Softing AG — Earnings Release 2014

Feb 24, 2015

(CDAX, Technology)

		Value Indicators:	EUR	Share data:		Description:
Buy		DCF:	18.00	Bloomberg:	SYT GR	Software solutions (e.g. error
		FCF-Value Potential 16e:	14.90	Reuters:	SYTG	diagnosis) for industrial plants and
EUR 18.00				ISIN:	DE0005178008	automotive electronics
		Market Snapshot:	EUR m	Shareholders:		Risk Profile (WRe):	2014e
		Market cap:	97.4	Freefloat	74.0 %	Beta:	1.3
Price	EUR 14.00	No. of shares (m):	7.0	Trier Asset Mgmt	26.0 %	Price / Book:	2.1 x
Upside	28.6 %	EV:	96.6			Equity Ratio:	60 %
		Freefloat MC:	72.1			Net Fin. Debt / EBITDA:	0.1 x
		Ø Trad. Vol. (30d; EUR):	172.05 th			Net Debt / EBITDA:	0.3 x

Q4 preview and model adjustments

Expected Figures Q4/2014:	Comment on Figures:
---------------------------	---------------------

in EUR m	Q4/14e	Q4/13	yoy	2014e	2013	yoy
Sales	18.8	14.3	31.7%	72.0	52.6	37.0%
EBIT margin	2.1 11.3%	2.0 14.0%	6.4%	6.7 9.3%	6.2 11.8%	8.0%
EPS in EUR	0.22	0.23	-4.3%	0.67	0.69	-2.9%
Industrial Automation	13.0	7.1	82.7%	44.5	26.5	68.0%
EBIT Industrial Automation margin	0.7 5.7%	0.4 5.2%	101.6%	2.2 4.9%	2.3 8.6%	-3.2%
Automotive Electronics	5.8	7.1	-19.1%	27.5	26.1	5.5%
EBIT Automotive Electronics margin	1.4 23.9%	1.6 22.8%	-15.2%	4.5 16.4%	3.9 15.1%	14.4%

• Industrial Automation revenues are expected approximately at the Q3 2014 level. Growth is supported by recent acquisitions, mainly the US subsidiary OLDI.
• Last year's Q4 Automotive Electronics revenues were extraordinarily strong, driven by a considerable increase in demand for vehicle diagnostics.
• The EBIT estimate is at the upper end of the 2014 guidance.
• Lower EPS is a result of the higher number of shares.

While the projects that are being carried out in the oil and gas industry usually have a long-term horizon, we would not be overly surprised if some projects were delayed during the course of 2015 as a result of the low oil price. Softing is the undisputed worldwide market leader in the area of the foundation fieldbus communication technology which is widely used in the oil and gas industry. This business field is part of the Industrial Automation segment and we estimate that approx. 15% of overall group revenues are related to the oil and gas vertical. As a consequence, estimates are being adjusted. Furthermore, the discount rate is being lowered to reflect the decline in the long-term risk free rates and the model is being rolled forward by one year. PT remains at EUR 18.

Softing is scheduled to release 2014 figures on March 31. Within this framework the company usually issues a guidance for the new financial year. Given the upside of more than 25%, the Buy rating is being reiterated.

Changes in Estimates:							Comment on Changes:
FY End: 31.12. in EUR m	2014e (old)	+ / -	2015e (old)	+ / -	2016e (old)	+ / -	2014 estimates are being increased assuming that Softing was able to maintain its Q3 operative levels in the final quarter as well.
Sales	71.0	1.4 %	85.0	-4.7 %	95.0	-4.2 %
EBIT	6.1	10.4 %	8.7	-11.3 %	11.6	-25.5 %
EPS	0.60	11.7 %	0.84	-10.7 %	1.16	-25.9 %

		FY End: 31.12. in EUR m	CAGR (13-16e)	2010	2011	2012	2013	2014e	2015e	2016e
		Sales	20.1 %	31.7	41.1	49.4	52.6	72.0	81.0	91.0
		Change Sales yoy		33.8 %	29.9 %	20.0 %	6.4 %	37.0 %	12.5 %	12.3 %
		Gross profit margin		80.0 %	75.6 %	76.3 %	78.7 %	70.1 %	71.0 %	71.2 %
		EBITDA	13.9 %	4.8	7.4	8.3	9.4	11.2	12.8	13.8
		Margin		15.3 %	17.9 %	16.7 %	17.8 %	15.6 %	15.8 %	15.2 %
		EBIT	11.7 %	1.5	4.2	4.9	6.2	6.7	7.7	8.6
		Margin		4.8 %	10.3 %	10.0 %	11.8 %	9.3 %	9.5 %	9.5 %
		EBIT adj.	12.9 %	1.5	4.2	4.9	6.2	7.0	8.0	8.9
		Net income	11.5 %	1.0	3.1	3.5	4.3	4.4	5.2	6.0
		EPS	7.6 %	0.19	0.58	0.59	0.69	0.67	0.75	0.86
		DPS	0.0 %	0.11	0.27	0.27	0.35	0.20	0.20	0.35
Rel. Performance vs CDAX:		Dividend Yield		4.7 %	6.9 %	4.6 %	3.4 %	1.4 %	1.4 %	2.5 %
		FCFPS		0.04	0.60	0.53	0.13	0.36	0.76	0.63
1 month:	-11.2 %	EV / Sales		0.3 x	0.4 x	0.5 x	1.0 x	1.4 x	1.2 x	1.0 x
6 months:	-19.7 %	EV / EBITDA		1.8 x	2.0 x	2.9 x	5.7 x	9.0 x	7.5 x	6.8 x
Year to date:	-18.8 %	EV / EBIT		5.7 x	3.5 x	4.9 x	8.7 x	15.0 x	12.5 x	10.8 x
Trailing 12 months:	-21.0 %	EV / EBIT adj.		5.7 x	3.5 x	4.9 x	8.7 x	14.4 x	12.0 x	10.5 x
		P / E		12.4 x	6.7 x	9.9 x	15.0 x	20.9 x	18.7 x	16.3 x
Company events:		FCF Yield Potential		24.3 %	25.6 %	13.8 %	6.8 %	5.2 %	7.2 %	8.2 %
31.03.15	FY 2014	Net Debt		-3.3	-5.8	-10.4	-11.2	3.1	-0.8	-3.8
15.05.15	Q1	ROE		7.0 %	19.1 %	17.8 %	17.9 %	12.3 %	10.9 %	11.6 %
14.08.15	Q2	ROCE (NOPAT)		10.0 %	26.5 %	30.0 %	32.4 %	14.9 %	11.1 %	12.3 %
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	2014e	2015e	2016e	2017e	2018e	2019e	2020e	2021e	2022e	2023e	2024e	2025e	2026e
Sales	72.0	81.0	91.0	100.1	108.7	116.6	123.9	130.5	136.5	141.8	146.5	150.7	153.7
Sales change	37.0 %	12.5 %	12.3 %	10.0 %	8.6 %	7.3 %	6.3 %	5.3 %	4.6 %	3.9 %	3.3 %	2.9 %	2.0 %	2.0 %
EBIT	6.7	7.7	8.6	10.0	10.9	11.7	12.4	13.1	13.6	14.2	14.7	15.1	15.4
EBIT-margin	9.3 %	9.5 %	9.5 %	10.0 %	10.0 %	10.0 %	10.0 %	10.0 %	10.0 %	10.0 %	10.0 %	10.0 %	10.0 %
Tax rate (EBT)	29.2 %	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	4.7	5.4	6.0	7.0	7.6	8.2	8.7	9.1	9.6	9.9	10.3	10.6	10.8
Depreciation	4.5	5.1	5.2	6.5	7.1	7.6	8.1	8.5	8.9	9.2	9.5	9.8	10.0
in % of Sales	6.3 %	6.3 %	5.7 %	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	1.2	0.1	0.1	0.0	0.0	0.0	0.0	-0.1	-0.1	-0.1
Change in Liquidity from
- Working Capital	1.0	0.2	2.0	3.6	1.6	1.5	1.4	1.3	1.1	1.0	0.9	0.8	0.6
- Capex	5.5	4.8	4.8	6.7	7.3	7.8	8.3	8.7	9.1	9.5	9.8	10.1	10.3
Capex in % of Sales	7.6 %	5.9 %	5.3 %	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)	2.7	5.5	4.4	4.4	5.8	6.5	7.1	7.6	8.1	8.6	9.0	9.4	9.8	10
PV of FCF	2.7	5.1	3.8	3.5	4.3	4.5	4.5	4.5	4.5	4.4	4.3	4.2	4.0	73
share of PVs		9.14 %						33.57 %						57.29 %
Model parameter							Valuation (m)
Derivation of WACC:			Derivation of Beta:					Present values 2026e			54
								Terminal Value			73
Debt ratio	11.00 %		Financial Strength			1.25		Financial liabilities			14
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				13	No. of shares (m)		7.0
WACC	7.70 %		Beta			1.25	Equity Value			125		Value per share (EUR)		18.00

Sensitivity Value per Share (EUR)

	Terminal Growth								Delta EBIT-margin
Beta WACC	1.25 %	1.50 %	1.75 %	2.00 %	2.25 %	2.50 %	2.75 %	Beta WACC	-1.5 pp	-1.0 pp		-0.5 pp +0.0 pp	+0.5 pp	+1.0 pp	+1.5 pp
1.45 8.7 %	14.27	14.52	14.78	15.07	15.38	15.71	16.08	1.45 8.7 %	12.38	13.28	14.17	15.07	15.97	16.86	17.76
1.35 8.2 %	15.43	15.73	16.06	16.41	16.80	17.21	17.67	1.35 8.2 %	13.50	14.47	15.44	16.41	17.38	18.35	19.32
1.30 8.0 %	16.08	16.41	16.78	17.17	17.60	18.07	18.58	1.30 8.0 %	14.14	15.15	16.16	17.17	18.18	19.20	20.21
1.25 7.7 %	16.78	17.15	17.56	18.00	18.48	19.01	19.59	1.25 7.7 %	14.83	15.88	16.94	18.00	19.06	20.11	21.17
1.20 7.5 %	17.54	17.95	18.41	18.90	19.44	20.04	20.70	1.20 7.5 %	15.58	16.69	17.80	18.90	20.01	21.12	22.22
1.15 7.2 %	18.36	18.83	19.34	19.89	20.51	21.19	21.94	1.15 7.2 %	16.41	17.57	18.73	19.89	21.06	22.22	23.38
1.05 6.7 %	20.24	20.83	21.48	22.20	23.00	23.89	24.90	1.05 6.7 %	18.34	19.63	20.91	22.20	23.49	24.78	26.06

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 by discounting the "FCF potential" of a given year with 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	2010	2011	2012	2013	2014e	2015e	2016e
Net Income before minorities	1.0	3.1	3.5	4.3	4.4	5.2	6.0
+ Depreciation + Amortisation	3.3	3.1	3.3	3.2	4.5	5.1	5.2
- Net Interest Income	-0.2	0.0	0.0	-0.1	-0.4	-0.3	-0.1
- Maintenance Capex	2.4	2.3	3.5	3.9	4.1	3.6	3.6
+ Other	0.0	0.0	0.0	0.0	0.0	0.0	0.0
= Free Cash Flow Potential	2.1	3.9	3.3	3.7	5.2	7.0	7.7
Free Cash Flow Yield Potential	24.3 %	25.6 %	13.8 %	6.8 %	5.2 %	7.2 %	8.2 %
WACC	7.70 %	7.70 %	7.70 %	7.70 %	7.70 %	7.70 %	7.70 %
= Enterprise Value (EV)	8.7	15.0	24.2	53.7	100.5	96.6	93.6
= Fair Enterprise Value	27.5	50.1	43.5	47.5	68.2	90.8	99.7
- Net Debt (Cash)	-12.7	-12.7	-12.7	-12.7	1.6	-2.3	-5.3
- Pension Liabilities	1.5	1.5	1.5	1.5	1.5	1.5	1.5
- 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	38.7	61.3	54.7	58.7	65.0	91.6	103.5
No. of shares (total) (m)	7.0	7.0	7.0	7.0	7.0	7.0	7.0
= Fair value per share (EUR)	5.55	8.80	7.86	8.43	9.34	13.16	14.87
premium (-) / discount (+) in %					-33.2 %	-5.9 %	6.2 %
Sensitivity Fair value per Share (EUR)
10.70 %	4.45	6.79	6.11	6.52	6.60	9.50	10.85
9.70 %	4.74	7.32	6.57	7.02	7.32	10.47	11.91
8.70 %	5.10	7.98	7.14	7.65	8.22	11.66	13.22
WACC 7.70 %	5.55	8.80	7.86	8.43	9.34	13.16	14.87
6.70 %	6.14	9.88	8.79	9.45	10.81	15.11	17.01
5.70 %	6.94	11.33	10.05	10.82	12.78	17.74	19.90
4.70 %	8.07	13.39	11.85	12.78	15.59	21.49	24.02

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

	2010	2011	2012	2013	2014e	2015e	2016e
Price / Book	0.8 x	1.2 x	1.6 x	2.5 x	2.1 x	2.0 x	1.8 x
Book value per share ex intangibles	1.52	1.96	2.43	2.62	0.11	0.69	1.40
EV / Sales	0.3 x	0.4 x	0.5 x	1.0 x	1.4 x	1.2 x	1.0 x
EV / EBITDA	1.8 x	2.0 x	2.9 x	5.7 x	9.0 x	7.5 x	6.8 x
EV / EBIT	5.7 x	3.5 x	4.9 x	8.7 x	15.0 x	12.5 x	10.8 x
EV / EBIT adj.*	5.7 x	3.5 x	4.9 x	8.7 x	14.4 x	12.0 x	10.5 x
P / FCF	53.0 x	6.5 x	11.0 x	81.3 x	38.8 x	18.4 x	22.2 x
P / E	12.4 x	6.7 x	9.9 x	15.0 x	20.9 x	18.7 x	16.3 x
P / E adj.*	12.4 x	6.7 x	9.9 x	15.0 x	20.9 x	18.7 x	16.3 x
Dividend Yield	4.7 %	6.9 %	4.6 %	3.4 %	1.4 %	1.4 %	2.5 %
Free Cash Flow Yield Potential	24.3 %	25.6 %	13.8 %	6.8 %	5.2 %	7.2 %	8.2 %
*Adjustments made for: -

Company Specific Items

	2010	2011	2012	2013	2014e	2015e	2016e
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	2010	2011	2012	2013	2014e	2015e	2016e
Sales	31.7	41.1	49.4	52.6	72.0	81.0	91.0
Change Sales yoy	33.8 %	29.9 %	20.0 %	6.4 %	37.0 %	12.5 %	12.3 %
Increase / decrease in inventory	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Own work capitalised	2.7	2.0	3.2	4.0	4.0	3.2	2.9
Total Sales	34.4	43.2	52.6	56.5	76.0	84.2	93.9
Material Expenses	9.1	12.1	14.9	15.2	25.5	26.7	29.1
Gross profit	25.3	31.1	37.7	41.3	50.5	57.5	64.8
Gross profit margin	80.0 %	75.6 %	76.3 %	78.7 %	70.1 %	71.0 %	71.2 %
Personnel expenses	16.1	19.4	23.6	25.8	31.5	35.0	40.0
Other operating income	0.8	1.7	0.9	0.7	0.8	0.8	0.8
Other operating expenses	5.2	6.1	6.8	6.8	8.6	10.4	11.7
Unfrequent items	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBITDA	4.8	7.4	8.3	9.4	11.2	12.8	13.8
Margin	15.3 %	17.9 %	16.7 %	17.8 %	15.6 %	15.8 %	15.2 %
Depreciation of fixed assets	0.3	0.3	0.5	0.5	1.0	1.1	1.2
EBITA	4.6	7.1	7.8	8.9	10.2	11.7	12.6
Amortisation of intangible assets	3.0	2.8	2.9	2.7	3.5	4.0	4.0
Goodwill amortization	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBIT	1.5	4.2	4.9	6.2	6.7	7.7	8.6
Margin	4.8 %	10.3 %	10.0 %	11.8 %	9.3 %	9.5 %	9.5 %
EBIT adj.	1.5	4.2	4.9	6.2	7.0	8.0	8.9
Interest income	0.1	0.3	0.3	0.2	0.0	0.0	0.1
Interest expenses	0.3	0.3	0.2	0.2	0.4	0.3	0.2
Other financial income (loss)	0.0	0.0	0.0	0.0	0.0	0.0	0.0
EBT	1.4	4.2	4.9	6.2	6.3	7.4	8.5
Margin	4.3 %	10.3 %	10.0 %	11.7 %	8.7 %	9.2 %	9.4 %
Total taxes	0.4	1.2	1.4	1.9	1.8	2.2	2.6
Net income from continuing operations	1.0	3.1	3.5	4.3	4.4	5.2	6.0
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	1.0	3.1	3.5	4.3	4.4	5.2	6.0
Minority interest	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net income	1.0	3.1	3.5	4.3	4.4	5.2	6.0
Margin	3.1 %	7.5 %	7.1 %	8.2 %	6.2 %	6.4 %	6.6 %
Number of shares, average	5.1	5.3	5.9	6.3	6.6	7.0	7.0
EPS	0.19	0.58	0.59	0.69	0.67	0.75	0.86
EPS adj.	0.19	0.58	0.59	0.69	0.67	0.75	0.86
*Adjustments made for:

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

Financial Ratios

	2010	2011	2012	2013	2014e	2015e	2016e
Total Operating Costs / Sales	93.3 %	87.0 %	89.7 %	89.7 %	90.0 %	88.1 %	88.0 %
Operating Leverage	n.a.	5.9 x	0.8 x	4.1 x	0.2 x	1.2 x	1.0 x
EBITDA / Interest expenses	16.8 x	29.1 x	33.7 x	45.7 x	25.2 x	42.7 x	69.2 x
Tax rate (EBT)	27.2 %	28.1 %	29.0 %	30.2 %	29.2 %	30.0 %	30.0 %
Dividend Payout Ratio	57.1 %	47.1 %	45.8 %	51.1 %	29.9 %	26.8 %	40.7 %
Sales per Employee	141,402	159,488	166,851	155,936	171,429	184,091	193,617

Operating Performance in %

CO M M E N T Published 24.02.2015 6

Consolidated balance sheet

In EUR m	2010	2011	2012	2013	2014e	2015e	2016e
Assets
Goodwill and other intangible assets	7.1	6.7	7.8	9.7	45.1	44.4	43.8
thereof other intangible assets	1.0	0.7	0.6	0.5	10.6	9.9	9.3
thereof Goodwill	2.4	2.4	2.4	2.4	30.8	30.8	30.8
Property, plant and equipment	0.6	1.1	1.4	1.4	1.4	1.4	1.3
Financial assets	1.9	0.9	0.7	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	9.6	8.7	9.9	11.1	46.4	45.8	45.1
Inventories	2.0	3.6	3.3	4.7	7.2	4.5	5.4
Accounts receivable	6.8	8.3	9.8	10.0	9.9	13.3	15.0
Liquid assets	6.1	8.5	12.6	12.9	11.6	12.5	12.5
Other short-term assets	1.7	1.7	2.3	1.5	1.5	1.5	1.5
Current assets	16.7	22.2	28.0	29.1	30.2	31.8	34.4
Total Assets	26.3	31.0	37.9	40.2	76.6	77.6	79.5
Liabilities and shareholders' equity
Subscribed capital	5.6	5.6	6.4	6.4	7.0	7.0	7.0
Capital reserve	1.7	1.7	4.4	4.4	11.5	11.5	11.5
Retained earnings	8.3	10.6	12.1	15.6	20.0	25.2	31.2
Other equity components	-0.8	-0.8	-0.8	-0.3	7.3	5.6	3.9
Shareholder's equity	14.9	17.2	22.2	26.2	45.8	49.3	53.6
Minority interest	0.1	0.0	0.0	0.0	0.0	0.0	0.0
Total equity	15.0	17.2	22.2	26.1	45.7	49.2	53.5
Provisions	1.3	1.7	3.0	2.3	2.3	2.3	2.3
thereof provisions for pensions and similar obligations	1.1	1.0	1.8	1.5	1.5	1.5	1.5
Financial liabilites (total)	1.6	1.8	0.5	0.2	13.2	10.2	7.2
thereof short-term financial liabilities	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Accounts payable	1.7	2.9	3.0	2.5	3.9	4.4	5.0
Other liabilities	6.6	7.4	9.3	9.0	11.4	11.4	11.4
Liabilities	11.3	13.8	15.7	14.1	30.9	28.4	26.0
Total liabilities and shareholders' equity	26.3	31.0	37.9	40.2	76.6	77.6	79.5

Financial Ratios

	2010	2011	2012	2013	2014e	2015e	2016e
Efficiency of Capital Employment
Operating Assets Turnover	4.1 x	4.0 x	4.2 x	3.9 x	4.9 x	5.5 x	5.5 x
Capital Employed Turnover	2.7 x	3.6 x	4.2 x	3.5 x	1.5 x	1.7 x	1.8 x
ROA	10.3 %	35.1 %	35.6 %	38.9 %	9.5 %	11.3 %	13.3 %
Return on Capital
ROCE (NOPAT)	10.0 %	26.5 %	30.0 %	32.4 %	14.9 %	11.1 %	12.3 %
ROE	7.0 %	19.1 %	17.8 %	17.9 %	12.3 %	10.9 %	11.6 %
Adj. ROE	7.0 %	19.1 %	17.8 %	17.9 %	12.3 %	10.9 %	11.6 %
Balance sheet quality
Net Debt	-3.3	-5.8	-10.4	-11.2	3.1	-0.8	-3.8
Net Financial Debt	-4.5	-6.8	-12.1	-12.7	1.6	-2.3	-5.3
Net Gearing	-22.4 %	-33.5 %	-46.7 %	-42.9 %	6.9 %	-1.6 %	-7.0 %
Net Fin. Debt / EBITDA	n.a.	n.a.	n.a.	n.a.	14.6 %	n.a.	n.a.
Book Value / Share	2.9	3.2	3.7	4.2	6.9	7.1	7.7
Book value per share ex intangibles	1.5	2.0	2.4	2.6	0.1	0.7	1.4

Consolidated cash flow statement

In EUR m	2010	2011	2012	2013	2014e	2015e	2016e
Net income	1.0	3.1	3.5	4.3	4.4	5.2	6.0
Depreciation of fixed assets	0.3	0.3	0.5	0.5	1.0	1.1	1.2
Amortisation of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Amortisation of intangible assets	3.0	2.8	2.9	2.7	3.5	4.0	4.0
Increase/decrease in long-term provisions	0.0	0.2	0.0	-0.1	0.0	0.0	0.0
Other non-cash income and expenses	0.3	1.1	1.4	0.6	0.0	0.0	0.0
Cash Flow	4.6	7.5	8.2	7.9	8.9	10.3	11.2
Increase / decrease in inventory	0.2	-0.8	0.3	-1.3	-2.5	2.7	-0.9
Increase / decrease in accounts receivable	-3.5	-0.2	-1.8	1.1	0.1	-3.4	-1.7
Increase / decrease in accounts payable	0.0	-0.2	1.1	-1.8	1.4	0.5	0.6
Increase / decrease in other working capital positions	2.1	0.0	0.0	0.0	0.0	0.0	0.0
Increase / decrease in working capital (total)	-1.2	-1.2	-0.5	-2.0	-1.0	-0.2	-2.0
Net cash provided by operating activities	3.4	6.3	7.8	5.9	7.9	10.1	9.2
Investments in intangible assets	-2.9	-2.4	-3.9	-4.6	-4.5	-3.7	-3.7
Investments in property, plant and equipment	-0.2	-0.7	-0.7	-0.5	-1.0	-1.1	-1.1
Payments for acquisitions	0.0	0.0	0.0	0.0	-23.0	0.0	0.0
Financial investments	-1.3	0.6	0.2	0.2	0.0	0.0	0.0
Income from asset disposals	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net cash provided by investing activities	-4.4	-2.5	-4.4	-4.9	-28.5	-4.8	-4.8
Change in financial liabilities	1.2	0.0	-1.2	0.0	13.0	-3.0	-3.0
Dividends paid	0.0	-0.6	-1.4	-1.7	-1.3	-1.4	-1.4
Purchase of own shares	0.0	0.0	0.0	1.3	0.0	0.0	0.0
Capital measures	0.5	0.0	3.5	0.0	7.6	0.0	0.0
Other	0.0	-0.2	0.0	0.0	0.0	0.0	0.0
Net cash provided by financing activities	1.7	-0.8	0.9	-0.4	19.3	-4.4	-4.4
Change in liquid funds	0.7	3.0	4.2	0.6	-1.3	0.9	0.0
Effects of exchange-rate changes on cash	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Cash and cash equivalent at end of period	4.9	7.3	11.5	12.1	10.8	11.7	11.7

Financial Ratios

	2010	2011	2012	2013	2014e	2015e	2016e
Cash Flow
FCF	0.2	3.2	3.1	0.8	2.4	5.3	4.4
Free Cash Flow / Sales	0.7 %	7.8 %	6.4 %	1.5 %	3.3 %	6.5 %	4.8 %
Free Cash Flow Potential	2.1	3.9	3.3	3.7	5.2	7.0	7.7
Free Cash Flow / Sales	0.7 %	7.8 %	6.4 %	1.5 %	3.3 %	6.5 %	4.8 %
Free Cash Flow / Net Profit	23.0 %	104.4 %	89.3 %	18.5 %	53.9 %	101.9 %	73.2 %
Interest Received / Avg. Cash	2.1 %	3.5 %	2.4 %	1.2 %	0.0 %	0.0 %	0.8 %
Interest Paid / Avg. Debt	30.7 %	14.8 %	21.9 %	56.9 %	6.6 %	2.6 %	2.3 %
Management of Funds
Investment ratio	10.0 %	7.5 %	9.4 %	9.8 %	7.6 %	5.9 %	5.3 %
Maint. Capex / Sales	7.5 %	5.7 %	7.1 %	7.3 %	5.7 %	4.4 %	4.0 %
Capex / Dep	95.1 %	99.2 %	139.1 %	162.5 %	122.2 %	94.1 %	92.3 %
Avg. Working Capital / Sales	18.7 %	19.6 %	19.6 %	21.3 %	17.6 %	16.4 %	15.8 %
Trade Debtors / Trade Creditors	390.0 %	290.4 %	333.8 %	396.0 %	253.8 %	302.3 %	300.0 %
Inventory Turnover	4.5 x	3.3 x	4.5 x	3.3 x	3.5 x	5.9 x	5.4 x
Receivables collection period (days)	78	74	73	70	50	60	60
Payables payment period (days)	70	86	72	61	56	60	63
Cash conversion cycle (Days)	29	46	26	73	61	11	16

CAPEX and Cash Flow in EUR m

Working Capital

CO M M E N T Published 24.02.2015 8

LEGAL DISCLAIMER

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.

COPYRIGHT NOTICE

This work including all its parts is protected by copyright. Any use beyond the limits provided by copyright law without permission is prohibited and punishable. This applies, in particular, to reproductions, translations, microfilming, and storage and processing on electronic media of the entire content or parts thereof.

DISCLOSURE ACCORDING TO §34B (1) OF THE GERMAN SECURITIES TRADING ACT (WHPG) AND THE ORDINANCE ON THE ANALYSIS OF FINANCIAL INSTRUMENTS (FINANV)

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.

The analysts of Warburg Research GmbH do not receive a gratuity – directly or indirectly – from the investment banking activities of M.M.Warburg & CO (AG & Co.) KGaA or of any company within the Warburg Group.

All prices of financial instruments given in this financial analysis are the closing prices on the last stock-market trading day before the publication date stated, unless another point in time is explicitly stated.

M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH are subject to the supervision of the Federal Financial Supervisory Authority, BaFin.

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	71	38
Sell	10	5
Rating suspended	4	2
Total	189	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	84	58
Hold	50	35
Sell	7	5
Rating suspended	3	2
Total	144	100

PRICE AND RATING HISTORY SOFTING AS OF 24.02.2015

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.

EQUITIES

Roland Rapelius +49 40 3282-2673 Head of Equities rrapelius@mmwarburg.com

RESEARCH

Christian Cohrs +49 40 309537-175 Jochen Reichert +49 40 309537-130

Software, IT fellmann@warburg-research.com Utilities crodler@warburg-research.com

Jörg Philipp Frey +49 40 309537-258 Arash Roshan Zamir +49 40 309537-155 Retail, Consumer Goods jfrey@warburg-research.com Engineering, Logistics aroshanzamir@warburg-research.com

INSTITUTIONAL EQUITY SALES

SALES TRADING

Michael Ilgenstein +49 40 3282-2700

MACRO RESEARCH

Carsten Klude +49 40 3282-2572 Dr. Christian Jasperneite +49 40 3282-2439 Macro Research cklude@mmwarburg.com Investment Strategy cjasperneite@mmwarburg.com Matthias Thiel +49 40 3282-2401 Macro Research mthiel@mmwarburg.com

Our research can be found under:

Warburg Research	research.mmwarburg.com/en/index.html	Thomson	www.thomson.com
Bloomberg	MMWA GO	Reuters	www.knowledge.reuters.com
FactSet	www.factset.com	Capital IQ	www.capitaliq.com
For access please contact:
Andrea Schaper Sales Assistance	+49 40 3282-2632 aschaper@mmwarburg.com	Kerstin Muthig Sales Assistance	+49 40 3282-2703 kmuthig@mmwarburg.com

Medtech hhof@warburg-research.com Technology mschaumann@warburg-research.com

Sales Trading milgenstein@mmwarburg.com

Henner Rüschmeier +49 40 309537-270 Malte Räther +49 40 309537-185 Head of Research hrueschmeier@warburg-research.com Technology, Telco, Internet mraether@warburg-research.com

Engineering, Logistics ccohrs@warburg-research.com Telco, Internet, Media jreichert@warburg-research.com Felix Ellmann +49 40 309537-120 Christopher Rodler +49 40 309537-290

Harald Hof +49 40 309537-125 Malte Schaumann +49 40 309537-170

Ulrich Huwald +49 40 309537-255 Oliver Schwarz +49 40 309537-250 Health Care, Pharma uhuwald@warburg-research.com Chemicals, Agriculture oschwarz@warburg-research.com Thilo Kleibauer +49 40 309537-257 Marc-René Tonn +49 40 309537-259 Retail, Consumer Goods tkleibauer@warburg-research.com Automobiles, Car Suppliers mtonn@warburg-research.com Eggert Kuls +49 40 309537-256 Björn Voss +49 40 309537-254 Engineering ekuls@warburg-research.com Steel, Car Suppliers bvoss@warburg-research.com Frank Laser +49 40 309537-235 Andreas Wolf +49 40 309537-140 Construction, Industrials flaser@warburg-research.com Software, IT awolf@warburg-research.com Andreas Pläsier +49 40 309537-246 Stephan Wulf +49 40 309537-150 Banks, Financial Services aplaesier@warburg-research.com Utilities swulf@warburg-research.com Holger Nass +49 40 3282-2669 Ömer Güven +49 40 3282-2633 Head of Equity Sales, USA hnass@mmwarburg.com USA, Germany ogueven@mmwarburg.com

Klaus Schilling +49 40 3282-2664 Michael Kriszun +49 40 3282-2695 Dep. Head of Equity Sales, GER kschilling@mmwarburg.com United Kingdom mkriszun@mmwarburg.com Christian Alisch +49 40 3282-2667 Marc Niemann +49 40 3282-2660 Scandinavia, Spain calisch@mmwarburg.com Germany mniemann@mmwarburg.com Tim Beckmann +49 40 3282-2665 Sanjay Oberoi +49 69 5050-7410 United Kingdom tbeckmann@mmwarburg.com United Kingdom soberoi@mmwarburg.com Matthias Fritsch +49 40 3282-2696 Philipp Stumpfegger +49 40 3282-2635 United Kingdom mfritsch@mmwarburg.com Australia, United Kingdom pstumpfegger@mmwarburg.com Marie-Therese Grübner +49 40 3282-2630 Juliane Willenbruch +49 40 3282-2694 France mgruebner@mmwarburg.com Roadshow/Marketing jwillenbruch@mmwarburg.com

Oliver Merckel +49 40 3282-2634 Bastian Quast +49 40 3282-2701 Head of Sales Trading omerckel@mmwarburg.com Sales Trading bquast@mmwarburg.com Thekla Struve +49 40 3282-2668 Jörg Treptow +49 40 3262-2658 Dep. Head of Sales Trading tstruve@mmwarburg.com Sales Trading jtreptow@mmwarburg.com Gudrun Bolsen +49 40 3282-2679 Jan Walter +49 40 3262-2662 Sales Trading gbolsen@mmwarburg.com Sales Trading jwalter@mmwarburg.com