Evotec AG

Recommendation: ^<	Risk:
BUY(BUY)

Medium (Medium)

Price Target: EUR 3.70 (3.60)

FY 2011 figures

New action plan ahead

Evotec released strong FY 2011 figures. Revenues increased to EUR 80.1m in 2011 (PY: EUR 55.3m; yoy +45%). R&D expenses amounted to EUR 8.4m in 2011 (PY: EUR 6.1m; yoy +38%). Operating income totalled EUR 5.2m (PY: EUR 1.7m; +295%). The net result increased to EUR 6.7m (2010: EUR 3.0m; yoy +123%) (CBSR Est.: EUR 6.1m), corresponding to an EPS of EUR 0.06 (PY: EUR 0.03) (CBSR Est.: EUR 0.05).
Considerably decreased receivables coupled with increased payables effectively enhanced working capital turnover. Thus, the company not only increased its margins, but also improved its earnings quality in 2011.
For 2012 Evotec anticipates group revenues to reach EUR 88m to 90m (yoy ~9-13%) and operating result before impairment and changes in contingent consideration, if any, for 2012 is expected to further improve over 2011. More than EUR 10m are planned to be invested in the long-term upgrading of Evotec's capacities. Despite planned investments, the Company expects to maintain its liquidity >EUR 60m at the end of 2012, excluding any potential cash outflow for M&A transactions and related payments.
In addition, for the ongoing year we expect important newsflow from Evotec's pipeline of product development partnerships. Particularly, DiaPep277, the compound in pivotal Phase III trial should be in the focus of investors. Patient recruitment for this study is anticipated to be completed in 1H/12.
During the analyst conference Evotec announced a new strategy "Action Plan 2016 - Innovation Efficiency" and presented goals of this program: 1) Double revenues latest by 2016; 2) Operating margin of ~15%; 3) Improve quality of revenue mix through royalty, milestone and service income latest by 2016; 4) Continue to invest ~EUR 10m p.a. in highly innovative unpartnered research; 5) Build even more mature pipeline without financial risk through highly selective partnering; 6) Actively participate in strategic market consolidation; 7) Optimize shareholder value creation.
Having lifted our estimates for 2012E and 2013E, we increase our PT from EUR 3.60 to EUR 3.70 and confirm our BUY recommendation.

Y/E 31.12., EUR m	2009	2010	2011	2012E	2013E	2014E
Revenues	42.7	55.3	80.1	89.6	103.0	110.2
Gross profit	18.4	24.3	35.0	40.3	48.4	52.9
EBITDA	-38.2	6.5	11.4	14.6	19.0	20.0
EBIT	-42.3	1.7	5.2	9.0	13.4	14.7
Net income/loss	-45.5	3.0	6.7	7.2	10.8	12.1
EPS	-0.43	0.03	0.06	0.06	0.09	0.10
CPS	-0.20	0.00	0.07	0.07	0.12	0.12
Gross margin	43.2%	44.1%	43.7%	45.0%	47.0%	48.0%
EBITDA margin	-89.6%	11.7%	14.2%	16.3%	18.4%	18.1%
EBIT margin	-99.1%	3.1%	6.5%	10.1%	13.0%	13.3%
EV/Sales	6.8	5.2	3.6	3.2	2.8	2.6
Source: Evotec AG; CBS Research AG;

21 March 2012

Shareholders:
	Roland Oetker/ROI	13.5%
	TVM V Life Science Ventures	10.5%
Free float		76.0%
	Financial calendar:
10 May 2012 1Q/12 Figures
Author	Igor Kim (Analyst)
Close Brothers Seydler Research AG
	Phone: +49 (0) 69-977 84 56 0
Email: [email protected]
	www.cbseydlerresearch.ag

9.8% 15.9%

6 months 12 months

Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.

FY 2011 review

Evotec released strong FY 2011 figures. Revenues increased to EUR 80.1m in 2011 (PY: EUR 55.3m; yoy +45%), and slightly topped our estimate (CBSR Est.: EUR 79.0m). Growth was driven by a strong performance in the Company's drug discovery alliances as well as EUR 6.9m upfront payment from Roche. Revenues included significant milestone payments and licenses received from e.g. Boehringer Ingelheim, Ono Pharmaceutical, and Shionogi in the amount of EUR 12.4m (2010: EUR 10.9m; +14%). R&D expenses amounted to EUR 8.4m in 2011 (PY: EUR 6.1m; yoy +38%). The increase was mainly due to full year contribution of Evotec Göttingen and from the acquisition of Kinaxo (Evotec Munich). Including the progression of the Evotec CureBeta franchise, as well as expenses for pre-clinical development of EVT501 (H3 antagonist). Operating income at EUR 5.2m was below our forecast but considerably above the prior year (PY: EUR 1.7m; +295%). Nevertheless, due to positive contribution of deferred tax income, the net result increased to EUR 6.7m (2010: EUR 3.0m; yoy +123%) (CBSR Est.: EUR 6.1m), corresponding to an EPS of EUR 0.06 (PY: EUR 0.03) (CBSR Est.: EUR 0.05).

Considerably decreased receivables coupled with increased payables effectively enhanced working capital turnover. This has also contributed to a cash flow from operating activities in 2011 which amounted to EUR 10.2m (PY: EUR 0.9m). Thus, the company managed not only to increase Group's margins, but also to improve earnings quality.

Although Evotec invested EUR 8.4m in unfunded research, EUR 8.1m in infrastructure upgrades and EUR 26.6m (partly paid in shares) in two strategic acquisitions, the Company ended 2011 with a strong liquidity position of EUR 62.4m (2010: EUR 70.4m) maintaining its liquidity target of > EUR 60m.

FY 2011 figures: Reported, market consensus, CBSR est. in EUR m
		Reported figures Market consensus CBSR Est.
Sales	80.1	78.7	79.0
Operating result	5.2	8.2	7.2
Net result	6.7	7.9	6.1
EPS*	0.06	0.07	0.05
*per share

Source: Evotec AG; CBS Research AG;

Short term view

For 2012 Evotec anticipates group revenues to reach EUR 88m to 90m (yoy ~9-13%). R&D expenditures are expected to remain broadly in line with 2011 levels at ~EUR 10m. Operating result before impairment and changes in contingent consideration, if any, for 2012 is expected to further improve over 2011. Positive operating cash flow is expected in the ongoing year, a significant proportion of which will be reinvested into the upgrading of capacities. The company will continue significant investment, which will most probably be higher than in 2011. >EUR 10m are planned to be invested in the long-term upgrading of Evotec's capacities. Despite planned investments, the Company expects to maintain its liquidity >EUR 60m at the end of 2012, excluding any potential cash outflow for M&A transactions and related payments.

FY 2011: Notable increase in bottom and top lines

Boosting margins without impairing earnings quality

Liquidity target maintained

Double digit revenue growth expected for 2012

In addition, for the ongoing year we expect important newsflow from Evotec's pipeline of product development partnerships. Particularly, DiaPep277, the compound in pivotal Phase III clinical development for the treatment of type 1 diabetes should be in the focus of investors. In November 2011, Andromeda reported that DiaPep277 successfully completed its first Phase III clinical trial in type 1 diabetes. The study provides more evidence that DiaPep277 can slow the progression of the disease in newly diagnosed patients. If the second pivotal study demonstrates a similar effect, DiaPep277 could become the first non-insulin treatment for type 1 diabetes. Patient recruitment for this study is anticipated to be completed in 1H/12. Evotec could receive a milestone payment in 2012 once the initial results of the first Phase III study have been confirmed.

"Action Plan 2016 - Innovation Efficiency"

Back in 2009 the company adopted restructuring strategy "Evotec 2012 - Action Plan to Focus and Grow" that has been successfully completed and delivered all its strategic results. We positively view the fact that the management succeed to achieve all strategic results, which at early stages of strategy implication seemed to be very ambitious.

Now the company has adopted a new strategy "Action Plan 2016 - Innovation Efficiency". During the analyst conference the company has presented the goals of Action Plan 2016:

1) Double revenues latest by 2016;
2) Operating income at a margin of ~15% of revenues;
3) Improve quality of revenue mix through royalty, milestone and service income latest by 2016;
4) Continue to invest ~EUR 10m p.a. in highly innovative unpartnered research (e.g. expand from small molecules also into large molecules discovery);
5) Build even more mature pipeline without financial risk through highly selective partnering;
6) Actively participate in strategic market consolidation;
7) Optimize shareholder value creation.

DiaPep277: Potential milestone payment is possible in 2012

Action Plan 2016

Research

Schillerstrasse 27 - 29 60313 Frankfurt am Main

Phone: +49 (0)69 – 977 8456-0

Roger Peeters	+49 (0)69 -977 8456- 12
Member of the Board	[email protected]
Martin Decot	+49 (0)69 -977 8456- 13 [email protected]	Igor Kim	+49 (0)69 -977 8456- 15 [email protected]
Anna von Klopmann	+49 (0)69 -977 8456- 10 [email protected]	Gennadij Kremer	+49 (0)69 – 977 8456- 23 [email protected]
Daniel Kukalj	+49 (0)69 – 977 8456- 21 [email protected]	Ralf Marinoni	+49 (0)69 -977 8456- 17 [email protected]
Manuel Martin	+49 (0)69 -977 8456- 16 [email protected]	Felix Parmantier	+49 (0)69 -977 8456- 22 [email protected]
Marcus Silbe	+49 (0)69 -977 8456- 14 [email protected]	Veysel Taze	+49 (0)69 -977 8456- 18 [email protected]
Ivo Višić	+49 (0)69 -977 8456- 19 [email protected]

Institutional Sales

Schillerstrasse 27 – 29 60313 Frankfurt am Main

Phone: +49 (0)69 – 9 20 54-400

Raimar Bock +49 (0)69 -9 20 54-115

Head of Sales [email protected]

Rüdiger Eich +49 (0)69 -9 20 54-119 Sule Erkan +49 (0)69 -9 20 54-107 (Germany, Switzerland) [email protected] (Sales-Support) [email protected]

Dr. James Jackson +49 (0)69 -9 20 54-113 Klaus Korzilius +49 (0)69 -9 20 54-114 (UK) [email protected] (Benelux, Germany) [email protected]

Stefan Krewinkel +49 (0)69 -9 20 54-118 Markus Laifle +49 (0)69 -9 20 54-120 (Execution, UK) [email protected] (Execution) [email protected]

Bruno de Lencquesaing +49 (0)69 -9 20 54-116 Christopher Seedorf +49 (0)69 -9 20 54-110 (Benelux, France) [email protected] (Sales-Support) [email protected]

Janine Theobald +49 (0)69 -9 20 54-106 Bas-Jan Walhof +49 (0)69 -9 20 54-105 (Austria, Germany) [email protected] (Benelux) [email protected]

Disclaimer and statement according to § 34b German Securities Trading Act ("Wertpapierhandelsgesetz") in combination with the provisions on financial analysis ("Finanzanalyseverordnung" FinAnV)

This report has been prepared independently of the company analysed by Close Brothers Seydler Research AG and/ or its cooperation partners and the analyst(s) mentioned on the front page (hereafter all are jointly and/or individually called the 'author'). None of Close Brothers Seydler Research AG, Close Brothers Seydler Bank AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document.

Section 34b of the German Securities Trading Act in combination with the FinAnV requires an enterprise preparing a security analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis.

Close Brothers Seydler Research AG is a majority owned subsidiary of Close Brothers Seydler Bank AG (hereafter ´CBS´). However, Close Brothers Seydler Research AG (hereafter ´CBSR´) provides its research work independent from CBS. CBS is offering a wide range of Services not only including investment banking services and liquidity providing services (designated sponsoring). CBS or CBSR may possess relations to the covered companies as follows (additional information and disclosures will be made available upon request):

a. CBS holds more than 5% interest in the capital stock of the company that is subject of the analysis.
b. CBS was a participant in the management of a (co)consortium in a selling agent function for the issuance of financial instruments, which themselves or their issuer is the subject of this financial analysis within the last twelve months.
c. CBS has provided investment banking and/or consulting services during the last 12 months for the company analysed for which compensation has been or will be paid for.
d. CBS acts as designated sponsor for the company's securities on the basis of an existing designated sponsorship contract. The services include the provision of bid and ask offers. Due to the designated sponsoring service agreement CBS may regularly possess shares of the company and receives a compensation and/ or provision for its services.
e. The designated sponsor service agreement includes a contractually agreed provision for research services.
f. CBSR and the analysed company have a contractual agreement about the preparation of research reports. CBSR receives a compensation in return.
g. CBS has a significant financial interest in relation to the company that is subject of this analysis.

In this report, the following conflicts of interests are given at the time, when the report has been published: d,f

CBS and/or its employees or clients may take positions in, and may make purchases and/ or sales as principal or agent in the securities or related financial instruments discussed in this analysis. CBS may provide investment banking, consulting, and/ or other services to and/ or serve as directors of the companies referred to in this analysis. No part of the authors compensation was, is or will be directly or indirectly related to the recommendations or views expressed.

Recommendation System:

Close Brothers Seydler Research AG uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 12 months:

BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%.

Recommendation history over the last 12 months for the company analysed in this report:

Date	Recommendation	Price at change date	Price target
24 March 2011	BUY (Company Update)	EUR 2.94	EUR 3.70
13 May 2011	BUY (Company Update)	EUR 3.00	EUR 3.70
14 June 2011	BUY (Company Update)	EUR 2.71	EUR 3.60
11 August 2011	BUY (Company Update)	EUR 1.74	EUR 3.60

12 September 2011	BUY (Company Update)	EUR 2.28	EUR 3.60
27 October 2011	BUY (Company Update)	EUR 2.38	EUR 3.60
11 November 2011	BUY (Company Update)	EUR 2.59	EUR 3.60
11 January 2012	BUY (Company Update)	EUR 2.32	EUR 3.60
21 March 2012	BUY (Company Update)	EUR 2.92	EUR 3.70

Risk-scaling System:

Close Brothers Seydler Research AG uses a 3-level risk-scaling system. The ratings pertain to a time horizon of up to 12 months:

LOW: The volatility is expected to be lower than the volatility of the benchmark MEDIUM: The volatility is expected to be equal to the volatility of the benchmark HIGH: The volatility is expected to be higher than the volatility of the benchmark

The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation approaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies. The figures taken from the income statement, the cash flow statement and the balance sheet upon which the evaluation of companies is based are estimates referring to given dates and therefore subject to risks.

These may change at any time without prior notice.

The opinions and forecasts contained in this report are those of the author alone. Material sources of information for preparing this report are publications in domestic and foreign media such as information services (including but not limited to Reuters, VWD, Bloomberg, DPA-AFX), business press (including but not limited to Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung, Financial Times), professional publications, published statistics, rating agencies as well as publications of the analysed issuers. Furthermore, discussions were held with the management for the purpose of preparing the analysis. Potentially parts of the analysis have been provided to the issuer prior to going to press; no significant changes were made afterwards, however. Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by the author with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Possible errors or incompleteness of the information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. The views presented on the covered company accurately reflect the personal views of the author. All employees of the author's company who are involved with the preparation and/or the offering of financial analyzes are subject to internal compliance regulations.

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Schillerstrasse 27 - 29 60313 Frankfurt am Main www.cbseydlerresearch.ag Tel.: 0049 - (0)69 - 97 78 45 60

AI assistant

Evotec SE Regulatory Filings 2011

151_rns_2012-03-21_d382352a-9b10-4990-a986-bb10d787752a.pdf

Evotec AG

FY 2011 figures

New action plan ahead

21 March 2012

FY 2011 review

Short term view

FY 2011: Notable increase in bottom and top lines

"Action Plan 2016 - Innovation Efficiency"

Research

Institutional Sales

Disclaimer and statement according to § 34b German Securities Trading Act ("Wertpapierhandelsgesetz") in combination with the provisions on financial analysis ("Finanzanalyseverordnung" FinAnV)

Recommendation System:

Risk-scaling System:

AI assistant

Evotec SE — Regulatory Filings 2011

151_rns_2012-03-21_d382352a-9b10-4990-a986-bb10d787752a.pdf

Evotec AG

FY 2011 figures

New action plan ahead

21 March 2012

FY 2011 review

Short term view

FY 2011: Notable increase in bottom and top lines

"Action Plan 2016 - Innovation Efficiency"

Research

Institutional Sales

Disclaimer and statement according to § 34b German Securities Trading Act ("Wertpapierhandelsgesetz") in combination with the provisions on financial analysis ("Finanzanalyseverordnung" FinAnV)

Recommendation System:

Risk-scaling System:

More from Evotec SE

Evotec SE Regulatory Filings 2011