Masterflex SE — Investor Presentation 2011

Dec 5, 2011

5 December 2011 Masterflex AG FIRST BERLIN Equity Research

MASTERFLEX AG

GERMANY / INDUSTRIAL PRODUCTS & PLASTICS

Primary exchange: Frankfurt Bloomberg symbol: MZX ISIN: DE0005492938

INITIATING COVERAGE

After completion of its restructuring programme and divestment of all non-core operations, Masterflex is now focused on its hightech hose systems business. Following operational and financial restructuring, almost all financial key performance indicators have improved markedly in the current fiscal year. We are initiating coverage of Masterflex with a price target of €7.10 and a Buy rating.

Gradual debt reduction. In recent months, the company has restructured the liabilities side of the balance sheet. A capital increase (gross proceeds of roughly €13.1m) was announced at the end of 2010, financial liabilities have been restructured and a debt retirement schedule has been presented. Due to the concentration on its cash generating high-tech hose systems (HTHS) business, we expect the company's financial situation to improve gradually.

Strong market positioning. Masterflex is a global market leader in HTHS. Due to the wide range of HTHS applications, the company is well diversified with regard to its customer base and product portfolio and thus relatively independent of regional and cyclical economic developments.

Guidance confirmed. Masterflex has confirmed its guidance for FY 2011. Sales are expected to increase by 8% to 10% y/y to €50-51m. At the operating level, the company forecasts an EBIT margin of 14% (corresponding to EBIT of €7m). We expect future growth to stem from internationalisation and development of innovative products.

Favourable valuation. Our DCF model yields a price target of €7.10 per Masterflex share. Based on estimated P/E ratios of 10.8 for 2011E and 10.1 for 2012E, the share is modestly valued at the current price level.

FINANCIAL HISTORY & PROJECTIONS

	2009	2010	2011E	2012E	2013E	2014E
Revenue (€m)	38.41	46.06	50.48	54.72	58.66	61.94
Y-o-y growth	n.a.	19.9%	9.6%	8.4%	7.2%	5.6%
EBIT (€m)	3.66	6.45	7.10	7.60	8.04	8.43
EBIT margin	9.5%	14.0%	14.1%	13.9%	13.7%	13.6%
Net income (€m)	-1.06	7.93	3.73	3.99	4.59	4.92
EPS (diluted) (€)	-0.24	1.67	0.43	0.46	0.53	0.56
EV / Sales (x)	1.8	1.5	1.4	1.2	1.2	1.1
EV / EBIT (x)	18.7	10.6	9.6	9.0	8.5	8.1
P/E (x)	n.a.	2.8	10.8	10.1	8.8	8.2
DPS (€)	0.00	0.00	0.00	0.00	0.00	0.00
Yield	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
FCF (€m)	3.89	2.65	1.18	3.37	4.01	4.89
Net gearing	5967.5%	192.9%	156.0%	102.7%	64.0%	34.7%
Liquid assets (€m)	7.78	14.40	3.89	0.62	3.18	7.16

Net income and EPS excluding discontinued operations

RATING:	Buy
PRICE TARGET:	€7.10
RETURN POTENTIAL:	54.2%
RISK RATING:	High

COMPANY PROFILE

Masterflex AG focuses on developing and manufacturing high grade connection and hose systems made of innovative high-tech plastics. The firm is a global market leader in high-tech hose systems.

TRADING DATA

Closing price (02.12.11)	€4.61
Shares outstanding	8.73m
Market capitalisation	€40.20m
52-week range	€3.60/6.80
Av. vol. (six months)	12,479

STOCK OVERVIEW

COMPANY DATA (as of 30 September 2011)

Liquid assets	€4.08m
Current assets	€19.81m
Intangible assets	€4.11m
Total assets	€52.82m
Current liabilities	€14.02m
Shareholders' equity	€14.04m

SHAREHOLDERS

SVB GmbH & Co. KG/Schmidt	18.9%
BBC GmbH	4.6%
Bischoping family	4.4%
Others	8.1%
Free float	64.0%

Analyst: Jens Hasselmeier, Tel. +49 (0)30 - 80 93 96 83

Masterflex – overview 1
Investment case3
SWOT analysis 4
Valuation5
Masterflex business model – back to the roots6
Latest development8
Estimates 11
Market & competition 12
Management 16
Income statement analysis 17
Balance sheet analysis 18
Cash flow analysis 19
First Berlin disclaimer 20

INVESTMENT CASE

FOCUS ON CORE BUSINESS

Masterflex managed a successful turnaround and is now focused solely on its core business HTHS ("High-Tech Hose Systems"). The company's core competences in the HTHS business are development and production of premium hoses and connecting systems from high tech plastics and fabric. The company's HTHS business has always been the most cash generative area within Masterflex and so concentration on this area has improved overall cash generation.

SUCCESSFUL RESTRUCTURING

In the past, the company tried to operate as a self-funded incubator of long-term investment opportunities – a strategy that clearly failed. As a result of its former incubator strategy, the company incurred major financial losses and found itself in an overleveraged position. Masterflex has managed to successfully restructure its operating activities as well as its financials. All non-core businesses such as Masterflex' fuel cell technology have been divested. The company has restructured its financial debt and announced a capital increase at the end of 2010 (issuance of 4.37m new shares at a subscription price of €3.00 per share).

EXCELLENT COMPETITIVE POSITION IN THE HTHS MARKET

Since its inception in 1987, the company's R&D department has created various applications for high-tech plastics which are impossible to realise with conventional materials. Today, the firm is a global market leader in high-tech hose systems. There are no other global players in the high tech hose systems business. Most competitors are small and medium-sized enterprises (SME) that are less diversified with regard to applications/products and regional markets.

TWIN-TRACK GROWTH STRATEGY

Given Masterflex' shift to its solid high-margin HTHS business and its strong positioning within the HTHS industry, the company should manage to grow steadily in future. Growth will be driven by further geographic expansion and product innovations. The growth of the HTHS market is not solely reliant on existing applications, but is being boosted by an ongoing substitution process. Masterflex' PU-based components are displacing traditional materials such as rubber or PVC. International expansion plans are focused on Central Asia.

SWOT ANALYSIS

STRENGTHS

• Focus on profitable core business. Masterflex has completed the divestment of non-core businesses. Now, the company focuses on its profitable "High-Tech Hose Systems" (HTHS) business.
• Limited cluster risks and low cyclicality. Due to the wide range of HTHS applications, the company has a well diversified customer base and a diversified product portfolio. As a result of focusing on its well diversified HTHS business, the company is relatively independent from regional or cyclical economic developments.
• Strong industry positioning. Following the successful introduction of innovative products in the past (and thus setting new standards), the company is a global leader in producing and developing HTHS.

WEAKNESSES

• Debt reduction still an issue. Even though Masterflex managed to reduce its financial debt significantly in the last quarters, financial restructuring is not fully completed. Since some covenants are linked to the level of debt, there is still some room for improvement.
• Regional expansion burdens profitability. Part of Masterflex' growth strategy is regional expansion. Setting up of foreign offices (and later production sites) requires start-up costs which will drag down profitability.

OPPORTUNITIES

• Growth opportunities in foreign markets. Emerging markets like Central Asia show attractive growth potential. Masterflex will thus gradually enter these markets. Recently, the company entered the markets in Brazil and Russia.
• Further innovations and new application areas. Further improvements of existing products as well as development of new applications for HTHS are part of Masterflex' growth strategy. Moreover, success in R&D should accelerate the substitution process of traditional material (for example rubber or PVC).

THREATS

• Dependency on raw material prices. Masterflex, as a producing company, is dependent on raw material prices. The company may not be able to pass on higher input costs completely to its customers, which would burden profitability.
• Dilution risk. In June, AGM approved for authorised capital amounting to €4.432m (corresponding to 50.8% of share capital as of 06/30/11) to take advantage of arising acquisition opportunities. The use of authorised capital to finance acquisitions could cause dilutive effects for existing shareholders.

VALUATION

We have a price target of €7.10 on the Masterflex stock. We derive this fair value estimate from our DCF valuation model.

DISCOUNTED CASH FLOWS ANALYSIS

In order to determine Masterflex' Weighted Average Cost of Capital (WACC), we use our proprietary multi-factor risk model, which takes company-specific risk factors into account, such as management strength, balance sheet and financial risk, competitive position and company size. We assign a high risk rating to the company.

Our WACC calculation of 8.4% is based on a risk-free rate of 3.2%, a market risk premium of 4.0% and a terminal effective tax rate of 30%. In our DCF model we use a planning period until 2025 (table below only displays figures until 2018 due to layout reasons) and a terminal sales growth rate of 2%.

Our DCF analysis suggests a fair market value of €62.3m for Masterflex, or €7.10 per share.

DCF valuation model
All figures in EUR '000		2011F	2012F	2013F	2014M	2015M	2016M	2017M	2018M
Net Sales NOPLAT		50,478 5,415	54,719 5,805	58,658 5,981	61,943 6,225	65,010 6,336	67,958 6,462	70,796 6,377	73,524 6,548
+ depreciation & amortis.		2,962	3,100	3,222	3,520	3,485	3,462	3,449	3,444
Net Operating Cash Flow		8,377	8,905	9,203	9,745	9,820	9,923	9,826	9,992
- total investments (Capex and Working Capital)		-5,461	-3,916	-4,014	-3,783	-4,001	-3,999	-4,040	-4,077
Capital Expenditures		-2,675	-2,791	-2,874	-2,911	-3,008	-3,095	-3,173	-3,242
Working Capital		-2,786	-1,126	-1,140	-872	-993	-904	-867	-836
Free Cash Flows (FCF)		2,916	4,988	5,189	5,961	5,819	5,924	5,786	5,915
PV of FCF's		2,896	4,572	4,389	4,653	4,192	3,937	3,548	3,348
All Figures in Thousands
PV of FCFs in explicit period	49,964
PV of FCFs in terminal period	34,673

Fair value per share in EUR	7.10

Enterprise Value (EV) 84,637 + Net Cash / - Net debt -22,782 + Investments / Minority Interests 400 Shareholder value 62,255

							Terminal growth rate
WACC	8.4%			0.5%	1.0%	1.5%	2.0%	2.5%	3.0%	3.5%
Cost of Equity	16.1%		4.4%	16.40	17.93	19.99	22.93	27.45	35.29	52.23
Pre-Tax Cost of Debt	6.0%		5.4%	12.38	13.17	14.17	15.46	17.20	19.68	23.50
Tax Rate	30.0%		6.4%	9.75	10.20	10.74	11.41	12.25	13.34	14.81
After-Tax Cost of Debt	4.2%	WACC	7.4%	7.90	8.17	8.49	8.87	9.33	9.89	10.60
Share of Equity Capital	35.0%		8.4%	6.52	6.70	6.90	7.13	7.40	7.72	8.11
Share of Debt Capital	65.0%		9.4%	5.47	5.58	5.71	5.86	6.03	6.22	6.45
			10.4%	4.63	4.71	4.80	4.89	5.00	5.13	5.27
Fair value per share in EUR	7.10		11.4%	3.95	4.01	4.07	4.13	4.20	4.29	4.38

MASTERFLEX BUSINESS MODEL – BACK TO THE ROOTS

Masterflex is specialised in processing polyurethane (PU). The company's core competences are development and production of premium hoses and connecting systems from high tech plastics and fabric. High-tech hoses have a wide range of applications. For example, Masterflex delivers medical devices such as catheter or infusion and multi-lumen infusion tubing. Extremely abrasion-resistant, hardly inflammable or microbe-resistant hoses are other examples for the company's product portfolio.

Source: Masterflex

In the past, Masterflex was trying to operate as a self-funded incubator of long-term investment opportunities. The model was based on HTHS ("High-Tech Hose Systems") as the core cash-generating business. This segment subsidized ventures into new, unrelated products and markets (for example fuel cell technology or bicycles and bicycle components). The idea was that after several years of incubation, the start-up businesses would convert into valuable spin-off opportunities. The strategy clearly failed to materialize. As a consequence, the company incurred major financial losses and found itself in an overleveraged position.

-30 0 30 60 90 120 150 2006 2007 2008 2009 2010 -5% 0% 5% 10% 15% 20% 25% Revenues (Group) Revenues (HTHS*) EBITDA (Group) EBITDA (HTHS*) EBIT (Group) EBIT (HTHS*) EBITDA margin (Group) EBITDA margin (HTHS*) EBIT margin (Group) EBIT margin (HTHS*) *High-Tech-Hose-Systems in €m

Source: Masterflex

In 2010, Masterflex completed its restructuring programme (initiated in 2008), now focusing on its HTHS business. With regard to operational restructuring, all non-core businesses are divested by now. Moreover, the company expanded its international presence (at present: eight countries: Germany, USA, France, UK, Czech Republic, Sweden, Russia, Brazil). Financial restructuring included debt restructuring and a capital increase in December 2010 (4.365.874 new shares issued (share capital thus doubled); subscription price €3.00). 2011 financial statements show significant improvements in almost every financial key performance indicator, which underlines the success of operational restructuring as well.

With regard to future growth, Masterflex now concentrates on internationalisation and further development of innovative products in its HTHS business. For example, one of the latest innovations is the "templine" product line. "templine" is a movable and economically efficient heated-hose system which can be extended or replaced easily. After Masterflex recently entered the Brazilian and Russian markets, the company is now examining its market entry in Central Asia.

7

Growth strategy
Internationalisation	Innovation
"Entering new markets with existing products"	"Creating new markets with innovative products"
Brazilian subsidiary	"templine" product line
Russian Joint Venture	Hoses with permanent anti-static agents
Potential in Asia (particularly China) is examined	Colour change hoses
	Electrically conductible silicone hoses moulded parts
	Ventilation hoses reducing acoustic noise

Source: Masterflex

LATEST DEVELOPMENT

P&L. In Q3 2011, sales increased by 8.6% y/y to €12.92m (Q3/10: €11.90m). Although costs of material increased only slightly in y/y comparison (+4.1% to €3.79m; decrease as a percentage of sales: 29.3%; Q3/10: 30.6%), operating income decreased due to an increase in personnel costs by 13.5% y/y to €4.53m. Q3 EBIT came in at €1.75m (Q3/10: €1.72m), corresponding to an EBIT margin of 13.6% (Q3/10: 14.4%). As a result of the company's debt reduction in preceding quarters, the financial result improved markedly (€-546k; Q3/10: €-789k). EPS (continuing operations) for Q3 2011 amounted to €0.10 (Q3/10: €-0.10).

Source: Masterflex

Source: Masterflex

Balance sheet. YTD, Masterflex reduced its financial debt (short- & long-term) to €26.83m (12/31/10: €37.18m). As of September 30, 2011 the company reported net debt of €22.74 (12/31/10: €22.78m). Following the reduction in financial debt and the positive earnings development in 9M 2011 (net income: €2.38m), Masterflex' equity ratio improved to 27.5% (12/31/10: 18.7%). Net working capital amounted to €13.49m (12/31/10: €9.99m).

Source: Masterflex, First Berlin

9

Cash flow statement. Mainly as a result of working capital expansion and a positive one-off effect (disposal of discontinued operations: €5.34m) in 9M 2010, operating cash flow decreased to €1.91m (9M/10: €3.36m) in 9M 2011. Following the significant debt reduction (CF financing activities: €-12.47m), net cash flows for the period amounted to €-10.23m (9m/10: €-0.32m). Thus, cash & cash equivalents as of September 30, 2011, decreased to €4.08m (12/31/10: €14.40m).

in €m	Q3 2011	Q3 2010	delta
Sales	12.92	11.90	8.6%
EBITDA	2.42	2.31	4.7%
Margin	18.7%	19.4%	-0.7 pp
EBIT	1.75	1.72	2.1%
Margin	13.6%	14.4%	-0.8 pp
Net income (incl. discontinued operations)	0.94	-0.36	n.m.
in €m	09/30/11	12/31/10	delta
Equity	14.54	12.21	19.1%
Cash & cash equivalents	4.08	14.40	-71.6%
Net debt	22.74	22.78	-0.2%
Total assets	52.82	64.52	-18.1%
Equity ratio	27.5%	18.7%	+8.8 pp
in €m	9M 2011	9M 2010	delta
Operating cash flow	1.91	3.36	-43.1%
Cash flow investing actitivites	0.33	-0.97	n.m.
Cash flow financing activities	-12.47	-2.71	n.m.
Net cash flows	-10.23	-0.32	n.m.

Source: Masterflex

Guidance. Despite uncertainty with regard to macroeconomic development, Masterflex confirmed its guidance for FY. The company expects sales to increase by 8% to 10% y/y (to €50-51m). Due to rising input costs (for example commodity prices) and preproduction expenditures (e.g. geographic expansion), EBIT margin will decline somewhat in H2. For FY 2011, Masterflex expects an EBIT margin of 14% (corresponds to EBIT of €7m).

ESTIMATES

Due to the reported slowdown of sales growth in Q3 2011 (+8.6% y/y; for comparison 9M 2011: +16.0% y/y), we forecast an increase of "merely" 9.6% y/y to €50.48m for FY 2011. In our forecast, we assume that material costs (gross margin 2011E: 69.5%) and personnel costs (as a percentage of sales 2011E: 33.5%) will come in at 9M 2011 levels. Following the omission of expenditures in connection with the disposal of business, we expect other operating expenses to decrease slightly as a percentage of sales (2011E: -0.2 pp y/y to 18.0%). For 2011, we thus forecast an increase in EBIT to €7.10m (EBIT margin: 14.1%).

Although Masterflex will report an additional non-operating profit of €0.9m (agreement on legal dispute over interest rate swap) in 2011, net income (from continuing operations) should decline to €3.73m or €0.43 per share. However, the decrease is only a result of previous year's higher non-operating profit of €6.03m (debt waiver).

With regard to further debt reduction, we expect financial liabilities (short- and long-term) to decrease to €25.71m as of December 31, 2011. Net financial debt is expected to amount to €21.83m at the end of the year. Given the forecasted increase in equity (€13.99m as of 12/31/2011), we expect Masterflex' equity ratio to improve 8.9 pp y/y to 27.0%.

In 2011, we expect a positive free cash flow of €1.18m. However, following the debt reduction in 2011E, net cash flows are expected to come in at €-10.51m.

Given the growing economic uncertainty, our FY 2012 sales forecast of €54.72m (+8.4% y/y) is slightly below Masterflex' 2012 guidance (roughly +10% y/y). We expect EBIT to increase to €7.60m. However, due to start-up costs (especially with regard to regional expansion) we expect EBIT growth to lag behind sales growth. On the bottom line, we forecast net income of €3.99m or €0.46 per share.

Debt reduction will be an issue throughout the coming years. At the end of 2012, we expect short- and long-term-debt to decrease to €19.08m. Due to the forecasted debt reduction (CF from financing activities: €-6.63m), we expect net cash flows to come in at €-3.27m. Cash and cash equivalents should thus decrease to €0.62m.

We believe that our forecasts for 2013E onwards are in-line with Masterflex' mid-term growth guidance. The company plans to grow at least stronger than GDP of the respective regional market it operates in.

in €m	2011E	2012E
Sales	50.48	54.72
y/y growth	9.6%	8.4%
EBIT	7.10	7.60
Margin	14.1%	13.9%
Net income (continuing operations)	3.73	3.99
Margin	7.4%	7.3%

Source: First Berlin

MARKET & COMPETITION

MARKET

Masterflex AG focuses on developing and manufacturing high grade connection and hose systems made of innovative high-tech plastics. Since Masterflex' hose systems have a wide range of applications, the company has a well diversified customer base. With regard to future growth, Masterflex concentrates on internationalisation and further development of innovative products.

PLASTICS PROCESSING INDUSTRY

According to the Association of the Plastics Processing Industry in Germany (Gesamtverband Kunststoffverarbeitende Industrie e.V. - GKV), the industry is witnessing double digit sales growth. In 2011, total production is expected to increase to 12.2m tons (2010: 11.4m tons). Total revenues are forecasted to grow by 14.0% y/y to €51.3bn. Growth in the construction sub segment will be moderate (revenue: +5.0% y/y to €10.8bn), whereas technical components are expected to jump by 22.7% y/y to €11.9bn. However, except for "Other applications" (+14.6% y/y to €16.4bn), no segment within the plastics processing industry is expected to exceed 2008's pre-crisis levels.

Plastics processing industry: production output and revenue by sector
Segment		Production output in million tons		Revenue in € billion
	2008	2009	2010	2008	2009	2010
Total	12.8	11.4	12.2	52.3	45.0	51.3
thereof: Packaging	4.1	3.8	4.1	12.5	10.7	12.2
Construction	3.1	2.9	3.0	11.1	10.3	10.8
Technical components (Automotive, mechanical engineering, …)	2.5	2.0	2.2	12.1	9.7	11.9
Other applications (Domestic, consumer goods, …)	3.1	2.7	2.9	16.1	14.3	16.4

Source: Gesamtverband Kunststoffverarbeitende Industrie e.V. (GKV - National Association of Plastics Processors)

ECONOMIC GROWTH IN REGIONAL MARKETS

In the past, the company generated most of its revenues in Germany and Western Europe. In order to expand geographically, Masterflex entered the Russian and the Brazilian market recently. Especially modernisation of buildings due to upcoming major sporting events (Soccer World Cup 2014, Olympic Games 2016) is expected to fuel sales growth in Brazil. Moreover, Masterflex is preparing to enter the Central Asian market (especially China).

With regard to mid-term growth, Masterflex plans to grow at least stronger than GDP of the respective regional market it operates in.

GDP growth in countries with Masterflex branch offices
in % y/y	2010	2011E	2012E
Germany	3.7	2.8	0.8
USA	3.0	1.7	2.6
France	1.4	1.8	1.0
UK	1.4	1.3	1.8
Czech Republic	2.2	2.3	3.1
Sweden	5.4	4.6	2.8
Russia	4.0	4.0	3.8
Brazil	7.5	3.7	4.0

Source: Deutsche Bank, World Bank, Ministry of Foreign Affairs

CUSTOMER MARKETS

Besides regional economic growth, growth perspectives for Masterflex' target industries are important as well.

Source: Masterflex

a) Automotive

After its low in 2009 (sales volume: roughly 60m vehicles), the global car industry is expected to grow at a CAGR of 6.3% until 2016E (source: YSA, International Car Manufacturer's Association). Mature European markets are forecasted to grow at a CAGR of 1.0%, whereas the US market - emerging from recession - is expected to grow at a CAGR of 9.0%. South American markets are forecasted to grow at a CAGR of 6.0%. Unsurprisingly, Asia is expected to record the most dynamic growth (CAGR of 11.7%).

b) Aerospace

According to research firms Data Monitor and Clearwater, the global aerospace and defence industry was valued at \$920.6bn in 2009 (CAGR 2005-2009: 8.7%). The defence sector accounted for 71.8% of the industry (civil aviation: 28.2%). Largest regional markets are the US (59% market share), followed by Europe (22%) and Asia-Pacific (19%). Market volume is expected to increase to \$1,190.5bn by the end of 2014E, corresponding to a CAGR of 5.3%.

c) Engineering

In 2011, the German Engineering Federation (Verband Deutscher Maschinen- und Anlagenbau - VDMA) expects the industry's production volume to grow by 14% y/y to €188bn. However, due to an expected slowdown in economic growth and ongoing turbulence in worldwide financial markets, production volume is to peak in 2012. VDMA thus forecasts a decline in production volume growth in 2012 (+4% y/y to €197bn).

d) Nutrition

Global nutrition markets are forecasted to grow at attractive growth rates in the coming years. For example, the global parenteral nutrition market was estimated to be worth \$2.7bn in 2010 (CAGR 2002-2010: 5.3). With an estimated CAGR of 7.7%, the market is forecasted to reach a volume of \$4.5bn in 2017E (source: GBI Research). Growing with a forecasted CAGR (2009-2014) of 5.0%, the global baby food market is expected to be worth \$37.6bn by 2014 (source: MarketsandMarkets).

e) Pharma & Medicine

The global pharmaceutical market is expected to grow at a CAGR of 4%-7% through 2013 (market volume 2013E: >\$975bn; source: Pharmaceutical Drug Manufacturers). While mature Western markets are expected to grow moderately, the Asia-Pacific region is forecasted to grow at a CAGR of roughly 12.6%, primarily driven by China's projected growth (CAGR of >20%). The Middle East & African pharmaceutical markets are forecasted to grow at a CAGR of approx. 11.0%.

In 2011, the global market for medical equipment and supplies is valued at \$273.3bn (source: Espicom). In the 2006-2010 period, the market grew at a CAGR 5.3%, including the slowdown in 2009. Following the quick recovery in 2010, the market is expected to continue to grow at a moderate CAGR through 2016E (market volume 2016E: \$348.6bn; corresponds to a CAGR of 5.0%).

f) Utilities

In 2010, the 60 biggest utilities companies generated total revenues of \$1,133.9bn, which corresponds to a CAGR (2006-2010) of 5.3%. Future growth rates of the global utilities sector is expected to decelerate slightly. Research firm MarketLine forecasts a CAGR (2010- 2015) of 5.1%.

COMPETITION

Masterflex is a global market leader in high-tech hose systems. There are no other global players in the high tech hose systems business. Most competitors are SMEs that are less diversified with regard to applications/products and regional markets such as Gelsenkirchenbased Norres & Co GmbH in the field of spiral hoses. Since the substitution process for most applications is relatively slow, "traditional" (for example rubber or PVC) material processing companies are also competitors.

MANAGEMENT

Dr Andreas Bastin is Masterflex CEO since April 2008. Dr Bastin studied Mechanical Engineering at Dortmund University and was awarded his PhD in Engineering in 1994. He started his career working for Krupp-Hoesch Group, followed by management positions in medium-sized technology companies. Before joining Masterflex in 2006, Dr Bastin was member of the management board of ETAS GmbH, a subsidiary of Robert Bosch GmbH.

Mark Becks is Masterflex CFO since June 2009. Mr Becks studied Engineering Sciences at the University of Technology in Berlin. He started his career working for major corporations (for example Mannesmann und Bosch). Prior to joining Masterflex, Mr Becks held managerial positions in medium-sized companies.

SUPERVISORY BOARD

Friedrich Wilhelm Bischoping is chairman of the supervisory board since 2000. After his Engineering studies, Mr Bischoping founded an engineering company for industrial plant construction in 1974. In 1987, he co-founded Masterflex Kunststofftechnik GmbH. Mr Bischoping joined the supervisory board after conversion of Masterflex Kunststofftechnik GmbH into publicly listed company.

Georg van Hall is Deputy Chairman of the Supervisory Board since 2009. Following his business administration studies, he held a number of management positions in auditing and tax advisory. Mr van Hall is partner at AccountingPartners Wirtschaftsprüfungsgesellschaft in Düsseldorf since 2005.

Axel Klomp is member of the supervisory board since 2010. After his business administration studies, Mr Klomp started his career in the consulting firm that was founded by his grandfather. Mr Klomp is senior partner at Klomp-Exner-Aretz and is also a member of the board of chamber of tax consultants and association of tax consultants in Düsseldorf.

INCOME STATEMENT ANALYSIS

All figures in EUR '000	2009A	2010A	2011E	2012E	2013E	2014E
Revenues	38,409	46,057	50,478	54,719	58,658	61,943
Cost of goods sold	10,980	13,518	15,396	16,799	18,301	19,388
Gross Profit	27,429	32,539	35,083	37,920	40,357	42,555
Personnel Costs	14,313	16,042	16,910	18,413	19,885	20,999
Other Operating Income (Expense)	-7,704	-8,395	-9,086	-9,576	-9,972	-10,406
Operating income (EBIT)	3,656	6,445	7,101	7,597	8,040	8,435
Net financial result	-3,211	-3,341	-2,382	-1,621	-1,176	-1,067
Non-operating expenses	-3,101	6,033	900	0	0	0
Pre-tax income (EBT)	-2,656	9,137	5,619	5,976	6,864	7,368
Income taxes	-1,724	1,037	1,686	1,793	2,059	2,210
Minority interests	-127	-166	-204	-197	-220	-236
Net income / loss (excl. discontinued operations)	-1,059	7,934	3,729	3,986	4,585	4,922
Diluted EPS (excl. discontinued operations)	-0.24	1.67	0.43	0.46	0.53	0.56
EBITDA	6,124	9,114	10,063	10,697	11,262	11,955
Ratios
EBIT-Margin on Revenues	9.5%	14.0%	14.1%	13.9%	13.7%	13.6%
EBITDA margin on Revenues	15.9%	19.8%	19.9%	19.6%	19.2%	19.3%
Net Margin on Revenues	-2.8%	17.2%	7.4%	7.3%	7.8%	7.9%
Tax Rate	64.9%	11.3%	30.0%	30.0%	30.0%	30.0%
Expenses as % of Revenues
Personnel Costs	37.3%	34.8%	33.5%	33.7%	33.9%	33.9%
Y-Y Growth
Revenues	n.a.	19.9%	9.6%	8.4%	7.2%	5.6%
Operating income	n.a.	76.3%	10.2%	7.0%	5.8%	4.9%
Net income/ loss	n.a.	n.m.	-53.0%	6.9%	15.0%	7.3%

BALANCE SHEET ANALYSIS

All figures in EUR '000	2009A	2010A	2011E	2012E	2013E	2014E
Assets
Current Assets, Total	27,530	31,387	18,868	16,829	20,630	25,566
Cash and Cash Equivalents	7,779	14,398	3,888	624	3,178	7,165
Receivables	4,355	4,361	5,532	5,997	6,428	6,788
Inventories	13,077	7,397	8,352	9,113	9,928	10,517
Other Current Assets	2,130	1,469	896	896	896	896
Non-Current Assets, Total	41,768	34,029	32,945	32,635	32,287	31,679
Property, Plant & Equipment	25,427	21,155	20,667	20,139	19,556	18,699
Goodwill & Other Intangibles	6,263	4,090	4,292	4,511	4,745	4,993
Other Assets	10,078	8,784	7,986	7,986	7,986	7,986
Total Assets	69,298	65,416	51,813	49,464	52,917	57,245
Shareholders' Equity & Debt
Current Liabilities, Total	43,253	20,439	15,152	10,079	9,634	12,058
Short-Term Debt	34,973	7,135	6,632	1,459	907	3,254
Accounts Payable	2,248	1,768	1,097	1,197	1,304	1,381
Current provisions	2,895	4,492	4,399	4,399	4,399	4,399
Other current liabilities	3,137	7,044	3,024	3,024	3,024	3,024
Longterm Liabilities, Total	25,050	32,764	21,961	20,502	19,595	16,341
Long Term Debt	19,472	30,045	19,082	17,623	16,716	13,462
Deferred Revenue	1,467	514	601	601	601	601
Other Liabilities	4,111	2,205	2,278	2,278	2,278	2,278
Minority interests	213	400	707	904	1,124	1,360
Shareholders Equity	782	11,813	13,993	17,979	22,565	27,486
Total Consolidated Equity and Debt	69,298	65,416	51,813	49,464	52,917	57,245
Ratios
Current ratio	0.64	1.54	1.25	1.67	2.14	2.12
Quick ratio	0.33	1.17	0.69	0.77	1.11	1.25
Financial Leverage	88.62	5.54	3.70	2.75	2.35	2.08
Book Value per Share	0.18	2.49	1.60	2.06	2.58	3.15
Net cash	-46,666	-22,782	-21,826	-18,458	-14,445	-9,551
Return on Equity (ROE)	-135.4%	67.2%	26.6%	22.2%	20.3%	17.9%

CASH FLOW ANALYSIS

All figures in EUR '000	2009A	2010A	2011E	2012E	2013E	2014E
EBIT	3,656	6,445	7,101	7,597	8,040	8,435
Depreciation and amortization	2,468	2,669	2,962	3,100	3,222	3,520
EBITDA	6,124	9,114	10,063	10,697	11,262	11,955
Changes in Working Capital	774	-3,338	-2,786	-1,126	-1,140	-872
Other Adjustments	-1,835	-690	-3,419	-3,414	-3,235	-3,278
Operating Cashflow	5,063	5,086	3,858	6,158	6,887	7,805
CAPEX	-1,141	-2,243	-2,473	-2,572	-2,640	-2,664
Investments in Intangibles	-34	-189	-202	-219	-235	-248
Free cashflow	3,888	2,654	1,182	3,367	4,013	4,894
Debt Financing, net	-14,275	-6,768	-11,466	-6,632	-1,459	-907
Equity Financing, net	0	13,097	0	0	0	0
Other Changes in Cash	7,071	-2,320	-226	0	0	0
Net Cash Flows	-3,316	6,663	-10,510	-3,265	2,554	3,987
Cash, start of the year	11,095	7,779	14,398	3,888	624	3,178
Cash, end of the year	7,779	14,442	3,888	624	3,178	7,165
EBITDA/share	1.40	1.92	1.15	1.23	1.29	1.37
Y-Y Growth
Operating Cashflow	n.a.	0.5%	-24.1%	59.6%	11.8%	13.3%
Free cashflow	n.a.	-31.7%	-55.4%	184.8%	19.2%	22.0%
EBITDA/share	n.a.	37.1%	-40.1%	6.3%	5.3%	6.2%

FIRST BERLIN RECOMMENDATION & PRICE TARGET HISTORY

Report	Date of	Previous day	Recommen	Price
No.:	publication	closing price	dation	target
Initial Report	5 December 2011	€4.42	Buy	€7.10

Jens Hasselmeier

First Berlin Equity Research GmbH

Mohrenstraße 34 10117 Berlin

Tel. +49 (0)30 - 80 93 96 83 Fax +49 (0)30 - 80 93 96 87

info@firstberlin.com www.firstberlin.com

FIRST BERLIN POLICY

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ANALYST CERTIFICATION

I, Jens Hasselmeier, certify that the views expressed in this report accurately reflect my personal and professional views about the subject company; and I certify that my compensation is not directly linked to any specific financial transaction including trading revenue or asset management fees; neither is it directly or indirectly related to the specific recommendation or views contained in this research. In addition, I possess no shares in the subject company.

INVESTMENT RATING SYSTEM

First Berlin's investment rating system is five tiered and includes an investment recommendation and a risk rating. Our recommendations, which are a function of our expectation of total return (forecast price appreciation and dividend yield) in the year specified, are as follows:

STRONG BUY: Expected return greater than 50% and a high level of confidence in management's financial guidance BUY: Expected return greater than 25% ADD: Expected return between 0% and 25%

REDUCE: Expected negative return between 0% and -15% SELL: Expected negative return greater than -15%

Our risk ratings are Low, Medium, High and Speculative and are determined by ten factors: corporate governance, quality of earnings, management strength, balance sheet and financing risk, competitive position, standard of financial disclosure, regulatory and political uncertainty, company size, free float and other company specific risks. These risk factors are incorporated into our valuation models and are therefore reflected in our price targets. Our models are available upon request to First Berlin clients.

Up until 16 May 2008, First Berlin's investment rating system was three tiered and was a function of our expectation of return (forecast price appreciation and dividend yield) over the specified year. Our investment ratings were as follows: BUY: expected return greater than 15%; HOLD: expected return between 0% and 15%; and SELL: expected negative return.

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