2013 mar 13 — zumtobel ag

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Berenberg Capital Markets

Equity ResearchZumtobel AG

Losing patience

William Mackie

Analyst

+44 20 3207 7837

[email protected]

Maggie Paxton

Analyst

+44 20 3207 7934

[email protected]

Chris Armstrong

Specialist Sales

+ 44 20 3207 7809

[email protected]

13 March 2013

Capital Goods & Industrial Engineering

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Zumtobel AGSmall/Mid-Cap: Capital Goods & Industrial Engineering

For our disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG)and our disclaimer please see the end of this document.

Please note that the use of this research report is subject to the conditions and restrictions set forth in the disclosures andthe disclaimer at the end of this document.

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Table of contents

Losing patience 4All eyes on Thorn 5The rose and the thorn 7Tridonic: at the start of a new journey 11Down to Hold 13

Financials 16Disclosures in respect of section 34b of the German SecuritiesTrading Act (WertpapierhandelsgesetzWpHG) 19Contacts: Investment Banking 22

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4

Losing patience

Downgrade to Hold:We downgrade to Hold and reduce our pricetarget to EUR10.60 following the Q3 results and our visit to see

management. We cut our adjusted EPS by 37% and 25% for FY 2013and FY 2014 respectively to reflect lower-than-expected margins atThorn and Tridonic as well as a tougher demand environment. We areencouraged by Zumtobelsperformance, and while Tridonic will haveto navigate a difficult period of structural change, Mr Felders(Tridonic CEO) strategy should provide a sound start.

Weak demand outweighs self-help: The Q3 results indicated thatunderperformance at Thorn and a difficult market have offset muchof the benefit from the restructuring already carried out. Tridonicsnear-to-medium term outlook is uncertain because of technologyshifts whileThorns recoverywill likely be protracted. Hence we valuethe group on nearer-term trading but note that the intrinsic value of

the group may be closer to EUR14.6 on a SOTP basis. Sale of Thorn unlikely in our view: The debate on the options for

Thorn (restructure or sell) has intensified. We do not believe a sale ofThorn is likely given 1) the promise of margin expansion from self-help measures; 2) the doubtful probability that an attractive purchaseprice can be achieved; and 3) a lack of potential buyers.

Losing patience: In our view, the restructuring process of Thorn which targets EBIT margins of 6%is likely to take at least 2-3 yearsand involve significant costs to maintain R&D at a high level, reducecapacity and invest in sales channels. Meanwhile, resource allocationto Thorn could take attention away from investments required at theprofitable Zumtobel brand. Further restructuring measures may also

prompt scepticism among investors following numerous attempts toimprove Thorns performance coupled with rapidly reducing patienceover the progress of the groupsprofitability.

Unexciting valuation: The share is trading on 12.4x 2014E PER,which compares with a historical average of 12.3x, while uncertaintyover the future of the Thorn brand and the structural shifts atTridonic hangs over the stock. Our price target is derived from ablended average of DCF and multiple-based valuation methods andimplies 11% upside.

HoldRating system

Current price

EUR 9.45

Absolute

Price target

EUR 10.6012/03/2013 Vienna CloseMarket cap EUR 408mReuters ZUMV.VIBloomberg ZAG AV

Changes made in this noteRating Hold (Buy)Price target EUR 10.60 (12.00)

Chg 2013e 2014e 2015eold % old % old %

Sales 1295 -0.9 1361 -3.4 1444 -6.2

EBIT 41.68 -28.6 67.65 -17.2 91.63 -17.3

EPS 0.55 -44.3 1.05 -25.3 1.52 -24.4

Source: Berenberg Bank estimates

Share dataShares outstanding (m) 43Enterprise value (EURm) 436Daily trading volume 110,000

Performance dataHigh 52 weeks (EUR) 12Low 52 weeks (EUR) 7Relative performance to SXXP ATX1 month -14.2 % -15.0 %3 months -3.2 % -5.9 %12 months -20.5 % -29.6 %

Key dataPrice/book value 1.1Net gearing 38.5 %CAGR sales 2012-2015 1.9 %

CAGR EPS 2012-2015 52.1 %

Business activities:Provider of professional lightingsolutions, luminaires, lightingmanagement and lighting components forindoor and outdoor applications

Non-institutional shareholders:Zumtobel family 35.3%

13 March 2013

William MackieAnalyst+44 20 3207 [email protected]

Maggie PaxtonAnalyst+44 20 3207 7934

[email protected]

Y/E 30.04., EURm 2011 2012 2013E 2014E 2015E

Sales 1,228 1,280 1,283 1,315 1,355

EBITDA 128 87 88 111 133EBIT 76 33 30 56 76

Net profit 51 14 13 34 50

Y/E net debt (net cash) 144 143 141 124 94

EPS (reported) 1.19 0.33 0.31 0.79 1.15

EPS (recurring) 1.29 0.39 0.39 0.79 1.15

CPS 2.83 1.59 1.45 2.36 2.76

DPS 0.50 0.20 0.15 0.24 0.46

Gross margin 33.4% 31.1% 31.5% 32.0% 32.5%

EBITDA margin 10.4% 6.8% 6.8% 8.5% 9.8%

EBIT margin 6.2% 2.6% 2.3% 4.3% 5.6%

Dividend yield 2.9% 1.4% 1.6% 2.5% 4.9%

ROCE 10.9% 4.5% 4.1% 7.6% 9.8%

EV/sales 0.6 0.5 0.3 0.3 0.3

EV/EBITDA 5.8 7.5 5.0 3.8 3.1

EV/EBITA 8.4 13.9 9.9 6.1 4.5

EV/EBIT 9.8 20.3 14.7 7.6 5.4

P/E 13.4 37.8 24.2 12.0 8.2

Source: Company data, Berenberg Bank

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All eyes on Thorn

Downgrade to Hold: Following Zumtobels Q3 results and profit warning, wecut our adjusted EBIT forecasts by 19% and 17% for FY 2013 and FY 2014respectively. The reductions reflect higher margin forecasts for the Zumtobelbrand, offset by a deteriorating margin at Thorn. We also reduce our marginassumptions for Tridonic to reflect a weaker market environment. Our adjustedEPS estimates are slashed by 37% and 25% for FY 2013 and FY 2014 respectively,largely due to a higher forecast tax rate and the inclusion of losses from associates.We reduce our price target to EUR10.60 from EUR12 and downgrade ourrecommendation to Hold, reflecting disappointing performance at Thorn coupledwith a more challenging market environment.

All eyes on Thorn, it is no longer just a margin expansion story: Previously

we viewed Zumtobel as an undervalued stock which unfairly in our view attracted a distressed valuation of

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however, we are encouraged by the strategy set by Tridonics new CEO AlfredFelder. Similarly, we believe the Zumtobel brand is close to achieving 10%

margins, which we assume will be reached by FY 2015 (c.7.5% in FY 2013 on ourestimates) as further efficiencies are realised and LED margins gain parity withconventional solutions.

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The rose and the thorn

The focus is now on ThornOur upgrade to Buy in July 2012 was based on the thesis that self-help measureswould lead to margin improvements which were not reflected in the distressedvaluation at the time. Until the Q3 2013 results, the share price had performed,increasing 55% from July 2012 as management actions showed through inquarterly results. However, the Q3 results demonstrated that the internal marginexpansion story has shifted to one now focused on the Thorn brand.

Good work undoneHaving seemingly been on a positive trajectory after broadly reaching breakeven inFY 2012 and H1 2013, Thorn returned to a loss-making position anddemonstrated the vulnerability of its business model in times of market weaknessoffsetting much of the benefit from the restructuring measures already carried out.We believe the Zumtobel brand is profitable; thus the negative profitability of theLighting segment in Q3 2013 (-0.6% margin) was driven by Thorn alone. Althoughfurther internal measures in the group are possible, it is clear that Thorn sperformance coupled with a weak market environment are now the factors withthe greatest bearing on group profitability.

As we see the group at present, Zumtobel is the stalwart with rising profitabilityand a proven ability to outgrow the market. Meanwhile, Tridonic has expandedmargins but the transformation to LED could dampen margins in thenear/medium term. Thorn remains the laggard at present with structural problemsin its sales channels and product portfolio.

We visited management, including Alfred Felder (the new CEO of Tridonic) andKlaus Vamberszky (Head of Technology) at their headquarters in Dornbirn inorder to gain a better understanding of the issues facing the group.

Figure 1: Lighting margin progression Figure 2: LED Lighting penetration

Source: Company data, Berenberg Equity Research Source: Company data, Berenberg Equity Research

Zumtobel remains resilient (40% of group sales)

Zumtobel remains the stalwart of the group where we expect margins to expandfrom c.4.7% in FY 2012 to c.7.5% in FY 2013 despite increased selling and R&Dinvestments for LED (Figures 3 and 4). Management has been weeding out poor-

performing sales people and has benefited from gradually improving LED marginsthrough price increases, design changes and input cost reduction. As wehighlighted in our noteBrighter prospects in LED margins(published on 11 February2013), the streamlining of marketing efforts and the implementation of a new

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CRM solution should also drive efficiencies. While management is largely satisfiedwith Zumtobels European manufacturing footprint, the brands strategy will be to

increase US and Asian exposure through localised production and assembly as wellas the design of region-specific products (increasingly by local designers). Albeitfrom a low base, Zumtobels Chinese sales should double yoy in FY 2013 toc.EUR6m.

We believe Zumtobel is on a healthy track and has more to show in terms ofmargin expansion. As has been the case since Thorns acquisition, Zumtobelsgrowth has been held back by the underperformance of Thorn, which hashampered investment as well as taking up management time. In order to gain ameaningful presence in the US and Asia, acquisitions are necessary; this is likely tobe stifled by the drag created by Thorn.

Figure 3: Group development costs Figure 4: Group selling expenses


Thorn: crunch time (30% of group sales)

Thorns weakness in Q3 demonstrated its vulnerability resulting from highexposure to wholesalers (c.50% of sales) and government projects (outdoorlighting). The business model suffers from inconsistent brand positioning as wellas an unfocused sales strategy at present. Only two options remain for the brand,in our view: 1) further restructuring efforts or 2) its sale. As highlighted in the Q3conference call, the situation has intensified and a decision will be made in thecoming months. We expect a decision to have been made before theannouncement of the FY 2013 results in June although it may not becommunicated in full until after this time.

1) Restructuring: To date, management actions at Thorn have been aimed attackling operational issues. Such actions include the reorganisation of productionsites as well as improving delivery performance and quality levels, which helped tobring Thorn from a loss-making position to breakeven in FY 2012. To becomeprofitable, material and sales costs must be reduced.

Material costs: Despite Thorns lower brand positioning compared toZumtobel, we believe material costs are significantly higher as a percentage ofsales. The complexity of the product range remains too high despite thenumber of product families having been cut from 350 to 210 since Mr Brandttook his role (COO and Head of Thorn) in 2009. Previously 85% of productswere loss making (EBIT level); a third of them have been replaced. With theaddition of new products, approximately half of products are loss making at

present.

Selling expenses:Thorns SGA costs are on a par with thoseat Zumtobels asa percentage of sales yet approximately half of Thorns sales go through

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wholesaler channels. The disparity in margin is most apparent in Thorns directsales channels. Thorn remains at the mercy of the more competitive, lower-

margin wholesaler business which is more exposed to volatility, as well as thehigh selling costs associated with its direct sales channels.

Moreover,Thorns European manufacturing footprint needs to be reduced.Giventhe costs which would be associated with closing plants in Spennymoor (UK, leaseuntil 2029) and France, its Swedish plant in Landskrona (230 staff) is the mostobvious option. We expect Landskrona would need to be kept open in order tosupply regional products; however, a headcount reduction of less than half couldstill cost EUR5m-10m in restructuring expenses.

The solution is likely to be protractedThorn management has a three-year roadmap for product redevelopment toreduce the cost and complexity of the portfolio while it is clear that a realignment

of sales channels is likely to be an evolutionary process rather than a rapid switch.We believe management would prefer to focus on direct sales, and as such, furthersales investments will be required. Moreover, the brand is likely to have to keepmuch of its exposure to wholesalers in the near term at least, in order to maintainvolumes and production utilisation.

A shift towards wholesalers could leave Thorn exposed to high competition andgreater volatility, as indicated in the Q3 results, coupled with a structurally lower-margin channel. It is also worth noting that wholesaler business still requires Thornto specify projects as well as involve the wholesaler in the specification of otherprojects which use Thorn products. In other words, Thorn will still have to makedirect selling efforts in this indirect sales channel.

Not a quick fixManagement still believes Thorn can achieve 6% EBIT margins, as communicatedat the capital markets day in April 2012. We do not believe this is a near-termprospect; it may be possible in 2-3 years or longer and would come at a cost(restructuring, greater selling expenses and a sustained level of development costs).We highlight that this option could result in disappointment amongst investorswho have watched recovery measures at Thorn since its acquisition in 2000 andmay see better potential for resource allocation in the Zumtobel brand; the lattercould benefit from acquisitions outside Europe.

2) Sell:The price that could be achieved for Thorn is clearly fundamental to thisoption. Although Thorn has a poor operating track record, there is an intrinsic

value to Thorn through its customer relationships which should not beunderestimated. In Figure 5, we show a DCF of the potential value of Thornassuming restructuring measures are successful and EBIT margins of 6% can beachieved by FY 2016; we arrive at an EV of EUR227m. We also assume a tax rateabove the group average to reflect the tax rates in Thorns key markets of the UK,France and Australia in addition to a depreciation and amortisation to capex ratioof 1x.

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Figure 5: DCF valuation of Thorn assuming 6% EBIT margins from FY 2016

Source: Company data, Berenberg Equity Research

Figure 6: Sensitivity analysis of Thorns EV

Source: Berenberg Equity Research

Zumtobel would have to achieve a higher price than this potential value, and islikely to seek a control premium. We highlight that these figures do not include thedebt and pension liabilities associated with Thorn which total EUR210m, splitEUR140m and EUR70m respectively (according to the balance sheet, they couldbe greater on crystallisation). Therefore, a sale of Thorn at these levels may notsufficiently cover the liabilities if they were not transferred to a potential buyer.Given the uncertainty over the success of restructuring potential at Thorn in lightof over a decade of underperformance, bargaining power may also be limited.

Consequently, we believe that on balance the option to restructure will appearmore favourable.

2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E TV

Sales 399 402 418 430 439 448 457 466 475 485 494

grow th 0.7% 4.0% 3.0% 2% 2% 2% 2% 2% 2% 2%

Adj EBIT 0 -8 4 13 26 27 27 28 29 29 30 30

Adj EBIT margin % 0.0% -2.0% 1.0% 3.0% 6% 6% 6% 6% 6% 6% 6%

Tax rate % 19.2% 25.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%

NOPAT 0 (6) 3 9 18 19 19 20 20 20 21 21

Depreciation & Amortisation 14 14 14 15 15 15 16 16 16 16 17

Amortisation as % sales 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4%

Capex, net -14 -14 -14 -15 -15 -15 -16 -16 -16 -16 -17

Capex as % sales 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4%

Capex/depreciation 1 1 1 1 1 1 1 1 1 1 1

Change in w orking capital -1 -3 -3 -2 -2 -2 -2 -2 -2 -2

Free operating CF (FoCF) 0 (7) (0) 6 17 17 17 18 18 18 19 19

Discount factor 1.00 0.96 0.89 0.82 0.76 0.71 0.65 0.61 0.56 0.52 0.48 0.48

Discounted FCF -6 0 5 13 12 11 11 10 10 9

Cumulative discounted FCF 74

Terminal value 153

Total 227

Investments

Net debt 140

Net pensions 70

Minorities 0

Net adjustments -210

Equity value 17

NOSH 43.1

Share price 0.4

WACC 8%

Growth rate 2%

Sales

227 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

4.5% 167 166 165 164 162 161 159

5.0% 186 186 186 185 184 183 182

5.5% 206 206 206 206 206 206 205

Adj EBIT 6.0% 225 226 227 227 228 228 228

6.5% 244 246 247 248 249 250 251

7.0% 264 266 268 269 271 273 274

7.5% 283 286 288 291 293 295 298

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Tridonic: at the start of a new journey

As illustrated in Figure 7, procurement savings, product redesigns to reduce thebreakeven point and manufacturing capacity cuts have gone some way toimproving divisional margins from the trough in Q3 2012. Now that the mostobvious levers for margin expansion have been pulled, market volumes are key.

Figure 7: Components margin progression Figure 8: LED Components penetration


An encouraging plan of action: We met with Alfred Felder, Tridonics newCEO who was previously Osrams Senior Vice President Sales, to gain greaterinsight into his strategy. As LED penetration increases, Mr Felder will have to

oversee the shift of Tridonic from a consolidated landscape to a fragmented one,from an oligopoly to a polygopoly, and from long to short innovation cycles.Tridonic is shifting from a position of 25% market share (conventional) to only5% (LED). Tridonic, like other component suppliers, will have to face thechallenge of managing the decline of its conventional business while maintaininghigh levels of R&D in order to stay in the race during the LED transformation.

The structural changes in the industry cause considerable uncertainty over theprofit pool available and returns may stay subdued over the next 1-2 years as R&Dinvestments remain high and competition dynamics change. Following our meetingwith Mr Felder however, we came away with the view that Tridonic has a soundstarting position and a strategy to help it maximise its opportunities.

Mr FeldersLED strategy revolves around the following areas.

An integrated approach to products with faster innovation: The focus willnow be on shifting from a product business to a solution-based approachwhich requires competencies in semiconductors, LED and software, to give amore integrated approach. At present, the LED portfolio lacks breadth and thepace of innovation is too slow. Encouragingly, Tridonic enjoys a high degree ofcustomer intimacy and Mr Felder believes that customers are willing to wait forTridonic to improve its offering the majority of the customers he has metwith are only starting to become interested in LED products. Moreover, R&Dprojects have now been restricted to a one-year duration compared withinnovation cycles of 2-3 years previously. Currently Tridonics R&D budget isdirected entirely to LED products.

Internationalise: Tridonic remains Europe-centric with minimal exposure tothe Middle East and Asia, although it does have manufacturing capacity and

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R&D in China. Looking ahead, Mr Felder would like to have a moredecentralised, global approach.

Partnering: Tridonic does not have the R&D capacity to develop acomprehensive portfolio. Instead, it will look for partnering opportunities particularly in Asia.

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Down to Hold

We decrease our adjusted EBIT estimates by 19% and 17% for 2013 and 2014respectively. In the Lighting segment, we increase our margin assumptions for theZumtobel brand but reduce our margin expectations at Thorn to reflect itsexposure to challenging sales channels (wholesalers and government projects). AtTridonic, we reduce our margin assumptions to reflect a weaker marketenvironment coupled with a more subdued market outlook as structural changesmay weigh on profitability more than expected despite restructuring measures.Changes to losses from associates and a higher tax rate lead us to cut our adjustedEPS forecasts by 37% and 25% for 2013 and 2014 respectively.

Summary of changes

Given market uncertainty, we reduce our growth expectations. As the switch toLED goes on, higher selling prices of LED products will help drive the top linein Lighting.

We assume the Zumtobel brand continues to expand its margin, reaching 10%in FY 2015.

We assume Thorns margin improvement is a protracted process with marginsof 3% in FY 2015 and 5% thereafter.

We assume margin erosion in electronic ballasts as we expect cost-reducingmeasures to be more than offset by ongoing pricing pressure. Similarly, webelieve the high growth being enjoyed by LED modules and converters will

results in greater than previously expected margin improvements. Note thatwhilst pricing pressure could offset volume effects in modules, it will also helpthe margins of the converter range.

Our forecasts do not incorporate the exit from magnetic ballasts; this is likely tobegin in earnest in FY 2014 and involve one-time costs.

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Figure 9: Forecast changes


Already fairly valuedWe roll our valuation forward to 2014, incorporating multiple and DCF-basedmethods. Our new price target of EUR10.6 implies only 11% upside to the currentshare price. The share is trading on a 2014E PER of 12.4x, in line with its historicalaverage of 12.3x. We believe there is increasing hope among investors that Thorn

will be sold (which we do not believe will be the case) as well as rapidly reducingpatience with regard to the groupsperformance. Our adjusted EPS forecasts for2013 and 2014 are 6% below and 13% above consensus respectively.

We highlight that the groups financial structure is sound with net debt toEBTIDA of 1.75x as at Q3 2013, giving us comfort that Zumtobel has some timeon its side and financial flexibility during an uncertain period. Management hasreduced net debt from EUR185m in Q3 2012 to EUR141m as at Q3 2013 andachieved FCF at 9M 2013 of EUR19m, compared with EUR-20m at 9M 2012. Norefinancing is required until 2016 and the syndicated loan limit has been reducedfrom EUR500m to EUR400m (EUR195m drawn), resulting in lower financialexpenses.

Old estimates New estimates Change (% or bps)

EURm, Apr y/e 2013E 2014E 2015E 2013E 2014E 2015E 2012E 2013E 2014E

Revenue

Lighting 978 1,031 1,104 968 1,007 1,037 -1.0% -2.4% -6.0%

Components 392 407 420 384 376 387 -2.1% -7.7% -7.7%

Reconciliation (74) (77) (80) (69) (68) (70) -7.2% -12.6% -12.6%

Group revenue 1,295 1,361 1,444 1,283 1,315 1,355 -0.9% -3.4% -6.2%

Revenue growth

Lighting 3.0% 5.5% 7.0% 2.0% 4.0% 3.0% (100) (150) (400)

Components -4.0% 4.0% 3.0% -6.0% -2.0% 3.0% (200) (600) 0

Group revenue growth 1.0% 5.1% 5.9% -0.3% 2.4% 3.0% (127) (271) (290)

EBIT - adj

Lighting 35 56 73 34 54 71 0% -3% -4%

Components 15 20 27 13 12 16 -17% -41% -42%Reconciliation (8) (9) (9) (10) (10) (10) 26% 19% 19%

Group adj EBIT 45 68 92 37 56 76 -18.9% -17.2% -17.3%

Adj EBIT margin

Lighting 3.5% 5.4% 6.7% 3.6% 5.4% 6.8% 2 (4) 15

Components 3.9% 5.0% 6.4% 3.3% 3.2% 4.1% (61) (179) (238)

Group Adj EBIT margin 3.5% 5.0% 6.3% 2.9% 4.3% 5.6% (64) (71) (75)

Old estimates New estimates Change (% or bps)

EURm, Apr y/e 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Revenue 1,295 1,361 1,444 1,283 1,315 1,355 -0.9% -3.4% -6.2%

growth 1.0% 5.1% 5.9% -0.3% 2.4% 3.0% (127) (271) (290)

Consensus 1266 1294 1353

Adj EBIT 45 68 92 37 56 76 -18.9% -17.2% -17.3%margin 3.5% 5.0% 6.3% 2.9% 4.3% 5.6% (64) (71) (75)

Consensus 31 44 61

EPS - adj 0.62 1.05 1.53 0.39 0.79 1.15 -36.9% -25.3% -24.4%

Consensus 0.40 0.68 1.02

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Figure 10: Price target derivation Figure 11: Financial structure


In Figure 12, we show a potential break-up valuation of the group. We assume that

by FY 2015 Zumtobel, Thorn and Tridonic will achieve 10%, 6% and 5% marginsrespectively. While we believe there is an embedded value within each brand, wedo not expect corporate action to realise it in the near term. Furthermore, we seerisks around the restructuring process at Thorn and structural uncertainties aroundthe LED shift under way at Tridonic. We therefore value the group based onnearer-term trading at present (Figure 10).

Figure 12: SOTP valuation based on potential FY 2015 earnings


Method PT Comment

EV/Sales 10.4 Based on 0.5x target multiple,2014E

PER 9.7 Based on 12.3x historical multiple, 2014E

EV/EBITDA 11.3 Based on 6x target multiple,2014E

DCF 11.1 9% WACC, 1% grow th

Ave rage 10.6

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EURm

FCF Ne t Debt Net Debt/EBITDA

Sales EV/Sales EV % of EV EV/Share

Zumtobel 607 1 607 63% 14.1

Thorn 430 0.6 258 27% 6.0

Tridonic 387 0.5 194 20% 4.5

Reconciliation -70 1.4 -98 -10% -2.3Total 1355 961 22.3

Adjustment 210

Market Cap 751

Discount (2yrs) 0.84

NOSH 43.1

Share price 14.6

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Financials

Profit and loss account

Year-end April (EUR m) 2011 2012 2013e 2014e 2015e

Sales 1,228 1,280 1,283 1,315 1,355

Cost of sales 818 883 879 894 914

Gross profit 410 398 404 421 440

Sales and marketing 305 331 334 335 325

General and administration 37 38 41 39 41

Other operating expenses -7 -6 0 -10 -1

Unusual or infrequent items 0 0 0 0 0

EBITDA 128 87 88 111 133

Depreciation 39 39 44 42 43

EBITA 88 48 44 70 90

Amortisation of goodwill 0 0 0 0 0Amortisation of intangible assets 13 13 15 14 14

Impairment charges 2 2 0 0 0

EBIT 76 33 30 56 76

Interest income 2 2 1 1 2

Interest expenses 10 11 10 10 10

Other financial result -9 -5 -4 -4 -4

Financial result -16 -14 -13 -12 -12

EBT 60 19 16 44 64

Taxes 7 4 4 10 14

Net income from continuing operations 53 15 12 34 50

Income from discontinued operations (net of tax) 2 1 0 0 0

Net income 51 14 12 34 50

Minority interest 0 0 -1 0 0

Net income (net of minority interest) 51 14 13 34 50

Source: Company data, Berenberg Bank estimates

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Balance sheet

Year-end April (EUR m) 2011 2012 2013e 2014e 2015e

Intangible assets 235 242 245 252 259Property, plant and equipment 234 242 231 226 221

Financial assets 49 47 45 45 45

Fixed assets 517 532 521 523 525

Inventories 190 173 174 181 187

Accounts receivable 187 210 199 204 210

Other current assets 40 34 32 32 32

Liquid assets 86 88 85 102 133

Current assets 503 505 491 520 562

TOTAL 1,020 1,036 1,013 1,043 1,087

Shareholders' equity 375 366 367 395 434

Minority interest 3 3 2 2 2

Long-term debt 213 227 223 223 223

Pensions provisions 103 124 118 118 118Other provisions 12 11 12 12 12

Non-current liabilities 328 362 353 353 353

Short-term debt 17 4 4 4 4

Accounts payable 141 131 132 135 140

Other liabilities 156 169 154 154 154

Current liabilities 314 304 291 294 298

TOTAL 1,020 1,034 1,013 1,043 1,087


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Cash flow statement

EUR m 2011 2012 2013e 2014e 2015e

Net profit/loss 51 14 12 34 50Depreciation of fixed assets 37 39 44 42 43

Amortisation of goodwill 0 0 0 0 0

Amortisation of intangible assets 13 13 15 14 14

Other 21 3 -8 12 12

Cash flow from operations before changes in w/c 121 69 62 102 119

Change in inventory -47 25 -2 -7 -5

Change in accounts receivable -11 -23 11 -5 -6

Change in accounts payable 10 -8 1 3 4

Change in other working capital positions 0 0 0 0 0

Change in working capital -55 9 15 -9 -7

Cash flow from operating activities 66 78 78 93 111

Capex, excluding maintenance -57 -57 -52 -57 -59

Payments for acquisitions 0 0 0 0 0Financial investments -5 0 2 0 0

Income from asset disposals 1 1 0 0 0

Cash flow from investing activities -62 -56 -50 -57 -59

Increase/decrease in debt position -6 16 -4 0 0

Purchase of own shares 1 0 0 0 0

Capital measures 0 0 0 0 0

Dividends paid -7 -23 -9 -7 -10

Others -7 -7 -13 -12 -12

Effects of exchange rate changes on cash 0 5 0 0 0

Cash flow from financing activities -18 -15 -26 -19 -22

Increase/decrease in liquid assets -14 13 2 17 30

Liquid assets at end of period 71 84 85 102 133


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Please note that the use of this research report is subject to the conditions and restrictions set forth in theGeneral investment-related disclosures and the Legal disclaimer at the end of this document.

For analyst certification and remarks regarding foreign investors and country-specific disclosures, pleaserefer to the respective paragraph at the end of this document.

Disclosures in respect of section 34b of the German Securities Trading Act(WertpapierhandelsgesetzWpHG)

Company Disclosures

Zumtobel AG no disclosures

(1) Berenberg Bank or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of apublic offering of this company.

(2) Berenberg Bank acts as Designated Sponsor for this company.(3) Over the previous 12 months, Berenberg Bank and/or its affiliate(s) has effected an agreement with this

company for investment banking services or received compensation or a promise to pay from this companyfor investment banking services.

(4) Berenberg Bank and/or its affiliate(s) holds 5% or more of the share capital of this company.(5) Berenberg Bank holds a trading position in shares of this company.(6) Berenberg Bank and/or its affiliate(s) holds a net short position of 1% or more of the share capital of this

company, calculated by methods required by German law as of the last trading day of the past month.

Historical price target and rating changes for Zumtobel AG in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage16 July 12 12.00 Buy 13 April 1113 March 13 10.60 Hold

Berenberg distribution of ratings and in proportion to investment banking services

Buy 44.85 % 66.67 %Sell 17.17 % 7.41 %Hold 37.98 % 25.93 %

Valuation basis/rating key

The recommendations for companies analysed by Berenberg Banks equity research department are either made onan absolute basis (absolute rating system) or relative to the sector (relative rating system), which is clearly statedin the financial analysis. For both absolute and relative rating system, the three- step rating key Buy, Hold andSell is applied. For a detailed explanation of our rating system, please refer to our website at

http://www.berenberg.de/research.html?&L=1

NB: During periods of high market, sector or stock volatility, or in special situations, the rating system criteria asdescribed on our website may be breached temporarily.

Competent supervisory authority

Bundesanstalt fr Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority),Graurheindorfer Strae 108, 53117 Bonn and Lurgiallee 12, 60439 Frankfurt am Main
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General investment-related disclosuresJoh. Berenberg, Gossler & Co. KG (Berenberg Bank) has made every effort to carefully research all information

contained in this financial analysis. The information on which the financial analysis is based has been obtained fromsources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevantspecialised press as well as the company which is the subject of this financial analysis.Only that part of the research note is made available to the issuer (who is the subject of this analysis) which isnecessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in theresearch note.

Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on thisdocument. The companies analysed by Berenberg Bank are divided into two groups: those under full coverage(regular updates provided); and those under screening coverage (updates provided as and when required at irregularintervals).

The functional job title of the person/s responsible for the recommendations contained in this report is EquityResearch Analyst unless otherwise stated on the cover.

The following internet link provides further remarks on our financial analyses:http://www.berenberg.de/research.html?&L=1&no_cache=1

Legal disclaimerThis document has been prepared by Berenberg Bank. This document does not claim completeness regarding all theinformation on the stocks, stock markets or developments referred to in it.On no account should the document be regarded as a substitute for the recipient procuring information forhimself/herself or exercising his/her own judgements.

The document has been produced for information purposes for institutional clients or market professionals.Private customers, into whose possession this document comes, should discuss possible investment decisions with

their customer service officer as differing views and opinions may exist with regard to the stocks referred to in thisdocument.

This document is not a solicitation or an offer to buy or sell the mentioned stock.

The document may include certain descriptions, statements, estimates, and conclusions underlining potential marketand company development. These reflect assumptions, which may turn out to be incorrect. Berenberg Bank and/orits employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out ofthe use of this document or any part of its content.

Berenberg Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document,derivatives thereon or related financial products. Berenberg Bank and/or its employees may underwrite issues for anysecurities mentioned in this document, derivatives thereon or related financial products or seek to perform capitalmarket or underwriting services.

Analyst certificationI, William Mackie, hereby certify that all of the views expressed in this report accurately reflect my personal viewsabout any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to thespecific recommendations or views expressed in this research report, nor is it tied to any specific investmentbanking transaction performed by Berenberg Bank or its affiliates.

I, Maggie Paxton, hereby certify that all of the views expressed in this report accurately reflect my personal viewsabout any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to thespecific recommendations or views expressed in this research report, nor is it tied to any specific investmentbanking transaction performed by Berenberg Bank or its affiliates.
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Remarks regarding foreign investorsThe preparation of this document is subject to regulation by German law. The distribution of this document in other

jurisdictions may be restricted by law, and persons into whose possession this document comes should informthemselves about, and observe, any such restrictions.

United KingdomThis document is meant exclusively for institutional investors and market professionals, but not for privatecustomers. It is not for distribution to or the use of private investors or private customers.

United States of AmericaThis document has been prepared exclusively by Berenberg Bank. Although Berenberg Capital Markets LLC, anaffiliate of Berenberg Bank and registered US broker-dealer, distributes this document to certain customers,Berenberg Capital Markets LLC does not provide input into its contents, nor does this document constitute researchof Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors andmarket professionals, but not for private customers. It is not for distribution to or the use of private investors orprivate customers.

This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital MarketsLLC (+1 617.292.8200), if you require additional information.

Third-party research disclosures

Company Disclosures

Zumtobel AG no disclosures

(1) Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subjectcompany by the end of the prior month.*

(2) Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public

offering for the subject company.*(3) Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report.(4) Berenberg Capital Markets LLC received compensation for investment banking services in the past 12

months, or expects to receive such compensation in the next 3 months.*(5) There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the

analyst knows or has reason to know at the time of publication of this research report.

* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the Disclosures in respect ofsection 34b of the German Securities Trading Act (WertpapierhandelsgesetzWpHG) section above.

CopyrightBerenberg Bank reserves all the rights in this document. No part of the document or its content may be rewritten,

copied, photocopied or duplicated in any form by any means or redistributed without Berenberg Banks prior writtenconsent.

June 2012 Berenberg Bank

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Contacts: Investment Banking

Equity ResearchE-mail: [email protected]; Internet www.berenberg.de

BANKS ECONOMICS MID-CAP GENERAL

Nick Anderson +44 (0) 20 3207 7838 Dr. Holger Schmieding +44 (0) 20 3207 7889 Gunnar Cohrs +44 (0) 20 3207 7894

James Chappell +44 (0) 20 3207 7844 Dr. Christian Schulz +44 (0) 20 3207 7878 Bjoern Lippe +44 (0) 20 3207 7845

Andrew Lowe +44 (0) 20 3465 2743 Robert Wood +44 (0) 20 3207 7822 Anna Patrice +44 (0) 20 3207 7863

Eleni Papoula +44 (0) 20 3465 2741 Alexandra Schlegel +44 (0) 20 3207 7896

FOOD MANUFACTURING Stanislaus von Thurn und Taxis +44 (0) 20 3207 2631

BEVERAGES Fintan Ryan +44 (0) 20 3465 2748

Philip Morrisey +44 (0) 20 3207 7892 James Targett +44 (0) 20 3207 7873 REAL ESTATE

Josh Puddle +44 (0) 20 3207 7881 Kai Klose +44 (0) 20 3207 7888

GENERAL RETAIL & LUXURY GOODS Estelle Weingrod +44 (0) 20 3207 7931

BUSINESS SERVICES Bassel Choughari +44 (0) 20 3465 2675

William Foggon +44 (0) 20 3207 7882 John Guy +44 (0) 20 3465 2674 TECHNOLOGY

Simon Mezzanotte +44 (0) 20 3207 7917 Adnaan Ahmad +44 (0) 20 3207 7851

Arash Roshan Zamir +44 (0) 20 3465 2636 HEALTHCARE Sebastian Grabert +44 (0) 20 3207 7834

Konrad Zomer +44 (0) 20 3207 7920 Scott Bardo +44 (0) 20 3207 7869 Daud Khan +44 (0) 20 3465 2638

Alistair Campbell +44 (0) 20 3207 7876 Ali Khwaja +44 (0) 20 3207 7852CAPITAL GOODS Charles Cooper +44 (0) 20 3465 2637 Tammy Qiu +44 (0) 20 3465 2673

Frederik Bitter +44 (0) 20 3207 7916 Louise Hinds +44 (0) 20 3465 2747

Benjamin Glaeser +44 (0) 20 3207 7918 Adrian Howd +44 (0) 20 3207 7874 TELECOMMUNICATIONS

William Mackie +44 (0) 20 3207 7837 Tom Jones +44 (0) 20 3207 7877 Wassil El Hebil +44 (0) 20 3207 7862

Margaret Paxton +44 (0) 20 3207 7934 Usman Ghazi +44 (0) 20 3207 7824Alexander Virgo +44 (0) 20 3207 7856 HOUSEHOLD & PERSONAL CARE Stuart Gordon +44 (0) 20 3207 7858

Felix Wienen +44 (0) 20 3207 7915 Seth Peterson +44 (0) 20 3207 7891 Laura Janssens +44 (0) 20 3465 2639

Andrew Steele +44 (0) 20 3207 7926 Paul Marsch +44 (0) 20 3207 7857

CHEMICALS Barry Zeitoune +44 (0) 20 3207 7859

Jade Barkett +44 (0) 20 3207 7937 INSURANCE

Asad Farid +44 (0) 20 3207 7932 Tom Carstairs +44 (0) 20 3207 7823 TOBACCO

John Philipp Klein +44 (0) 20 3207 7930 Peter Eliot +44 (0) 20 3207 7880 Erik Bloomquist +44 (0) 20 3207 7870

Jaideep Pandya +44 (0) 20 3207 7890 Kai Mueller +44 (0) 20 3207 7800 Kate Kalashnikova +44 (0) 20 3465 2665

Matthew Preston +44 (0) 20 3207 7913

CONSTRUCTION Sami Taipalus +44 (0) 20 3207 7866 UTILITIES

Chris Moore +44 (0) 20 3465 2737 Robert Chantry +44 (0) 20 3207 7861

Robert Muir +44 (0) 20 3207 7860 MEDIA Andrew Fisher +44 (0) 20 3207 7937

Michael Watts +44 (0) 20 3207 7928 Robert Berg +44 (0) 20 3207 7900 Oliver Salvesen +44 (0) 20 3207 7818

Emma Coulby +44 (0) 20 3207 7821 Lawson Steele +44 (0) 20 3207 7887

DIVERSIFIED FINANCIALS Laura Janssens +44 (0) 20 3465 2639

Pras Jeyanandhan +44 (0) 20 3207 7899 Sarah Simon +44 (0) 20 3207 7830

Richard Perrott +44 (0) 20 3207 7925

Sales

Specialist Sales E-mail: [email protected]; Internet www.berenberg.de

CONSUMER HEALTHCARE UTILITIES

Rupert Trotter +44 (0) 20 3207 7815 Frazer Hall +44 (0) 20 3207 7875 Benita Barretto +44 (0) 20 3207 7829

INSURANCE TECHNOLOGY INDUSTRIALS

Trevor Moss +44 (0) 20 3207 7893 Jean Beaubois +44 (0) 20 3207 7835 Chris Armstrong +44 (0) 20 3207 7809Kaj Alftan +44 (0) 20 3207 7879

LONDON HAMBURG

Miel Bakker +44 (0) 20 3207 7808 Susette Mantzel +49 (0) 40 350 60 694 Sales Trading

John von Berenberg-Consbruch +44 (0) 20 3207 7805 Marco Weiss +49 (0) 40 350 60 719 HAMBURG

Ronald Bernette +44 (0) 20 3207 7828 Paul Dontenwill +49 (0) 40 350 60 563

Matt Chawner +44 (0) 20 3207 7847 PARIS Christian Endras +49 (0) 40 350 60 359

Toby Flaux +44 (0) 20 3465 2745 Christophe Choquart +33 (0) 1 5844 9508 Gregor Labahn +49 (0) 40 350 60 571

Sean Heath +44 (0) 20 3465 2742 Dalila Farigoule +33 (0) 1 5844 9510 Chris McKeand +49 (0) 40 350 60 798

David Hogg +44 (0) 20 3465 2628 Clmence La Clavire-Peyraud +33 (0) 1 5844 9521 Fin Schaffer +49 (0) 40 350 60 596

Ben Hutton +44 (0) 20 3207 7804 Olivier Thibert +33 (0) 1 5844 9512 Lars Schwartau +49 (0) 40 350 60 450

James Matthews +44 (0) 20 3207 7807 Marvin Schweden +49 (0) 40 350 60 576

David Mortlock +44 (0) 20 3207 7850 ZURICH Tim Storm +49 (0) 40 350 60 415

Peter Nichols +44 (0) 20 3207 7810 Stephan Hofer +41 (0) 44 283 2029 Philipp Wiechmann +49 (0) 40 350 60 346

George Smibert +44 (0) 20 3207 7911 Carsten Kinder +41 (0) 44 283 2024

Max von Doetinchem +44 (0) 20 3207 7826 Gianni Lavigna +41 (0) 44 283 2038 LONDON

Paul Walker +44 (0) 20 3465 2632 Benjamin Stillfried +41 (0) 44 283 2033 Stewart Cook +44 (0) 20 3465 2752

Simon Messman +44 (0) 20 3465 2754

CRM Stephen O'Donohoe +44 (0) 20 3465 2753LONDON

FRANKFURT Greg Swallow +44 (0) 20 3207 7833 PARIS

Michael Brauburger +49 (0) 69 91 30 90 741 Laura Cooper +44 (0) 20 3207 7806 Sylvain Granjoux +33 (0) 1 5844 9509

Nina Buechs +49 (0) 69 91 30 90 735

Andr Grosskurth +49 (0) 69 91 30 90 734 CORPORATE ACCESS EVENTS

Boris Koegel +49 (0) 69 91 30 90 740 LONDON LONDON

Joachim Kopp +49 (0) 69 91 30 90 742 Patricia Nehring +44 (0) 20 3207 7811 Natalie Meech +44 (0) 20 3207 7831

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US Sales E-mail: [email protected]

BERENBERG CAPITAL MARKETS LLC

Member FINRA & SIPC Andrew Holder +1 (617) 292 8222 Kelleigh Faldi +1 (617) 292 8288

Colin Andrade +1 (617) 292 8230 Kieran O'Sullivan +1 (617) 292 8292

Cathal Carroll +1 (646) 445 7206 Emily Mouret +1 (646) 445 7204

Burr Clark +1 (617) 292 8282 Jonathan Saxon +1 (646) 445 7202

Julie Doherty +1 (617) 292 8228

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HAMBURG BIELEFELD BRAUNSCHWEIG BREMEN DSSELDORF FRANKFURT MUNICH STUTTGART LONDON LUXEMBOURG PARIS SHANGHAI VIENNA ZURICH

2013 mar 13 — zumtobel ag

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