, due to a recovery in demand. On this basis the, 1Q 2011 trend should show an increase in shipment volumes, average steel selling prices and rising capacity utilisation levels leading to higher EBITDA/tonne. Our hypothesis for the 3 main sectors are: 1) Aluminium waste recycling. Abengoa provides collection and treatment services for aluminium containing waste, manufacturing and marketing aluminium alloys, with a total capacity of 0.160m tons/year. Its average levels of utilisation in the last four years stands at 68%, similar to the 70% we are assuming from 2011 onwards (with no increase in total capacity) and an increase in prices per Tone of waste of 2% p.a. 2) Steel waste recycling. Abengoa treats the residual dust generated in the steel manufacturing process, with a total capacity of 0.684m tons/year. Its average levels of utilisation in the last four years stands at 82%, being the least cyclical activity of this area. We are assuming 75% capacity utilisation levels from 2011 onwards (with no increase in total capacity) and an increase in prices per Tone of waste of 2% p.a. 3) Industrial waste management. Abengoa manages, recycles and reuses different industrial wastes with a total capacity of 0.630m tons. Its average levels of capacity utilisation in the last four years stands at 78%. We are assuming a 70% utilisation levels from 2011 until 2015 (no increase in capacity is expected) and an increase in prices per Tone of waste of 2% p.a. On the EBITDA side, we are estimating margins to be 19-20% (vs. 19.4% on average in ) with a 80/20 variable/fixed cost base. We think that this low volatility is justified by: (i) the proactive hedging policies adopted by the company (ii) In both the steel dust and steel waste areas Abengoa buys the salts and signs contracts to resell the post-treated steel or steel dust, at a fixed price (iii) In the aluminium activities, there is natural hedging. Abengoa buys Aluminium, treats it and resells it in a short period of time. As both acquisition and selling prices are fixed by the market in relation to raw material prices, with a short period of time between purchase and sale, margins are relatively fixed (iv) In waste management, given its relationship with clients, Abengoa signs long term contracts, which together with the active hedging policies largely transfer operational risk to the clients. To value this division we use as a starting point the initial 26.0/share price offered to Befesa minority shareholders within its bid to delist the company (price which has finally been adjusted to 23.8/share after the April payment of a 2.22/share interim dividend). At that price (including debt and minorities valued at a similar P/BV as the parent) the listed Befesa vehicle would have an EV of 1.269bn. Subtracting from that EV the value of the Befesa Engineering and Construction activity and the concessions which we value separately ( 87m and 427m respectively) would yield a value of 755m for the industrial activity. This valuation represents an implicit 5.8x EV/EBITDA 11, which compares with the 6.8x of its peer 11

12 Veolia Environement and 6.9x of Seche Environement, although these may not be fully comparable peers. Bioenergy In its bioenergy business, Abengoa carries out the production and development of bioethanol (93% of its total capacity) and biodiesel (the remaining 7%) consuming as raw material cereals, sugar cane, and cellulose biomass with a total production capacity of 3.105m litres, spread between 14 plants in Europe (1,450m litres), USA (1,450m litres) and Brazil (200m litres). This activity is relatively recent, and its future is quite dependent on the regulations implemented in the different markets where it is present, as well as the difference between raw material and final product prices (which differentiates it from other types of renewable energy where the producers own the energy resource i.e. wind, Sun etc, making it more similar to a refiner than to an upstream or integrated oil company). The following chart shows the parallel performance of ethanol prices and that of corn, it main raw material in the US. Performance of US ethanol and corn prices Corn No.2 Yello Cents/Bushel Ethanol, Spot NY 500 Harbour U$/GAL (rhs) Source: Thomson Financial Datastream There is a considerable degree of controversy regarding the benefits of biofuels vs. fossil fuels, their profitability ex subsidies and their collateral impact on other industries, as well as environmental issues. Studies regarding the benefits of using biofuels (reduced energy dependence and lower CO2 emissions) and its drawbacks (inflation in world food prices, destruction of the world s aquifer reserves or its positive/negative energy balance mainly) are numerous and diverse. Although until today the biofuels sector has grown, and different regulatory frameworks promote its utilisation (for example in countries in Europe, US and Brazil, where Abengoa runs its plants), we have doubts regarding its long-term feasibility, and believe that different legal measures should be adopted in order to achieve higher growth levels. As we show in the next table, the evolution and trends in the markets where the company is present are different. In essence, the bioethanol market (93% of Abengoa capacity) is not global, and the market forces involved depend on the countries where Abengoa operates, so we should examine them separately. World Biofuels production Production Biofuels world (M toe) 34,420 45,941 51,769 ow USA 13,793 19,404 22,014 ow Brazil 11,397 13,315 13,863 ow UE 5,851 8,349 9,954 Bioethanol (M litres) 51,293 65,362 73,954 ow USA 24,500 34,070 40,130 ow Brazil 21,300 24,500 24,900 ow UE 1,731 2,816 3,655 Biodiesel (M litres) 10,561 16,084 17,929 ow USA 1,703 2,650 2,060 ow Brazil 730 1,100 1,535 ow UE 6,435 8,733 8,733 Source: Biofuels Platform In Europe, Abengoa accounts for c.22% of the current installed capacity with an average capacity utilisation rate slightly above 80% in 2009, vs. the estimated 54% average utilisation for total European capacity (2009 figures). As regards supply, the Bioethanol Fuel Association states that capacity under construction in Europe stands at 1,750m litres, of which 480 correspond to the new Abengoa Rotterdam plant. These new facilities represent a 25% increase vs. current capacity, and should dilute Abengoa s production share in Europe to 17% after As regards demand, it should be noted that current biofuels sales do not meet the UE targets (biofuels should have reached 5.75% of total fossil fuels consumption in 2010, rising to 10% in 2020), so there is still room for growth, although we believe additional regulatory support would be needed in order to see sharp growth in demand (incentives to the car manufacturers, tax reduction for the acquisition of means of transport using biofuels, compulsory use of biofuels in public means of transport etc). Considering 9% penetration of the biofuels in the total fossil fuel 12

13 consumption by 2020 (vs. 10% targeted by law) and a 1% annual growth in the all road transport fuels consumption (in line with the +1.0% CAGR e) a CAGR 10/20e of 10.8% of biofuels consumption could be achieved. As regards prices we do not expect a positive evolution in the medium term given that: (i) the excess capacity in the sector in the short term, (ii) the lower prices of bioethanol in Brazil (27% of the world production) which has turned Europe into a net importer market in the last 4 years, (iii) the low capacity utilisation rates of the sector (46-54% on average in ) which could make prices fall should utilisation rates rise. Bioethanol market in Europe Bioethanol capacity (M litres) 3,557 6,083 6,785 % Utilization 50.7% 46.3% 54.1% Bioethanol production (M litres) Germany France Spain Others Total UE Source: EurObserv ER and European Bioethanol Fuel Association The U.S. and Brazil are the world s main bioethanol producers. Additionally, the U.S. is the world s largest consumer of fuels, with a favourable legislation for bioethanol production, and Brazil is the most experienced bioethanol player, with the most mature market (over 30 years), and with the largest available land for non food-raw materials production (sugar cane). The US corn ethanol producers have recently seen approval of positive measures with a direct impact in the short term: (i) The use of E-15 (petrol with a 15/85 bioethanol/fossil fuel mix) is compulsory for cars manufactured from 2001, so 129m vehicles (c.68% of the total) will have to use E15. (ii) The ethanol production subsidies have been maintained for 2011 (US$0.54 /gallon) and duties on imported ethanol have also been maintained for 2011 (US$ 0.45 /gallon), basically focused on the Brazilian ethanol exports, which are more competitive given the better performance of sugar crane as raw material (Brazil) vs. corn (U.S.). (iii) Finally, the US government has provided incentives to production given the 12.6 billion gallon mandate for 2011, rising to 15 billion gallons by 2015 (+4.5% CAGR 11/15e) and 36 billion gallons by Bioethanol market in the US Production (M litres) 29,644 42,319 48,906 Consumption (M litres) 31,304 44,019 49,310 Deficit -1,659-1, Estimated Petroleum Consumption 669, , ,493 Penetration targets 4.7% 6.8% 7.9% Source: US Department of Energy Brazil only represents 4% of the total capacity of the division. Brazil is currently the world's leader in ethanol production, being the most mature market where Abengoa operates. Because of government subsidies, large sugarcane crops, and high sales taxes on gasoline, Brazil has built a profitable national ethanol industry, partly due to the fact that sugarcane is grown in the country, converting easily to ethanol. Thus, it is the country the highest penetration rates of bioethanol, and the most competitive in production terms, which favours export of the product, mainly to the negative balance U.S. market. The low production costs together with the penetration of bioethanol in this country lead to high visibility. Brazil exports 70% of its sugar production, but 75% of its ethanol output is still sold in the domestic market. This is mainly because the US and Europe protect their own producers (mainly of cereal based ethanol), so until a world ethanol market takes off, Brazil s production is likely to remain dependent mainly on domestic sales. The above said, our assumptions for Europe are for capacity utilisation levels at 75% in and 70% from that year (vs. the average of 77% in ). In the U.S. we assume 85% utilisation rate in 2011 (in line with the average in ) and lower it to 70% from 2012, should duties on imported ethanol and production subsidies not be approved. Finally, in Brazil we apply an 85% utilisation rate vs. the 90% average in ). The volatility in the ethanol prices, and raw materials (with a 100% capacity utilisation Abengoa would consume ~7.155 m Tons of cereal worldwide) makes it difficult to forecast profitability levels in the medium term. Additionally, the company operates with derivatives to reduce the risk of its procurement, further increasing the difficulty of forecasting. We have calculated different European and American crush spread series to estimate the performance of the gross margin. Through this spread we obtain the gross margin of an ethanol gallon depending on the market 13

14 price of ethanol, corn and gas prices. Technically, this spread is useful for the US market only, given that in Brazil the main feedstock is sugar cane and in Europe, other raw materials instead of corn are used. However, assuming that the profitability in these markets has the same trends, and that the volatility in these inputs could make it impossible to give an accurate estimate for the performance by markets, we adopt this hypothesis for all Abengoa biofuel markets, adjusting for different EU prices. We assume a US$0.70 /Gallon spread for 2011 in the US and a 0.50/Gallon in Europe, which adjusted to /litres is equivalent to a spread. These levels are in line with the average of the last 3 months, and apply 3.0% annual growth through 2015, which implies a 13-16% gross margin, leading to an EBITDA margin range of % in US and EU Crush spread evolution Crush Spread UE ( /gallon) Crush Spread US (US$/Gallon) 0.0 May 05 Mar 06 Jan 07 Nov 07 Sep 08 Jul 09 May10 Mar 11 In the following table we show the multiples for similar companies in each of the main markets where Abengoa is present. Analysing the CAGR of both Sales and EBITDA lines and the multiples of the companies mentioned no clear trends emerge, as the different business mix of these companies (EBITDA margins range between 4% and 39% between 2010 and 2012 in the listed companies) do not make comparison simple. Bioethanol peers ratio comparison Biofuel peer multiples EV/ Sales 2008 EV/ Sales 2009 EV/ Sales 2010 EV/ Sales 2011 EV/ EBITDA 2008 EV/ EBITDA 2009 EV/ EBITDA 2010 EV/ EBITDA 2011 CAGR'10/ 12e Sales CAGR'10/ 12e EBITDA Abengoa Biofuel (at targeted EV) 1.1x 0.9x 0.6x 0.5x 12.5x 7.3x 4.2x 4.1x 1.8% -2.6% Average peers 0.9x 0.8x 0.8x 0.8x 9.6x 11.7x 7.4x 6.7x 10.0% 11.9% Europe peers* VERBIO Vereinigte BioEnergie n.a. 0.4x 0.5x 0.4x n.a. 22.2x 12.1x 6.7x 15.1% 58.2% CropEnergies AG 1.3x 1.5x 1.5x 1.5x 23.8x 17.8x 9.5x 9.6x 6.5% 2.2% US peers* Cosan Ltd. 1.0x n.a. 0.8x 0.5x 10.3x n.a. 6.0x 6.0x 12.4% -13.8% Archer Daniels Midland Co. 0.4x 0.4x 0.4x 0.4x 8.1x 7.4x 7.2x 8.0x 8.7% 9.8% Green Plains Renewable Energy Inc. n.a. n.a. 0.3x n.a. n.a. n.a. 5.7x n.a. 11.1% 9.6% Valero Energy Corp. 0.1x 0.2x 0.2x 0.2x 4.4x 11.9x 5.4x 5.1x 9.6% 15.8% Flint Energy Services Ltd. 0.1x 0.3x 0.5x 0.5x 1.3x 3.5x 6.5x 6.1x 10.8% 13.4% Brazil peers* Sao Martinho S/A 2.6x 2.4x 2.6x 2.0x 9.9x 7.8x 6.6x 5.4x 5.7% -0.3% (*) Factset consensus estimates at market price Source: Factset consensus and JB Capital markets for Abengoa As regards benchmark valuations, in January 2011 a relevant transaction took place in the US market, when Green Plains acquired a 55m gallon capacity bioethanol plant from Otter Tail for US$55m or US$1/Gallon. Otter Tail was bankrupt so we believe a minimum 30% premium should be applied to the price in order to value less distressed assets. Considering a US$1.3m/Gallon valuation ( 0.24m/litre at 1.40 US$/ ), Abengoa s total capacity would be worth an EV of 785m. Previously (October 2010) Green Plains had bought Global Ethanol (owner of two plants with 157m gallon capacity for US$169.2m (or US$1.07/gallon). As regards Europe a relevant transaction would be the September 2009 purchase by Abengoa of the 50% of the 200m litre Babilafuente plant (JV with Ebro) which it did not own for 17m, which bearing in mind 31.6m debt would point to a valuation of 0.328m/litre of capacity. In view of the above, applying a 0.328m/litre to the total capacity in Europe and Brazil and a 0.223m/liter to the US capacity (the average of the transactions explained) we obtain a total 898m EV for the divisions or an implicit 4.1x EV/EBITDA 11. Although this 14

15 valuation would be low in terms of EV/EBITDA compared to peers it would be in line with that of its peers on the basis of EV/Sales. With a view to the future of this activity, Abengoa is currently working on the development of secondgeneration bioethanol. This fuel is produced from non food raw material base, using technologies where Abengoa s R&D resources are being invested. This kind of ethanol is produced from cellulose from harvest wastes, corn stems, switch grass among others, using high technology enzymes. These enzymes are the key for this kind of ethanol production and Abengoa at in a very advanced stage, being close to the start of their use in the production process. With this technology, one of the most controversial negative effects of the growth of biofuels (increase in world food prices) could be solved. As part its growth plan, Abengoa is investing in the construction of a second generation plant in Hugoton (US), with an estimated capacity of 90m litres, which should be operational by 1Q 13. Note, in any event, that the above could be seen to represent technological risk for Abengoa, given that it has made a very substantial investment in first generation plants that might not be competitive should the newer technologies be successful. The estimates for the division are shown in the following table. Estimates ( m) e 2012e 2013e 2014e 2015e CAGR'10/15e Total Revenues % growth% 22.0% -1.8% 47.6% 9.9% -3.0% -0.5% 2.4% 2.4% ow: Recycling % ow: Biofuels , , , , , , , % TOTAL EBITDA % growth% 14.7% 12.6% 47.2% 8.8% -4.9% -1.8% -0.3% 4.5% Margin% 13.1% 15.0% 15.0% 14.8% 14.5% 14.3% 14.0% 14.3% ow: Recycling % ow: Biofuels % Total depreciation EBIT % CONSOLIDATED ESTIMATES AND CONSENSUS We show our estimates under the Abengoa new consolidation metrics, using the format under which they will be provided from 1Q 11. The new reporting format changes the segments from the previous five divisions (Engineering, Environmental Services, Bioenergy, Solar, IT) to three (E&C, Concession-type infrastructures and Industrial Production). Our estimates are slightly below Abengoa s 1.1bn 2011 EBITDA target at 1.07bn (-2.8%), below its 1.3bn EBITDA 2012 target at 1.15bn (-11.2%) and below its 1.5bn 2013 target at 1.28bn (-14.4%). We prefer to adopt this more conservative scenario, given the existing targets are partly based on inorganic growth assumptions. In our estimates we assume a +8.8% CAGR e in revenues, +18.5% in EBITDA and +11.3% at the net profit level. The revenues and EBITDA estimates have been explained when reviewing the Abengoa business units, with the concession type infrastructures business being the main growth driver (+67.2% and +74.4% CAGR e in revenues and EBITDA respectively). Below EBITDA we are assuming that depreciation will equate to 5-6% of fixed assets, rising from 288m in 2010 to 378m in the long term, given the increasing weight of asset-heavy activities. We are assuming a consolidated interest rate for its cash position of 1.9%. For interests paid, we are assuming an average cost of debt of 5.0% for the non recourse debt and a 5.8% for the recourse debt in 2011, rising to 6.2% in 2013 and over the long term, considering that 35% of its total gross debt is financed at variable rates (rates paid due to its hedging transactions should range between 1.5% and 4.7% until 2021), 45% of the total is non recourse debt (rates should move between 1.23% and 5.25% until 2021) and that the remaining 20% of its gross debt is obtained at fixed rates (between 4.5% for convertibles bonds and 8.975% for corporate bonds). 15

16 The equity method revenues mainly correspond to the electricity transmission lines in Brazil, desalination plants and CSP plants where Abengoa has minority stakes. Given the high visibility of the revenues of these concessions and the low growth rates expected for the future at EBITDA level, we are assuming a 4% annual increase for these revenues. We assume a 17.5% effective tax rate, which is mainly justified by the company s tax shield and the significant investments in R&D ( 51.5m on average in 2009 and 2010), being at the midpoint of the conservative 15-20% company guidance. On the minorities side, we are assuming they grow in line with the EBIT levels. Apart from the above, the other assumptions we have adopted with implications for our balance sheet estimates include maintenance CAPEX of 93m p.a., dividends of 0.20/share in 2010, rising by 0.01/share p.a., and Working Capital needs. Abengoa consolidated P&L estimates ( m) e 2012e 2013e 2014e 2015e CAGR'10/ 15e Revenues 3, , , , , , , , % % growth 17.3% 10.0% 34.6% 18.4% 3.8% -0.7% -1.8% -1.2% ow: Engineering and Construction 2, , , , , , , , % ow: concession type assets % ow: commodity processing 1, , , , , , , , % EBITDA , , , , , % % growth 40.8% 39.0% 25.7% 13.3% 8.1% 11.2% -0.3% 3.5% % margin 14.4% 18.1% 16.9% 16.2% 16.8% 18.9% 19.1% 20.0% ow: Engineering and Construction % ow: concession type assets % ow: commodity processing % Depreciation Others (impairments, sales.) EBIT % Financial Revenues Financial exp Financial provisions Associated Others/extraordinary EBT % Taxes Minorities Net Pr % % incr. 15.9% 21.3% 22.0% -19.0% -14.7% 34.2% 5.5% 26.5% EPS % Adj. Earnings Adj. EPS % 16

17 Abengoa Consolidated CF statement ( m) e 2012e 2013e 2014e 2015e Operating CF , CF from operations EBITDA , , , , ,325.0 financial expenses other extraordinary taxes Change in working capital Investment CF -1, , , , , Capex -1, , , (% sales) -36.4% -54.6% -37.5% -1.7% -1.4% -1.4% -1.4% -1.4% Investments NRD , Investment in Equity Divestments Financing , , Change in debt , , Dividends (paid) Dividends from min Capital Increase Other (curcy, consl) Change in cash , , Abengoa consolidated Balance Sheet ( m) e 2012e 2013e 2014e 2015e Intangible assets 2, , , , , , , ,908.7 Fixed Assets 2, , , , , , , ,837.9 Equity meted Financial Assets Deferred tax assets Current Assets 3, , , , , , , ,626.5 Stocks Receivables , , , , , , ,614.2 Other receivables Cash and equivalents 1, , , , , , , ,946.7 Other S/T financials Assets put on sale 1, TOTAL ASSETS 9, , , , , , , ,798.7 Equity , , , , , ,050.8 Minority Interest Deferred tax liabilities Provisions Bonds and others , , , , , ,807.9 Bank debt 2, , , , , , , ,633.8 Project finance 1, , , , , , , ,233.0 Other Current liabilities 4, , , , , , , ,173.2 Account payable 2, , , , , , , ,828.1 Advances from clients Other short term payable Banks & Bonds Short term provisions nad others 1, Project Finance TOTAL LIABILITIES 9, , , , , , , ,798.7 Cash and equivalents 1, , , , , , , ,860.3 Debt and bonds 2, , , , , , , ,161.6 Project finance debt 1, , , , , , , ,725.1 Net debt 2, , , , , , , ,026.5 WC -1, , , , , , , ,928.4 WC needs

18 In the following table we compare our estimates to those of the consensus for Our estimates are below those of the consensus in Revenues but mostly in line on the EBITDA line. We are estimating higher than the consensus net debt levels, which justifies the higher financial costs which place our EBT and net profit estimates below the levels assumed by the consensus. We understand that the consensus estimates deviate clearly from the company expectations on the Revenues side and on the net debt levels assumed. In its recent Investor Day Abengoa set out a target of 1.5bn EBITDA in 2013 ( 480m Engineering and Construction, 600m concession-type infrastructures and 420m Industrial Production). In the 2010 full year results presentation the company had already clarified that it expected for 2011: 1) revenue growth in the low teens, 2) to continue the growth of the E&C business for external customers, 3) low double digit EBITDA growth, 4) no need to issue new corporate debt 4) to continue with the company s asset rotation strategy and 5) to align corporate capex with corporate EBITDA by 2012 and total capex with total EBITDA by We believe that part of the difference between our estimates and the consensus is probably due to the fact that our numbers take into account the deployment of new assets through the total implementation of its capex plan. JBCM estimates vs. consensus ( m) e 2012e 2013e Revenues 5, , , ,811.7 Consensus 5, , , ,556.5 Absolute difference ( m) % difference 0.0% -1.4% -5.3% -9.9% EBITDA , , ,284.5 Consensus , , ,314.6 Absolute difference ( m) % difference 0.0% -1.9% -2.9% -2.3% D&A Consensus EBIT Consensus Absolute difference ( m) % difference 0.0% 6.6% 1.6% 0.4% Financial expenses Consensus Pre-tax profit Consensus Absolute difference ( m) % difference 0.0% -26.4% -32.3% -27.9% Taxes/minorities Consensus Net Profit Consensus Absolute difference ( m) % difference 0.0% -27.5% -49.5% -37.1% Net Debt 5, , , ,972.1 Consensus 5, , , ,125.9, Factset 18

19 FINANCIAL POSITION AND CAPEX PLAN The change experienced by Abengoa towards a heavier asset-base company can be seen in the consolidated balance sheet and cash flow statement. Although the leverage ratios have been stable since 2005 (80-90% Debt/Capital employed on average), the ND/EBITDA ratios have risen from 3.4x in 2005 to 5.5x in 2010 and the ND/Market cap has risen from 78% in 2005 to c.300% in 2010, more in line with those of a concessionary type company. Abengoa has a BB- rating from Moodys, BB from Fitch and B+ from S&P, all levels set during 2010, and one step below the investment grade consideration. Abengoa had in bn net debt which implies a 5.5x Net debt/ebitda ratio (3.31x if 2.09bn in debt relating to projects under construction that are not generation EBITDA is not taken into account). Excluding the project finance debt, the corporate debt amounts to 1.16bn, implying 1.77x net debt (ex nonrecourse debt.)/ recourse EBITDA, below its 3.0x covenant. For purposes of the covenant recourse EBITDA is calculated as total EBITDA minus nonrecourse EBITDA (taking Telvent as a non-recourse EBITDA unit) plus R&D expenditure. Note in this respect that Abengoa benefits from the fact that the definition of net debt with recourse does not differentiate between the cash held at the nonrecourse and the recourse units (it is all assigned to the recourse area), despite the fact that the company in its full year results presentation clarified that out of the end bn in cash and short term investments, 1.131bn belonged to entities with nonrecourse financing (which would in theory limit Abengoa s access to that cash). The recourse net debt/recourse EBITDA calculation is further flattered by the fact that Abengoa has significantly optimised its working capital position via the use of factoring of receivables (on the asset side) and reverse factoring of payables (on the liability side). Given that these two instruments are means of anticipating collection of receivables/postponing payment of payables on the back of the involvement of financial institutions that collect the receivables/payables (involving a financial cost), we believe that these are essentially off balance sheet debts that should be taken into account when assessing the company s financial strength and carrying out its valuation. We believe that the heavy use of factoring/reverse factoring is partly due to the need to offset at the working capital level the high levels of work executed pending certification, which is likely to be supporting published earnings ( m in 2009 and m in 2010, or 35% and 22% respective of engineering and construction revenues). On the other hand, we believe that a calculation that involved the entire recourse debt (even more if adjusted for the level of factoring/reverse factoring) but only the recourse EBITDA would not be entirely fair, given that a large part of the recourse debt has been used to fund investment in the equity of non-recourse projects (mostly in the form of loans), and these investments generate income that is available to service the recourse debt. The following table provides an idea of what we believe would be a fairer comparison, estimating as the financial income from financing of non-recourse vehicle equity that resulting from applying a 6% interest rate (as a proxy for the recourse group financial cost) to 30% of the gross assets of the concession type infrastructure units (assuming 30/70 equity/debt financing). However, it may be worthwhile to stress that the below calculations are our own, and have no impact on the actual covenant levels applied to Abengoa, according to its annual report and investor presentations. Abengoa recourse area net debt/ebitda ( m) Recourse gross debt 5,063 3,286 Cash/short term financial investments -3,897-2,028 Net recourse debt 1,166 1,258 Corporate EBITDA Unadjusted ND/EBITDA (x) Cash at non-recourse entities 1, Net debt adj. for cash at recourse area only 2,297 1,994 ND/EBITDA (x) adj. for non-rec. cash Factoring Reverse factoring Total off balance sheet debt 1,219 1,084 Net debt adj. for off balance sheet debt 3,516 3,078 ND/EBITDA (x) adj. for non-recourse cash and off balance sheet debt Financial revenues from Non-recourse group investment Adjusted Corporate EBITDA (+ revenues from group financing) ND/EBITDA (x) adjusted for non-recourse cash, off balance sheet debt and financial income from group Source: Abengoa annual report and presentations, JB Capital Markets Additional concerns can arise if we look at Abengoa s growth strategy with a 4.4bn CAPEX plan, of which Abengoa plans to fund 1.281bn with equity contributions, 2.674bn with non-recourse debt, and 401m via partners in the different projects. 19

20 Abengoa CAPEX plan ( m) CAPEX commitment Equity (Abengoa) Equity (partners) Non-rec. debt Gearing (D/D+E) Transmission lines 1, % Solar CSP 2, , % Desalination % Cogeneration % Biofuels % Total 4,356 1, , % Increase Abengoa debt due to CAPEX 3,955 Source: Abengoa, JB Capital Markets We believe that a key issue that needs to be addressed in Abengoa is the extent to which the company is going to be able to fund the above investments, and especially its equity contribution without breaching the covenants and being pushed to an equity raising exercise. Given that the relevant covenant is set with respect to the corporate debt (3.0x Corporate debt/corporate EBITDA) we have carried out the exercise of calculating the financial position of the recourse area of the company on the basis of our estimates and the company s capex plan. In this respect, it should be noted that a key consideration is that relating to the working capital position which given the complexity in forecasting the future degree of factoring/reverse factoring and advances could turn out to be a significant swing factor. As a starting point we have to remark that in Abengoa has obtained an average 346m positive financing from its working capital, mainly explained by the use of factoring of receivables, reverse factoring of payables and financing via client advances. As shown in the following table, these effects together (and independently of the changes in revenues, inventory levels and normal payment/collection periods) justify 115% of the positive working capital financing in 2008, 58% in 2009 and 80% in Contributions to working capital financing ( m) Factoring as per 2009 and 2008 annual reports ,085.0 Factoring as per 2010 annual report Factoring taken for calculations* Reverse factoring 2008, 2009 and 2010 annual reports Off balance sheet debt , , ,219.0 Financing from off balance sheet debt Working capital financing % of working capital financing from off balance sheet debt Advances Financing from advances % of working capital financing from advances (*) The discrepancy between the 2009 factoring figure in the 2009 and the 2010 annual report is explained by the company as due to a misunderstanding involving having reflected in the 2009 report the total volume factored during the year not the amount outstanding at year end Source: Abengoa annual reports, JB Capital Markets Considering that the positive working capital contribution depends on continuing to collect large client advances and maintain the active factoring and reverse factoring levels, we do not believe it likely that Abengoa can maintain its positive financing through working capital in the longer term. At end-2010, Abengoa only has an additional 378m in receivables that may be factored without recourse and advances levels should decline as contracts awarded slow down. Taking into account the decline in new contracts expected over 2013 and assuming steady factoring and reverse factoring levels from 2011, we estimate a negative WC contribution from 2012, as shown in the following table. Note that being able to absorb a potential decline in working capital financing due to a slower construction and engineering business is key to Abengoa s finances given that at 2.6bn working capital, c.25% of the fixed assets are financed via working capital. 20

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