Softing AG — Earnings Release 2014

Mar 30, 2015

(CDAX, Technology)

		Value Indicators:	EUR	Share data:		Description:
Buy		DCF:	18.30	Bloomberg:	SYT GR	Software solutions (e.g. error
		FCF-Value Potential 17e:	18.70	Reuters:	SYTG	diagnosis) for industrial plants and
EUR 18.00				ISIN:	DE0005178008	automotive electronics
		Market Snapshot:	EUR m	Shareholders:		Risk Profile (WRe):	2015e
		Market cap:	88.2	Freefloat	74.0 %	Beta:	1.3
Price	EUR 12.68	No. of shares (m):	7.0	Trier Asset Mgmt	26.0 %	Price / Book:	2.2 x
Upside	42.0 %	EV:	97.3			Equity Ratio:	49 %
		Freefloat MC:	65.3			Net Fin. Debt / EBITDA:	0.5 x
		Ø Trad. Vol. (30d; EUR):	160.86 th			Net Debt / EBITDA:	0.7 x

Getting ready for higher organic top-line growth

Stated Figures Q4/2014:							Comment on Figures:
in EUR m	Q4/14	Q4/13	yoy	2014	2013	yoy	top line.
Sales	21.3	14.3	49.5%	74.5	52.6	41.8%
EBITDA margin	2.2 10.5%	2.7 18.6%	-15.8%	10.1 13.5%	9.4 17.8%	7.8%	comparables.
EBIT margin	1.3 6.1%	2.0 14.0%	-34.4%	5.9 7.9%	6.2 11.8%	-5.1%
EPS in EUR	0.12	0.23	-47.8%	0.58	0.69	-15.9%
Industrial Automation EBIT Industrial Automation margin	15.4 0.2 1.4%	7.1 0.4 5.2%	116.4% -43.2%	46.9 1.7 3.6%	26.5 2.3 8.6%	77.1% -26.7%	segment.
Automotive Electronics EBIT Automotive Electronics margin	5.9 1.1 18.6%	7.1 1.6 22.8%	-17.2% -32.4%	27.6 4.2 15.3%	26.1 3.9 15.1%	6.0% 7.3%

• The recent acquisitions OLDI and Psiber contributed to Softing's soaring top line.
• Growth in the Automotive Electronics segment was fully organic. Orders for maturing products had a positive impact on top line development in this segment during 2014. Q4, however, had to face high comparables.
• M&A-related costs negatively impacted the bottom line to the tune of EUR 1m. These are reflected in the Industrial Automation segment.
• PPA-related amortisations negatively impacted the bottom line to the tune of EUR 0.8m. These are also reflected in the Industrial Automation segment.

Softing's annual report has confirmed preliminary figures. From an earnings perspective, 2014 was clearly a transitional year given M&Arelated costs, which were mainly related to OLDI, and significantly increased R&D efforts. The latter were raised to nearly EUR 15m (from EUR 11.5m in 2013) while own work capitalised remained approximately unchanged at EUR 4m. This indicates that the company is preparing new product launches.

• 2015 sales in the Industrial Automation segment should benefit from the market launch of new products (e.g. new gateways, new diagnosis tools for Industrial Ethernet). In the medium term, Softing will focus on growth in North America. The US is expected to contribute approx. EUR 30m to Softing's top line in 2015. New products (e.g. the introduction of new generation VCIs) in the Automotive Electronics segment as well as increasing presence in the Emerging Markets should also have a positive impact on top-line growth.
• The momentum from new products should materialise during the second half of 2015 and accelerate growth in the upcoming years. Given inorganic top line contributions, our 2015 top-line estimates are a low threshold. 2017 estimates are being introduced. For 2015, management expects top and bottom-line growth; a detailed guidance will be published in the framework of the Q1 figures release.

Given the upside of > 40% to our PT, the Buy rating is being reiterated.

		FY End: 31.12. in EUR m	CAGR (14-17e)	2011	2012	2013	2014	2015e	2016e	2017e
		Sales	10.3 %	41.1	49.4	52.6	74.5	81.0	91.0	100.0
		Change Sales yoy		29.9 %	20.0 %	6.4 %	41.8 %	8.7 %	12.3 %	9.9 %
		Gross profit margin		75.6 %	76.3 %	78.7 %	68.5 %	71.0 %	71.2 %	71.4 %
		EBITDA	17.8 %	7.4	8.3	9.4	10.1	12.8	14.8	16.5
		Margin		17.9 %	16.7 %	17.8 %	13.5 %	15.8 %	16.3 %	16.5 %
		EBIT	24.3 %	4.2	4.9	6.2	5.9	7.7	9.6	11.3
		Margin		10.3 %	10.0 %	11.8 %	7.9 %	9.5 %	10.6 %	11.3 %
		EBIT adj.	23.3 %	4.2	4.9	6.2	6.2	8.0	9.9	11.6
		Net income	27.6 %	3.1	3.5	4.3	3.8	5.2	6.7	7.9
		EPS	25.3 %	0.58	0.59	0.69	0.58	0.75	0.96	1.14
		DPS	17.0 %	0.27	0.27	0.35	0.25	0.30	0.35	0.40
Rel. Performance vs CDAX:		Dividend Yield		6.9 %	4.6 %	3.4 %	1.6 %	2.4 %	2.8 %	3.2 %
		FCFPS		0.60	0.53	0.14	0.10	1.56	0.73	0.92
1 month:	-12.5 %	EV / Sales		0.4 x	0.5 x	1.0 x	1.6 x	1.2 x	1.0 x	0.9 x
6 months:	-38.7 %	EV / EBITDA		2.0 x	2.9 x	5.7 x	11.8 x	7.6 x	6.4 x	5.5 x
Year to date:	-34.5 %	EV / EBIT		3.5 x	4.9 x	8.7 x	20.2 x	12.6 x	9.8 x	8.0 x
Trailing 12 months:	-43.4 %	EV / EBIT adj.		3.5 x	4.9 x	8.7 x	19.2 x	12.1 x	9.5 x	7.8 x
		P / E		6.7 x	9.9 x	15.0 x	26.3 x	16.9 x	13.2 x	11.1 x
Company events:		FCF Yield Potential		25.6 %	13.8 %	6.8 %	3.4 %	7.2 %	8.9 %	10.4 %
06.05.15	AGM	Net Debt		-5.8	-10.4	-11.2	18.3	9.1	6.1	2.1
15.05.15	Q1	ROE		19.1 %	17.8 %	17.9 %	12.0 %	13.6 %	16.0 %	17.1 %
14.08.15	Q2	ROCE (NOPAT)		26.5 %	30.0 %	32.4 %	11.4 %	10.4 %	13.7 %	15.7 %
13.11.15	Q3	Guidance:	2014: sales: > EUR 70m; EBIT: EUR 5.5-6.5m
A n a l y s t

Andreas Wolf awolf@warburg-research.com +49 40 309537-140

Company Background

• Softing has the necessary expertise on information exchange between various devices, sensors, plant and software solutions in automated processes. The business activity comprises two segments.
• Industrial Automation: hardware and software solutions for the exchange of information in all kinds of production including montage lines, chemical plants, oil and gas extraction or refineries.
• Automotive Electronics: The solutions allow engineers and workshop mechanics to test automotive electronics in the development phase, production or repair, and to recognise errors through data evaluation.
• The solutions in the automotive segment are not for application within the vehicles and therefore do not pose a product re-call risk for the company.
• Softing focuses on established standards and reaches a coverage of ca. 70% of the market.

Competitive Quality

• World market leader in tools to recognise errors in production plant (so called field bus diagnostics)
• European market leader in the networking of various production plant elements as well as in business-related software (so-called OPC products).
• World market leader for components for the exchange of information in gas and oil plants. Some >50% of all devices registered worldwide that are used in these plants include components from Softing.
• Through participation in international committees that set standards for the exchange of information, a short time-to-market is achieved.
• The high complexity of the business activity of Softing is the single most important barrier to market entry for potential competitors.

DCF model

		Detailed forecast period						Transitional period						Term. Value
Figures in EUR m	2015e	2016e	2017e	2018e	2019e	2020e	2021e	2022e	2023e	2024e	2025e	2026e	2027e
Sales	81.0	91.0	100.0	110.0	119.4	128.1	136.1	143.4	150.0	155.8	161.0	165.6	168.9
Sales change	8.7 %	12.3 %	9.9 %	10.0 %	8.6 %	7.3 %	6.3 %	5.3 %	4.6 %	3.9 %	3.3 %	2.9 %	2.0 %	2.0 %
EBIT	7.7	9.6	11.3	10.5	11.3	12.2	12.9	13.6	14.2	14.8	15.3	15.7	16.0
EBIT-margin	9.5 %	10.6 %	11.3 %	9.5 %	9.5 %	9.5 %	9.5 %	9.5 %	9.5 %	9.5 %	9.5 %	9.5 %	9.5 %
Tax rate (EBT)	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %	30.0 %
NOPAT	5.4	6.7	7.9	7.3	7.9	8.5	9.1	9.5	10.0	10.4	10.7	11.0	11.2
Depreciation	5.1	5.2	5.2	7.2	7.8	8.3	8.8	9.3	9.7	10.1	10.5	10.8	11.0
in % of Sales	6.3 %	5.7 %	5.2 %	6.5 %	6.5 %	6.5 %	6.5 %	6.5 %	6.5 %	6.5 %	6.5 %	6.5 %	6.5 %
Changes in provisions	0.0	0.0	0.0	0.8	0.1	0.1	0.0	0.0	0.0	0.0	-0.1	-0.1	-0.1
Change in Liquidity from
- Working Capital	-5.4	2.0	1.8	2.1	1.6	1.5	1.4	1.3	1.1	1.0	0.9	0.8	0.6
- Capex	4.8	4.8	4.9	7.4	8.0	8.6	9.1	9.6	10.0	10.4	10.8	11.1	11.3
Capex in % of Sales	5.9 %	5.3 %	4.9 %	6.7 %	6.7 %	6.7 %	6.7 %	6.7 %	6.7 %	6.7 %	6.7 %	6.7 %	6.7 %
Other	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Free Cash Flow (WACC Model)	11.1	5.1	6.4	5.9	6.1	6.8	7.4	8.0	8.5	9.0	9.4	9.8	10.2	11
PV of FCF	11.1	4.8	5.6	4.8	4.7	4.8	4.9	4.9	4.9	4.8	4.7	4.6	4.5	90
share of PVs		13.53 %						29.95 %						56.52 %
Model parameter								Valuation (m)
Derivation of WACC:			Derivation of Beta:					Present values 2027e			69
								Terminal Value			90
Debt ratio	20.00 %		Financial Strength			1.25		Financial liabilities			38
Cost of debt (after tax)	2.2 %		Liquidity (share)			1.25		Pension liabilities			2
Market return	7.00 %		Cyclicality			1.25		Hybrid capital			0
Risk free rate	1.50 %		Transparency			1.25		Minority interest			0
			Others			1.25		Market val. of investments			0
							Liquidity				9	No. of shares (m)		7.0
WACC	7.15 %		Beta			1.25	Equity Value			127		Value per share (EUR)		18.28

Sensitivity Value per Share (EUR)

Beta WACC	1.25 %	1.50 %	1.75 %	2.00 %	2.25 %	2.50 %	2.75 %		-1.5 pp	-1.0 pp			+0.5 pp	+1.0 pp	+1.5 pp
1.48 8.1 %	13.52	13.84	14.19	14.57	14.98	15.42	15.91		11.34	12.41	13.49	14.57	15.65	16.72	17.80
1.36 7.6 %	14.95	15.35	15.79	16.26	16.77	17.34	17.96		12.74	13.91	15.08	16.26	17.43	18.61	19.78
1.31 7.4 %	15.76	16.21	16.69	17.22	17.80	18.44	19.15		13.53	14.76	15.99	17.22	18.45	19.68	20.91
1.25 7.1 %	16.64	17.14	17.68	18.28	18.94	19.67	20.48		14.41	15.70	16.99	18.28	19.57	20.86	22.15
1.19 6.9 %	17.60	18.16	18.77	19.45	20.20	21.03	21.97		15.38	16.73	18.09	19.45	20.81	22.17	23.52
1.14 6.6 %	18.65	19.28	19.98	20.75	21.61	22.57	23.65		16.45	17.88	19.31	20.75	22.18	23.61	25.04
1.02 6.1 %	21.07	21.89	22.80	23.82	24.96	26.27	27.77		18.99	20.60	22.21	23.82	25.42	27.03	28.64
			Terminal Growth						Beta WACC 1.48 8.1 % 1.36 7.6 % 1.31 7.4 % 1.25 7.1 % 1.19 6.9 % 1.14 6.6 % 1.02 6.1 %		Delta EBIT-margin		-0.5 pp +0.0 pp

The cyclical components of the business activity and the low liquidity of the share raise the capital costs.

Free Cash Flow Value Potential

Warburg Research's valuation tool "FCF Value Potential" reflects the ability of the company to generate sustainable free cash flows. It is based on the "FCF potential" - a FCF "ex growth" figure - which assumes unchanged working capital and pure maintenance capex. A value indication is derived via the perpetuity of a given year's "FCF potential" with consideration of the weighted costs of capital. The fluctuating value indications over time add a timing element to the DCF model (our preferred valuation tool).

in EUR m	2011	2012	2013	2014	2015e	2016e	2017e
Net Income before minorities	3.1	3.5	4.3	3.8	5.2	6.7	7.9
+ Depreciation + Amortisation	3.1	3.3	3.2	4.2	5.1	5.2	5.2
- Net Interest Income	0.0	0.0	-0.1	-0.3	-0.3	-0.1	0.0
- Maintenance Capex	2.3	3.5	3.9	4.2	3.6	3.6	3.7
+ Other	0.0	0.0	0.0	0.0	0.0	0.0	0.0
= Free Cash Flow Potential	3.9	3.3	3.7	4.1	7.0	8.4	9.4
Free Cash Flow Yield Potential	25.6 %	13.8 %	6.8 %	3.4 %	7.2 %	8.9 %	10.4 %
WACC	7.15 %	7.15 %	7.15 %	7.15 %	7.15 %	7.15 %	7.15 %
= Enterprise Value (EV)	15.0	24.2	53.7	119.1	97.3	94.3	90.4
= Fair Enterprise Value	53.9	46.9	51.1	56.8	97.9	117.2	132.0
- Net Debt (Cash)	16.1	16.1	16.1	16.1	6.9	4.0	0.0
- Pension Liabilities	2.2	2.2	2.2	2.2	2.2	2.2	2.2
- Other	0.0	0.0	0.0	0.0	0.0	0.0	0.0
- Market value of minorities	0.0	0.0	0.0	0.0	0.0	0.0	0.0
+ Market value of investments	0.0	0.0	0.0	0.0	0.0	0.0	0.0
= Fair Market Capitalisation	35.7	28.6	32.9	38.5	88.7	111.1	129.9
No. of shares (total) (m)	7.0	7.0	7.0	7.0	7.0	7.0	7.0
= Fair value per share (EUR)	5.12	4.11	4.72	5.54	12.75	15.96	18.66
premium (-) / discount (+) in %					0.6 %	26.0 %	47.2 %
Sensitivity Fair value per Share (EUR)
10.15 %	2.83	2.12	2.55	3.12	8.60	10.99	13.05
9.15 %	3.43	2.64	3.12	3.75	9.68	12.28	14.51
8.15 %	4.17	3.28	3.82	4.53	11.03	13.90	16.33
WACC 7.15 %	5.12	4.11	4.72	5.54	12.75	15.96	18.66
6.15 %	6.38	5.21	5.92	6.86	15.04	18.70	21.74
5.15 %	8.13	6.73	7.58	8.71	18.22	22.51	26.03
4.15 %	10.73	8.98	10.04	11.44	22.92	28.15	32.38

Capitalised own work is a significant element of the capex.

The earnings quality has clearly improved over the last years.

Increasing share of software revenues should have a positive effect on the FCF Value.

Valuation

	2011	2012	2013	2014	2015e	2016e	2017e
Price / Book	1.2 x	1.6 x	2.5 x	2.7 x	2.2 x	2.0 x	1.8 x
Book value per share ex intangibles	1.96	2.43	2.62	-0.60	-0.03	0.66	1.50
EV / Sales	0.4 x	0.5 x	1.0 x	1.6 x	1.2 x	1.0 x	0.9 x
EV / EBITDA	2.0 x	2.9 x	5.7 x	11.8 x	7.6 x	6.4 x	5.5 x
EV / EBIT	3.5 x	4.9 x	8.7 x	20.2 x	12.6 x	9.8 x	8.0 x
EV / EBIT adj.*	3.5 x	4.9 x	8.7 x	19.2 x	12.1 x	9.5 x	7.8 x
P / FCF	6.5 x	11.0 x	72.4 x	149.6 x	8.1 x	17.4 x	13.8 x
P / E	6.7 x	9.9 x	15.0 x	26.3 x	16.9 x	13.2 x	11.1 x
P / E adj.*	6.7 x	9.9 x	15.0 x	26.3 x	16.9 x	13.2 x	11.1 x
Dividend Yield	6.9 %	4.6 %	3.4 %	1.6 %	2.4 %	2.8 %	3.2 %
Free Cash Flow Yield Potential	25.6 %	13.8 %	6.8 %	3.4 %	7.2 %	8.9 %	10.4 %
*Adjustments made for: -

Company Specific Items

	2011	2012	2013	2014	2015e	2016e	2017e
order entries	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
book-to-bill	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
order book	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.

Consolidated profit & loss

In EUR m	2011	2012	2013	2014	2015e	2016e	2017e
Sales	41.1	49.4	52.6	74.5	81.0	91.0	100.0
Change Sales yoy	29.9 %	20.0 %	6.4 %	41.8 %	8.7 %	12.3 %	9.9 %
Increase / decrease in inventory	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Own work capitalised	2.0	3.2	4.0	3.9	3.2	2.9	2.9
Total Sales	43.2	52.6	56.5	78.5	84.2	93.9	102.9
Material Expenses	12.1	14.9	15.2	27.4	26.7	29.1	31.5
Gross profit	31.1	37.7	41.3	51.1	57.5	64.8	71.4
Gross profit margin	75.6 %	76.3 %	78.7 %	68.5 %	71.0 %	71.2 %	71.4 %
Personnel expenses	19.4	23.6	25.8	32.1	35.0	39.0	43.2
Other operating income	1.7	0.9	0.7	0.8	0.8	0.8	0.8
Other operating expenses	6.1	6.8	6.8	9.7	10.4	11.7	12.5
Unfrequent items	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBITDA	7.4	8.3	9.4	10.1	12.8	14.8	16.5
Margin	17.9 %	16.7 %	17.8 %	13.5 %	15.8 %	16.3 %	16.5 %
Depreciation of fixed assets	0.3	0.5	0.5	0.6	1.1	1.2	1.2
EBITA	7.1	7.8	8.9	9.5	11.7	13.6	15.3
Amortisation of intangible assets	2.8	2.9	2.7	3.7	4.0	4.0	4.0
Goodwill amortization	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBIT	4.2	4.9	6.2	5.9	7.7	9.6	11.3
Margin	10.3 %	10.0 %	11.8 %	7.9 %	9.5 %	10.6 %	11.3 %
EBIT adj.	4.2	4.9	6.2	6.2	8.0	9.9	11.6
Interest income	0.3	0.3	0.2	0.2	0.0	0.1	0.1
Interest expenses	0.3	0.2	0.2	0.4	0.3	0.2	0.1
Other financial income (loss)	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBT	4.2	4.9	6.2	5.6	7.4	9.5	11.3
Margin	10.3 %	10.0 %	11.7 %	7.5 %	9.2 %	10.5 %	11.3 %
Total taxes	1.2	1.4	1.9	1.8	2.2	2.9	3.4
Net income from continuing operations	3.1	3.5	4.3	3.8	5.2	6.7	7.9
Income from discontinued operations (net of tax)	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net income before minorities	3.1	3.5	4.3	3.8	5.2	6.7	7.9
Minority interest	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net income	3.1	3.5	4.3	3.8	5.2	6.7	7.9
Margin	7.5 %	7.1 %	8.2 %	5.1 %	6.4 %	7.3 %	7.9 %
Number of shares, average	5.3	5.9	6.3	6.6	7.0	7.0	7.0
EPS	0.58	0.59	0.69	0.58	0.75	0.96	1.14
EPS adj.	0.58	0.59	0.69	0.58	0.75	0.96	1.14
*Adjustments made for:

Guidance: 2014: sales: > EUR 70m; EBIT: EUR 5.5-6.5m

Financial Ratios

	2011	2012	2013	2014	2015e	2016e	2017e
Total Operating Costs / Sales	87.0 %	89.7 %	89.7 %	91.7 %	88.1 %	86.9 %	86.4 %
Operating Leverage	5.9 x	0.8 x	4.1 x	-0.1 x	3.6 x	2.0 x	1.7 x
EBITDA / Interest expenses	29.1 x	33.7 x	45.7 x	23.3 x	42.7 x	74.2 x	165.0 x
Tax rate (EBT)	28.1 %	29.0 %	30.2 %	32.3 %	30.0 %	30.0 %	30.0 %
Dividend Payout Ratio	47.1 %	45.8 %	51.1 %	43.4 %	40.2 %	36.5 %	35.2 %
Sales per Employee	159,488	166,851	155,936	181,345	180,000	189,583	208,333

Operating Performance

Sales, EBITDA in EUR m

Performance per Share

CO M M E N T Published 30.03.2015 6

Financial Ratios

Consolidated balance sheet

In EUR m	2011	2012	2013	2014	2015e	2016e	2017e
Assets
Goodwill and other intangible assets	6.7	7.8	9.7	41.0	39.8	39.1	38.5
thereof other intangible assets	0.7	0.6	0.5	22.2	21.6	21.0	20.4
thereof Goodwill	2.4	2.4	2.4	14.5	14.5	14.5	14.5
Property, plant and equipment	1.1	1.4	1.4	1.9	1.9	1.8	1.7
Financial assets	0.9	0.7	0.0	0.0	0.0	0.0	0.0
Other long-term assets	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Fixed assets	8.7	9.9	11.1	42.9	41.7	40.9	40.2
Inventories	3.6	3.3	4.7	8.7	4.5	5.4	6.3
Accounts receivable	8.3	9.8	10.0	14.2	13.3	15.0	16.4
Liquid assets	8.5	12.6	12.9	8.8	18.9	18.9	17.9
Other short-term assets	1.7	2.3	1.5	2.4	2.4	2.4	2.4
Current assets	22.2	28.0	29.1	34.1	39.1	41.7	43.0
Total Assets	31.0	37.9	40.2	77.0	80.8	82.6	83.2
Liabilities and shareholders' equity
Subscribed capital	5.6	6.4	6.4	7.0	7.0	7.0	7.0
Capital reserve	1.7	4.4	4.4	12.3	12.3	12.3	12.3
Retained earnings	10.6	12.1	15.6	18.0	23.2	29.9	37.8
Other equity components	-0.8	-0.8	-0.3	-0.2	-2.9	-5.4	-8.1
Shareholder's equity	17.2	22.2	26.2	37.0	39.6	43.8	48.9
Minority interest	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Total equity	17.2	22.2	26.1	37.0	39.5	43.7	48.9
Provisions	1.7	3.0	2.3	3.9	3.9	3.9	3.9
thereof provisions for pensions and similar obligations	1.0	1.8	1.5	2.2	2.2	2.2	2.2
Financial liabilites (total)	1.8	0.5	0.2	24.8	25.9	22.9	17.9
thereof short-term financial liabilities	0.0	0.0	0.0	7.0	7.0	7.0	7.0
Accounts payable	2.9	3.0	2.5	4.2	4.4	5.0	5.5
Other liabilities	7.4	9.3	9.0	7.1	7.1	7.1	7.1
Liabilities	13.8	15.7	14.1	40.0	41.2	38.8	34.3
Total liabilities and shareholders' equity	31.0	37.9	40.2	77.0	80.8	82.6	83.2

2011 2012 2013 2014 2015e 2016e 2017e Efficiency of Capital Employment Operating Assets Turnover 4.0 x 4.2 x 3.9 x 3.6 x 5.3 x 5.3 x 5.3 x Capital Employed Turnover 3.6 x 4.2 x 3.5 x 1.3 x 1.7 x 1.8 x 2.0 x ROA 35.1 % 35.6 % 38.9 % 8.9 % 12.5 % 16.3 % 19.7 % Return on Capital ROCE (NOPAT) 26.5 % 30.0 % 32.4 % 11.4 % 10.4 % 13.7 % 15.7 % ROE 19.1 % 17.8 % 17.9 % 12.0 % 13.6 % 16.0 % 17.1 % Adj. ROE 19.1 % 17.8 % 17.9 % 12.0 % 13.6 % 16.0 % 17.1 % Balance sheet quality Net Debt -5.8 -10.4 -11.2 18.3 9.1 6.1 2.1 Net Financial Debt -6.8 -12.1 -12.7 16.1 6.9 4.0 0.0 Net Gearing -33.5 % -46.7 % -42.9 % 49.4 % 23.0 % 14.0 % 4.4 % Net Fin. Debt / EBITDA n.a. n.a. n.a. 159.4 % 54.2 % 26.7 % n.a. Book Value / Share 3.2 3.7 4.2 5.6 5.7 6.3 7.0 Book value per share ex intangibles 2.0 2.4 2.6 -0.6 0.0 0.7 1.5

Book Value per Share

Consolidated cash flow statement

In EUR m	2011	2012	2013	2014	2015e	2016e	2017e
Net income	3.1	3.5	4.3	3.8	5.2	6.7	7.9
Depreciation of fixed assets	0.3	0.5	0.5	0.6	1.1	1.2	1.2
Amortisation of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Amortisation of intangible assets	2.8	2.9	2.7	3.7	4.0	4.0	4.0
Increase/decrease in long-term provisions	0.2	0.0	-0.1	0.0	0.0	0.0	0.0
Other non-cash income and expenses	1.1	1.4	0.7	0.5	0.0	0.0	0.0
Cash Flow	7.5	8.2	8.0	8.5	10.3	11.9	13.1
Increase / decrease in inventory	-0.8	0.3	-1.3	-1.6	4.2	-0.9	-0.9
Increase / decrease in accounts receivable	-0.2	-1.8	-0.2	-0.7	0.9	-1.7	-1.4
Increase / decrease in accounts payable	-0.2	1.1	-0.4	-0.9	0.2	0.6	0.5
Increase / decrease in other working capital positions	0.0	0.0	-0.1	0.9	0.0	0.0	0.0
Increase / decrease in working capital (total)	-1.2	-0.5	-2.0	-2.2	5.4	-2.0	-1.8
Net cash provided by operating activities	6.3	7.8	6.0	6.3	15.7	9.9	11.3
Investments in intangible assets	-2.4	-3.9	-4.6	-4.3	-3.7	-3.7	-3.8
Investments in property, plant and equipment	-0.7	-0.7	-0.5	-1.4	-1.1	-1.1	-1.1
Payments for acquisitions	0.0	0.0	0.0	-21.9	0.0	0.0	0.0
Financial investments	0.6	0.2	0.0	0.0	0.0	0.0	0.0
Income from asset disposals	0.0	0.0	0.2	0.8	0.0	0.0	0.0
Net cash provided by investing activities	-2.5	-4.4	-4.9	-26.7	-4.8	-4.8	-4.9
Change in financial liabilities	0.0	-1.2	0.0	10.6	1.0	-3.0	-5.0
Dividends paid	-0.6	-1.4	-1.7	-1.3	-1.7	-2.1	-2.4
Purchase of own shares	0.0	0.0	1.3	0.5	0.0	0.0	0.0
Capital measures	0.0	3.5	0.0	7.5	0.0	0.0	0.0
Other	-0.2	0.0	-0.1	-0.3	0.0	0.0	0.0
Net cash provided by financing activities	-0.8	0.9	-0.5	17.0	-0.7	-5.1	-7.4
Change in liquid funds	3.0	4.2	0.6	-3.4	10.2	0.0	-1.0
Effects of exchange-rate changes on cash	0.0	0.0	0.0	0.1	0.0	0.0	0.0
Cash and cash equivalent at end of period	7.3	11.5	12.1	8.8	18.9	18.9	17.9

Financial Ratios

	2011	2012	2013	2014	2015e	2016e	2017e
Cash Flow
FCF	3.2	3.1	0.9	0.7	10.9	5.1	6.4
Free Cash Flow / Sales	7.8 %	6.4 %	1.7 %	0.9 %	13.4 %	5.6 %	6.4 %
Free Cash Flow Potential	3.9	3.3	3.7	4.1	7.0	8.4	9.4
Free Cash Flow / Sales	7.8 %	6.4 %	1.7 %	0.9 %	13.4 %	5.6 %	6.4 %
Free Cash Flow / Net Profit	104.4 %	89.3 %	20.8 %	17.7 %	209.6 %	76.0 %	81.0 %
Interest Received / Avg. Cash	3.5 %	2.4 %	1.2 %	1.5 %	0.0 %	0.5 %	0.5 %
Interest Paid / Avg. Debt	14.8 %	21.9 %	56.9 %	3.5 %	1.2 %	0.8 %	0.5 %
Management of Funds
Investment ratio	7.5 %	9.4 %	9.8 %	7.6 %	5.9 %	5.3 %	4.9 %
Maint. Capex / Sales	5.7 %	7.1 %	7.3 %	5.7 %	4.4 %	4.0 %	3.7 %
Capex / Dep	99.2 %	139.1 %	162.5 %	133.8 %	94.1 %	92.3 %	94.2 %
Avg. Working Capital / Sales	19.6 %	19.6 %	21.3 %	20.8 %	19.9 %	15.8 %	16.3 %
Trade Debtors / Trade Creditors	290.4 %	333.8 %	396.0 %	339.9 %	302.3 %	300.0 %	298.2 %
Inventory Turnover	3.3 x	4.5 x	3.3 x	3.1 x	5.9 x	5.4 x	5.0 x
Receivables collection period (days)	74	73	70	70	60	60	60
Payables payment period (days)	86	72	61	56	60	63	64
Cash conversion cycle (Days)	46	26	73	83	11	16	21

Working Capital

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This research report was prepared by the Warburg Research GmbH, a subsidiary of the M.M.Warburg & CO (AG & Co.) KGaA and is passed on by the M.M.Warburg & CO (AG & Co.) KGaA. It contains selected information and does not purport to be complete. The report is based on publicly available information and data ("the information") believed to be accurate and complete. Warburg Research GmbH neither does examine the information to be accurate and complete, nor guarantees its accuracy and completeness. Possible errors or incompleteness of the information do not constitute grounds for liability of M.M.Warburg & CO (AG & Co.) KGaA or Warburg Research GmbH for damages of any kind whatsoever, and M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH are not liable for indirect and/or direct and/or consequential damages. In particular, neither M.M.Warburg & CO (AG & Co.) KGaA nor Warburg Research GmbH are liable for the statements, plans or other details contained in these analyses concerning the examined companies, their affiliated companies, strategies, economic situations, market and competitive situations, regulatory environment, etc. Although due care has been taken in compiling this research report, it cannot be excluded that it is incomplete or contains errors. M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH, their shareholders and employees are not liable for the accuracy and completeness of the statements, estimations and the conclusions derived from the information contained in this document. Provided a research report is being transmitted in connection with an existing contractual relationship, i.e. financial advisory or similar services, the liability of M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH shall be restricted to gross negligence and wilful misconduct. In case of failure in essential tasks, M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH are liable for normal negligence. In any case, the liability of M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH is limited to typical, expectable damages. This research report does not constitute an offer or a solicitation of an offer for the purchase or sale of any security. Partners, directors or employees of M.M.Warburg & CO (AG & Co.) KGaA, Warburg Research GmbH or affiliated companies may serve in a position of responsibility, i.e. on the board of directors of companies mentioned in the report. Opinions expressed in this report are subject to change without notice. All rights reserved.

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The valuation underlying the investment recommendation for the company analysed here is based on generally accepted and widely used methods of fundamental analysis, such as e.g. DCF Model, Free Cash Flow Potential, Peer Group Comparison or Sum of the Parts Model. The result of this fundamental valuation is modified to take into consideration the analyst's assessment as regards the expected development of investor sentiment and its impact on the share price.

Independent of the applied valuation methods, there is the risk that the price target will not be met, for instance because of unforeseen changes in demand for the company's products, changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rate etc. For investments in foreign markets and instruments there are further risks, generally based on exchange rate changes or changes in political and social conditions.

This commentary reflects the opinion of the relevant author at the point in time of its compilation. A change in the fundamental factors underlying the valuation can mean that the valuation is subsequently no longer accurate. Whether, or in what time frame, an update of this commentary follows is not determined in advance.

In accordance with § 5 (4) of the Ordinance on the Analysis of Financial Instruments (FinAnV) Warburg Research GmbH has implemented additional internal and organisational arrangements to prevent or to deal with conflicts of interest. Among these are the spatial separation of Warburg Research GmbH from M.M.Warburg & CO (AG & Co.) KGaA and the creation of areas of confidentiality. This prevents the exchange of information, which could form the basis of conflicts of interest for Warburg Research in terms of the analysed issuers or their financial instruments.

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SOURCES

All data and consensus estimates have been obtained from FactSet except where stated otherwise.

Reference in accordance with section 34b of the German Securities Trading Act (WpHG) and the Ordiance on the Analysis of Financial Instruments (FinAnV) regarding possible conflicts of interest with the analysed company:

-1-	The company preparing the analysis or any of its affiliated companies hold over 5% of shares in the analysed company's equity capital.
-2-	Within the last twelve months, the company preparing the analysis or any of its affiliated companies have participated in the management of a consortium for the public offering of financial securities, which are (or the issuer of which) is the subject of the analysis.
-3-	The company preparing the analysis or any of its affiliated companies manage the securities of the analysed company on the grounds of an existing contract.
-4-	On the grounds of an existing contract, the company preparing the analysis or any of its affiliated companies, have managed investment banking services for the analysed company within the last twelve months, out of which a service or the promise of a has service emerged.
-5-	The company preparing the analysis and the analysed company came to an agreement regarding the preparation of the financial analysis.
-6-	The company preparing the analysis or any of its affiliated companies regularly trade in shares or derivatives of the analysed company.
-7-	The company preparing the analysis as well as its affiliated companies and employees have other important interests in relation to the analysed company, such as, for example, the exercising of mandates at analysed companies.

Company	Disclosure	Link to the historical price targets and rating changes (last 12 months)
Softing	4, 5, 6	http://www.mmwarburg.com/disclaimer/disclaimer_en/DE0005178008.htm

INVESTMENT RECOMMENDATION

Investment recommendation: expected direction of the share price development of the financial instrument up to the given price target in the opinion of the analyst who covers this financial instrument.

-B-	Buy: The price of the analysed financial instrument is expected to rise over the next 12 months.
-H-	Hold:	The price of the analysed financial instrument is expected to remain mostly flat over the next 12 months.
-S-	Sell:	The price of the analysed financial instrument is expected to fall over the next 12 months.
"-"	Rating suspended:	The available information currently does not permit an evaluation of the company.

WARBURG RESEARCH GMBH – RESEARCH UNIVERSE BY RATING

Rating	Number of stocks	% of Universe
Buy	104	55
Hold	70	37
Sell	10	5
Rating suspended	4	2
Total	188	100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING …

… Looking only at companies for which a disclosure according to § 34b of the Germany Securities Trading Act and the FinAnV has to be made.

Rating	Number of stocks	% of Universe
Buy	82	59
Hold	46	33
Sell	6	4
Rating suspended	4	3
Total	138	100

PRICE AND RATING HISTORY SOFTING AS OF 30.03.2015

The chart has markings if Warburg Research GmbH changed its rating in the last 12 months. Every marking represents the date and closing price on the day of the rating change.

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