GFT

(CDAX, Software/IT)

A n a l y s t

Andreas Wolf

awolf@warburg-research.com

+49 40 309537-140

CO M M E N T Published 05.03.2019 08:15 1

RESEARCH

Buy

EUR 12.00 (EUR 17.00)

Price EUR 8.12

Upside 47.8 %

Value Indicators: EUR Share data: Description:

DCF: 12.00

FCF-Value Potential 19e: 8.80

Bloomberg: GFT GR

Reuters: GFTG

ISIN: DE0005800601

Tailor-made software for the financial services industry.

Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2018e

Market cap: 213.8

No. of shares (m): 26.3

EV: 305.5

Freefloat MC: 137.0

Ø Trad. Vol. (30d): 410.59 th

Freefloat 64.1 %

Ulrich Dietz (CEO) 26.2 %

Maria Dietz 9.7 %

Beta: 1.3

Price / Book: 1.6 x

Equity Ratio: 32 %

Net Fin. Debt / EBITDA: 2.6 x

Net Debt / EBITDA: 2.9 x

Dynamic growth outside the top-2 clients; estimates updated, PT lowered

Following GFT’s preliminary 2018 figures release, the model is being updated. 2019 looks set to be another year that is dominated by a

business decline with the top-2 clients. However, in order to address this development, GFT will continue to diversify its customer base by

growing outside the top-2 client base, expanding into sectors such as insurance and Industry 4.0 and new technologies. Growth excluding

these clients is expected to expand dynamically by over 20%.

Growth excluding the top-2 clients was 9% in 2018. Clients which showed solid traction were Banco Sabadell, Intesa San Paolo, Schroder IM

or GKV-Spitzenverband. The so-called exponential technologies are being expanded further. The term exponential technologies is usually

linked to technologies that double in power or processing speed every year, while their cost halves. Intensified strategic partnerships should

also create additional momentum. For example, GFT is preferred partner of Google & AWS in the financial industry. In 2019, revenues from

Cloud Services are expected to double to a level of ca. EUR 20m. Overall, new technological areas such as blockchain, AI, Cloud, Data

Analytics and Devops reached a revenue share of 25% in 2018 and should expand to a share of 30% in 2019.

Insurance clients accounted for 6% in 2018 and should reach 10% in 2019. Expansion into this business field was initiated by the V-NEO

acquisition. V-NEO is a certified Guidewire partner, a provider of software solutions for the insurance sector with a particular focus on P&C

(property and casualty) insurance. Over the last 10 years, Guidewire has grown at a CAGR of more than 20% reflecting its strong momentum

and higher customer demand generated by its software. V-NEO has been consolidated since August and contributed EUR 8.6m to GFT’s top

line. Further V-NEO revenue growth should be supported by Guidewire’s ambition to expand in Europe.

The model has been reworked. 2019 estimates already take into account a EUR 9m EBITDA impact stemming from IFRS 16 while the EBT

effect should be negligible. The dividend proposal will remain unchanged at EUR 0.30 per share. The model has been reworked leading to a

new PT of EUR 12. The Buy rating is confirmed given the upside to the PT. However, we also expect the share price to languish until the Q2

figures release, which is expected to reflect the full impact of the restructuring measures. The FCF value potential supports the current share

price level.

Changes in Estimates: Comment on Changes:

FY End: 31.12. in EUR m

2018e (old)

+ / - 2019e (old)

+ / - 2020e (old)

+ / -

Sales 422.0 -2.2 % 455.0 -7.5 % 489.1 -10.9 %

EBITDA 38.8 -3.4 % 46.6 -7.8 % 52.3 -8.9 %

EPS 0.62 17.7 % 0.80 -45.0 % 0.96 -41.7 %

� Updated revenue estimates anticipate a decline of 30% with the top-2 clients.

� Growth outside the top-2 clients is expected to reach more than 20%. � The new estimates already anticipate the IFRS 16 P&L effect (i.e.

EBITDA to increase by EUR 10m, EBT approx. unchanged.)

FY End: 31.12. in EUR m

CAGR (17-20e) 2014 2015 2016 2017 2018e 2019e 2020e

Sales 1.3 % 279.2 373.5 422.6 418.8 412.8 421.0 436.0

Change Sales yoy 5.7 % 33.8 % 13.1 % -0.9 % -1.4 % 2.0 % 3.6 %

Gross profit margin 81.3 % 83.3 % 85.8 % 86.7 % 86.9 % 87.0 % 87.0 %

EBITDA 11.6 % 32.8 44.6 46.5 34.3 37.5 43.0 47.7

Margin 11.8 % 11.9 % 11.0 % 8.2 % 9.1 % 10.2 % 10.9 %

EBIT adj. 6.9 % 26.3 39.4 41.7 25.2 31.0 27.0 30.8

EBIT 7.3 % 26.3 34.2 34.8 19.8 24.7 20.7 24.5

Margin 9.4 % 9.2 % 8.2 % 4.7 % 6.0 % 4.9 % 5.6 %

Net income -6.2 % 19.8 25.3 24.2 17.8 19.1 11.7 14.7

EPS -6.3 % 0.75 0.96 0.92 0.68 0.73 0.44 0.56

DPS 5.3 % 0.25 0.30 0.30 0.30 0.30 0.30 0.35

Dividend Yield 2.6 % 1.4 % 1.4 % 1.8 % 3.7 % 3.7 % 4.3 %

FCFPS 0.16 1.07 0.36 0.64 1.37 0.95 1.01

FCF / Market cap 1.7 % 5.1 % 1.7 % 3.7 % 16.9 % 11.7 % 12.4 %

EV / Sales 1.1 x 1.6 x 1.5 x 1.3 x 0.8 x 0.7 x 0.7 x

EV / EBITDA 9.6 x 13.7 x 13.6 x 15.5 x 8.6 x 7.1 x 6.0 x

EV / EBIT 12.0 x 17.8 x 18.2 x 26.8 x 13.0 x 14.8 x 11.8 x

EV / EBIT adj. 12.0 x 15.5 x 15.2 x 21.1 x 10.3 x 11.3 x 9.4 x

P / E 12.6 x 21.6 x 22.6 x 25.1 x 11.1 x 18.5 x 14.5 x

FCF Potential Yield 7.7 % 5.2 % 5.1 % 5.6 % 8.7 % 7.3 % 8.7 %

Net Debt 65.6 63.0 85.5 82.6 107.2 91.7 74.6

ROCE (NOPAT) 15.2 % 15.8 % 13.1 % 9.7 % 10.0 % 6.5 % 8.2 % Guidance: 2019: revenue: EUR 420m, EBITDA: EUR 33m; EBT: EUR 18m

Rel. Performance vs CDAX:

1 month: -0.4 %

6 months: -30.2 %

Year to date: 11.2 %

Trailing 12 months: -32.7 %

Company events:

29.03.19 FY 2018

09.05.19 Q1

04.06.19 AGM

08.08.19 Q2

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CO M M E N T Publ ished 05 .03 .2019 2

RESEARCH

Sales development in EUR m

Source: Warburg Research

Sales by regions 2017; in %

Source: Warburg Research

Employees by regions 2017

Source: Warburg Research

Company Background

� GFT is an IT services company with a focus on the development and maintenance of customer-specific core banking software

solutions.

� Core banking solutions comprise asset/liability management, risk management, compliance software, internet and mobile banking,

customer management, multi-channel marketing etc.

� The focus is on big universal banks. Deutsche Bank is among the biggest customers.

� GFT’s near-shore concept has a positive impact on profitability as it enables the company to benefit from cost arbitrage.

Competitive Quality

� Over the years GFT has built up a solid track record as a reliable IT partner in the financial services sector.

� With its focus on core banking applications, GFT has established a strong customer bond. Recurring revenues, as it were, contribute

about two-thirds to the top line of GFT division.

� The knowledge of the customer software interfaces poses a barrier to market entry for possible competitors.

� The nascent trend towards standard applications in core banking is tackled by GFT's Services segment through partnerships with

software providers Temenos and Avaloq and should result in an expansion of competence.

� Standard software solutions are only suitable for small banks or cover just small parts of a banking process (e.g. payments). There is

no standard software that covers large universal banks’ complex processes.

Employees

Source: Warburg Research

Sales by segments 2017; in %

Source: Warburg Research

Net income development in EUR m

Source: Warburg Research

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DCF model

Detailed forecast period Transitional period Term. Value

Figures in EUR m 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e

Sales 412.8 421.0 436.0 449.1 462.3 475.6 489.0 502.6 516.2 529.9 543.7 557.6 568.7

Sales change -1.4 % 2.0 % 3.6 % 3.0 % 2.9 % 2.9 % 2.8 % 2.8 % 2.7 % 2.7 % 2.6 % 2.6 % 2.0 % 2.0 %

EBIT 24.7 20.7 24.5 25.5 27.7 27.6 28.4 29.1 29.9 30.7 31.5 32.3 33.0

EBIT-margin 6.0 % 4.9 % 5.6 % 5.7 % 6.0 % 5.8 % 5.8 % 5.8 % 5.8 % 5.8 % 5.8 % 5.8 % 5.8 %

Tax rate (EBT) 12.0 % 27.0 % 27.0 % 28.0 % 28.0 % 28.0 % 28.0 % 28.0 % 28.0 % 28.0 % 28.0 % 28.0 % 28.0 %

NOPAT 21.8 15.1 17.9 18.4 20.0 19.9 20.4 21.0 21.6 22.1 22.7 23.3 23.8

Depreciation 12.7 22.3 23.2 23.9 23.1 24.7 25.4 26.1 26.8 27.6 28.3 29.0 29.6

in % of Sales 3.1 % 5.3 % 5.3 % 5.3 % 5.0 % 5.2 % 5.2 % 5.2 % 5.2 % 5.2 % 5.2 % 5.2 % 5.2 %

Changes in provisions 1.4 0.0 0.0 -1.0 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.2

Change in Liquidity from

- Working Capital 2.8 1.9 3.7 -0.4 2.9 2.9 3.0 3.0 3.0 3.0 3.0 3.1 2.5

- Capex 8.5 8.4 8.9 22.5 20.8 25.2 25.9 26.6 27.4 28.1 28.8 29.6 30.1

Capex in % of Sales 2.1 % 2.0 % 2.0 % 5.0 % 4.5 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 %

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)

24.6 27.1 28.5 19.2 19.6 16.7 17.2 17.8 18.3 18.9 19.4 20.0 21.0 28

PV of FCF 24.6 25.3 24.9 15.7 15.0 12.0 11.5 11.1 10.7 10.3 9.9 9.6 9.4 258 share of PVs 16.72 % 25.75 % 57.53 %

Model parameter Valuation (m)

Derivation of WACC: Derivation of Beta: Present values 2030e 190

Terminal Value 258

Debt ratio 25.00 % Financial Strength 1.30 Financial liabilities 146

Cost of debt (after tax) 1.4 % Liquidity (share) 1.30 Pension liabilities 9

Market return 7.00 % Cyclicality 1.30 Hybrid capital 0

Risk free rate 1.50 % Transparency 1.30 Minority interest 0

Others 1.40 Market val. of investments 0

Liquidity 22 No. of shares (m) 26.3

WACC 6.92 % Beta 1.32 Equity Value 315 Value per share (EUR) 11.97

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

1.56 7.9 % 8.34 8.59 8.86 9.16 9.48 9.83 10.21 1.56 7.9 % 5.41 6.66 7.91 9.16 10.41 11.66 12.91

1.44 7.4 % 9.41 9.72 10.06 10.43 10.84 11.29 11.78 1.44 7.4 % 6.33 7.70 9.06 10.43 11.80 13.17 14.54

1.38 7.2 % 10.02 10.37 10.75 11.17 11.63 12.13 12.70 1.38 7.2 % 6.85 8.29 9.73 11.17 12.60 14.04 15.48

1.32 6.9 % 10.68 11.07 11.50 11.97 12.50 13.08 13.73 1.32 6.9 % 7.44 8.95 10.46 11.97 13.49 15.00 16.51

1.26 6.7 % 11.40 11.85 12.33 12.87 13.47 14.14 14.90 1.26 6.7 % 8.08 9.68 11.27 12.87 14.47 16.06 17.66

1.20 6.4 % 12.20 12.70 13.25 13.87 14.56 15.34 16.23 1.20 6.4 % 8.80 10.49 12.18 13.87 15.56 17.25 18.94

1.08 5.9 % 14.06 14.71 15.44 16.26 17.20 18.27 19.52 1.08 5.9 % 10.52 12.44 14.35 16.26 18.18 20.09 22.00

� IT services for the financial industry grow faster than the overall IT services market.

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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 2014 2015 2016 2017 2018e 2019e 2020e

Net Income before minorities 19.8 25.3 24.2 17.8 20.3 12.9 15.9

+ Depreciation + Amortisation 6.6 10.4 11.9 14.5 12.7 22.3 23.2

- Net Interest Income -1.0 -1.7 -1.8 -1.7 -1.7 -3.0 -2.7

- Maintenance Capex 3.2 5.5 5.4 4.1 6.8 15.8 16.6

+ Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0

= Free Cash Flow Potential 24.2 31.9 32.6 29.9 27.9 22.4 25.2

FCF Potential Yield (on market EV) 7.7 % 5.2 % 5.1 % 5.6 % 8.7 % 7.3 % 8.7 %

WACC 6.92 % 6.92 % 6.92 % 6.92 % 6.92 % 6.92 % 6.92 %

= Enterprise Value (EV) 314.8 609.4 633.9 531.3 321.0 305.5 288.4 = Fair Enterprise Value 350.1 460.7 470.7 431.8 402.5 323.8 364.2

- Net Debt (Cash) 74.0 74.0 74.0 74.0 97.2 81.7 64.6

- Pension Liabilities 8.6 8.6 8.6 8.6 10.0 10.0 10.0

- 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 267.5 378.1 388.1 349.2 295.3 232.1 289.5

Number of shares, average 26.3 26.3 26.3 26.3 26.3 26.3 26.3

= Fair value per share (EUR) 10.16 14.36 14.74 13.26 11.22 8.82 11.00

premium (-) / discount (+) in % 38.1 % 8.6 % 35.4 %

Sensitivity Fair value per Share (EUR)

9.92 % 6.14 9.07 9.34 8.30 6.59 5.10 6.82

8.92 % 7.18 10.44 10.73 9.59 7.79 6.06 7.90

7.92 % 8.48 12.15 12.49 11.19 9.29 7.26 9.25

WACC 6.92 % 10.16 14.36 14.74 13.26 11.22 8.82 11.00

5.92 % 12.41 17.32 17.76 16.04 13.80 10.89 13.33

4.92 % 15.57 21.48 22.01 19.93 17.43 13.82 16.62

3.92 % 20.34 27.76 28.43 25.82 22.92 18.23 21.58

� As a service provider, GFT has low investment needs.

� FCF Value CAGR 2014-2020e: 1%

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RESEARCH

Valuation

2014 2015 2016 2017 2018e 2019e 2020e

Price / Book 2.5 x 4.4 x 4.7 x 3.9 x 1.6 x 1.6 x 1.5 x

Book value per share ex intangibles -0.97 -0.57 -0.74 -0.37 -1.59 -1.29 -0.84

EV / Sales 1.1 x 1.6 x 1.5 x 1.3 x 0.8 x 0.7 x 0.7 x

EV / EBITDA 9.6 x 13.7 x 13.6 x 15.5 x 8.6 x 7.1 x 6.0 x

EV / EBIT 12.0 x 17.8 x 18.2 x 26.8 x 13.0 x 14.8 x 11.8 x

EV / EBIT adj.* 12.0 x 15.5 x 15.2 x 21.1 x 10.3 x 11.3 x 9.4 x

P / FCF 59.4 x 19.5 x 57.4 x 26.7 x 5.9 x 8.6 x 8.1 x

P / E 12.6 x 21.6 x 22.6 x 25.1 x 11.1 x 18.5 x 14.5 x

P / E adj.* 12.6 x 18.5 x 18.8 x 19.4 x 8.7 x 13.3 x 11.3 x

Dividend Yield 2.6 % 1.4 % 1.4 % 1.8 % 3.7 % 3.7 % 4.3 %

FCF Potential Yield (on market EV) 7.7 % 5.2 % 5.1 % 5.6 % 8.7 % 7.3 % 8.7 %

*Adjustments made for: PPA amortisations

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Consolidated profit & loss In EUR m 2014 2015 2016 2017 2018e 2019e 2020e

Sales 279.2 373.5 422.6 418.8 412.8 421.0 436.0

Change Sales yoy 5.7 % 33.8 % 13.1 % -0.9 % -1.4 % 2.0 % 3.6 % Increase / decrease in inventory 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Own work capitalised 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Sales 279.2 373.5 422.6 418.8 412.8 421.0 436.0

Material expenses 52.2 62.5 59.8 55.6 54.1 54.7 56.7

Gross profit 227.0 311.0 362.7 363.2 358.8 366.3 379.3

Gross profit margin 81.3 % 83.3 % 85.8 % 86.7 % 86.9 % 87.0 % 87.0 % Personnel expenses 157.7 215.4 254.7 271.8 268.2 273.0 280.0

Other operating income 3.8 3.4 6.3 4.6 6.4 4.2 4.4

Other operating expenses 40.3 54.4 67.5 61.7 59.5 54.5 56.0

Unfrequent items 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBITDA 32.8 44.6 46.5 34.3 37.5 43.0 47.7

Margin 11.8 % 11.9 % 11.0 % 8.2 % 9.1 % 10.2 % 10.9 %

Depreciation of fixed assets 2.9 5.2 5.1 3.8 6.5 15.5 16.3

EBITA 30.0 39.4 41.7 30.5 30.9 27.5 31.4

Amortisation of intangible assets 3.7 5.2 6.8 8.7 6.2 6.8 6.9

Goodwill amortisation 0.0 0.0 0.0 2.0 0.0 0.0 0.0

EBIT 26.3 34.2 34.8 19.8 24.7 20.7 24.5

Margin 9.4 % 9.2 % 8.2 % 4.7 % 6.0 % 4.9 % 5.6 %

EBIT adj. 26.3 39.4 41.7 25.2 31.0 27.0 30.8

Interest income 0.4 0.2 0.2 0.2 0.0 0.0 0.0

Interest expenses 1.4 1.9 2.0 1.9 1.7 3.0 2.7

Other financial income (loss) 0.0 0.0 -0.1 0.0 0.0 0.0 0.0

EBT 25.2 32.5 33.0 18.1 23.1 17.7 21.8

Margin 9.0 % 8.7 % 7.8 % 4.3 % 5.6 % 4.2 % 5.0 % Total taxes 6.8 6.0 8.8 0.3 2.8 4.8 5.9

Net income from continuing operations 18.4 26.5 24.2 17.8 20.3 12.9 15.9

Income from discontinued operations (net of tax) 1.4 -1.2 0.0 0.0 0.0 0.0 0.0

Net income before minorities 19.8 25.3 24.2 17.8 20.3 12.9 15.9

Minority interest 0.0 0.0 0.0 0.0 1.2 1.2 1.2

Net income 19.8 25.3 24.2 17.8 19.1 11.7 14.7

Margin 7.1 % 6.8 % 5.7 % 4.3 % 4.6 % 2.8 % 3.4 %

Number of shares, average 26.3 26.3 26.3 26.3 26.3 26.3 26.3

EPS 0.75 0.96 0.92 0.68 0.73 0.44 0.56

EPS adj. 0.75 1.12 1.11 0.88 0.93 0.61 0.72

*Adjustments made for: PPA amortisations

Guidance: 2019: revenue: EUR 420m, EBITDA: EUR 33m; EBT: EUR 18m

Financial Ratios 2014 2015 2016 2017 2018e 2019e 2020e

Total Operating Costs / Sales 88.2 % 88.1 % 88.9 % 91.8 % 90.9 % 89.8 % 89.1 %

Operating Leverage 8.5 x 0.9 x 0.1 x 48.7 x -17.4 x -8.3 x 5.2 x

EBITDA / Interest expenses 23.9 x 23.5 x 23.7 x 18.2 x 22.7 x 14.3 x 17.7 x

Tax rate (EBT) 27.0 % 18.4 % 26.7 % 1.8 % 12.0 % 27.0 % 27.0 %

Dividend Payout Ratio 35.7 % 29.8 % 32.6 % 44.3 % 38.9 % 61.2 % 58.0 %

Sales per Employee 103,680 124,502 89,148 86,728 79,897 76,148 73,702

Sales, EBITDA in EUR m

Source: Warburg Research

Operating Performance in %

Source: Warburg Research

Performance per Share

Source: Warburg Research

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Consolidated balance sheet In EUR m 2014 2015 2016 2017 2018e 2019e 2020e

Assets

Goodwill and other intangible assets 125.9 139.5 136.6 125.0 172.3 166.9 161.4

thereof other intangible assets 27.3 30.3 29.5 23.3 19.1 13.7 8.2

thereof Goodwill 98.6 109.2 107.1 101.7 153.2 153.2 153.2

Property, plant and equipment 17.8 26.5 31.2 29.4 29.4 20.9 12.1

Financial assets 0.9 3.6 3.7 5.8 5.8 5.8 5.8

Other long-term assets 0.2 0.0 0.0 0.0 0.0 0.0 0.0

Fixed assets 144.7 169.6 171.5 160.3 207.5 193.6 179.3

Inventories 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Accounts receivable 108.2 94.8 117.3 113.5 112.0 114.2 118.3

Liquid assets 38.1 47.0 62.3 72.2 57.8 73.3 90.4

Other short-term assets 10.6 15.5 14.9 26.8 26.8 26.8 26.8

Current assets 156.9 157.3 194.6 212.6 196.6 214.3 235.5

Total Assets 301.7 326.8 366.0 372.8 404.1 407.9 414.8

Liabilities and shareholders' equity

Subscribed capital 26.3 26.3 26.3 26.3 26.3 26.3 26.3

Capital reserve 42.1 42.1 42.1 42.1 42.1 42.1 42.1

Retained earnings 22.2 22.2 22.2 22.2 33.4 37.3 44.1

Other equity components 9.7 33.7 26.5 24.6 28.4 27.1 26.8

Shareholders' equity 100.4 124.4 117.2 115.3 130.3 132.8 139.3

Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total equity 100.4 124.4 117.2 115.3 130.3 132.8 139.3

Provisions 49.7 52.9 49.7 49.2 61.3 61.3 61.3

thereof provisions for pensions and similar obligations 7.3 8.3 8.7 8.6 10.0 10.0 10.0

Financial liabilities (total) 96.4 101.6 139.1 146.3 155.0 155.0 155.0

thereof short-term financial liabilities 46.0 82.8 86.0 106.2 115.0 115.0 115.0

Accounts payable 20.8 11.4 12.5 14.5 12.4 12.7 13.1

Other liabilities 34.3 36.5 47.6 47.6 45.0 46.0 46.0

Liabilities 201.2 202.4 248.9 257.5 273.7 275.0 275.4

Total liabilities and shareholders' equity 301.7 326.8 366.0 372.8 404.1 407.9 414.8

Financial Ratios 2014 2015 2016 2017 2018e 2019e 2020e

Efficiency of Capital Employment

Operating Assets Turnover 2.7 x 3.5 x 3.4 x 3.5 x 3.4 x 3.6 x 3.9 x

Capital Employed Turnover 1.7 x 2.0 x 2.1 x 2.1 x 1.7 x 1.9 x 2.0 x

ROA 13.7 % 14.9 % 14.1 % 11.1 % 9.2 % 6.0 % 8.2 %

Return on Capital

ROCE (NOPAT) 15.2 % 15.8 % 13.1 % 9.7 % 10.0 % 6.5 % 8.2 %

ROE 21.1 % 22.5 % 20.1 % 15.3 % 15.6 % 8.9 % 10.8 %

Adj. ROE 21.1 % 26.2 % 24.2 % 19.9 % 19.9 % 12.2 % 14.0 %

Balance sheet quality

Net Debt 65.6 63.0 85.5 82.6 107.2 91.7 74.6

Net Financial Debt 58.3 54.7 76.8 74.0 97.2 81.7 64.6

Net Gearing 65.3 % 50.6 % 73.0 % 71.6 % 82.3 % 69.0 % 53.5 %

Net Fin. Debt / EBITDA 177.5 % 122.6 % 165.2 % 215.7 % 259.6 % 190.1 % 135.5 %

Book Value / Share 3.8 4.7 4.5 4.4 5.0 5.0 5.3

Book value per share ex intangibles -1.0 -0.6 -0.7 -0.4 -1.6 -1.3 -0.8

ROCE Development

Source: Warburg Research

Net debt in EUR m

Source: Warburg Research

Book Value per Share in EUR

Source: Warburg Research

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Consolidated cash flow statement In EUR m 2014 2015 2016 2017 2018e 2019e 2020e

Net income 19.8 25.3 24.2 17.8 20.3 12.9 15.9

Depreciation of fixed assets 2.9 5.2 5.1 3.8 6.5 15.5 16.3

Amortisation of goodwill 0.0 0.0 0.0 2.0 0.0 0.0 0.0

Amortisation of intangible assets 3.7 5.2 6.8 8.7 6.2 6.8 6.9

Increase/decrease in long-term provisions 5.1 3.1 -4.1 1.4 1.4 0.0 0.0

Other non-cash income and expenses -0.6 -6.4 3.9 -6.7 0.0 0.0 0.0

Cash Flow before NWC change 30.8 32.3 36.0 27.0 34.5 35.2 39.1

Increase / decrease in inventory 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Increase / decrease in accounts receivable -17.9 1.1 -24.4 6.7 1.5 -2.2 -4.1

Increase / decrease in accounts payable -0.1 9.1 8.5 8.6 -4.3 0.3 0.4

Increase / decrease in other working capital positions 2.4 0.0 -0.3 -18.6 13.0 0.0 0.0

Increase / decrease in working capital (total) -15.6 10.2 -16.2 -3.3 10.2 -1.9 -3.7

Net cash provided by operating activities [1] 15.2 42.5 19.8 23.7 44.7 33.3 35.4

Investments in intangible assets -0.4 -1.3 -0.9 -2.2 -2.0 -1.4 -1.4

Investments in property, plant and equipment -10.6 -13.1 -9.3 -4.7 -6.5 -7.0 -7.5

Payments for acquisitions -58.7 -16.8 -6.7 -2.7 -51.5 -1.5 -1.5

Financial investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Income from asset disposals 1.8 -0.5 0.4 0.6 0.0 0.0 0.0

Net cash provided by investing activities [2] -67.9 -31.7 -16.5 -9.0 -60.0 -9.9 -10.4

Change in financial liabilities 49.3 3.2 20.9 7.2 8.8 0.0 0.0

Dividends paid -6.6 -6.6 -7.9 -10.1 -7.9 -7.9 -7.9

Purchase of own shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital measures 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash provided by financing activities [3] 42.8 -3.4 13.0 -2.9 0.9 -7.9 -7.9

Change in liquid funds [1]+[2]+[3] -9.9 7.4 16.3 11.8 -14.4 15.5 17.1

Effects of exchange-rate changes on cash 0.9 1.3 -1.0 -1.8 0.0 0.0 0.0

Cash and cash equivalent at end of period 38.1 46.9 62.3 72.2 57.8 73.3 90.4

Financial Ratios 2014 2015 2016 2017 2018e 2019e 2020e

Cash Flow

FCF 4.2 28.1 9.6 16.8 36.2 24.9 26.5

Free Cash Flow / Sales 1.5 % 7.5 % 2.3 % 4.0 % 8.8 % 5.9 % 6.1 %

Free Cash Flow Potential 24.2 31.9 32.6 29.9 27.9 22.4 25.2

Free Cash Flow / Net Profit 21.2 % 111.1 % 39.5 % 94.5 % 189.5 % 212.8 % 180.3 %

Interest Received / Avg. Cash 0.8 % 0.5 % 0.4 % 0.3 % 0.0 % 0.0 % 0.0 %

Interest Paid / Avg. Debt 2.0 % 1.9 % 1.6 % 1.3 % 1.1 % 1.9 % 1.7 %

Management of Funds

Investment ratio 3.9 % 3.9 % 2.4 % 1.6 % 2.1 % 2.0 % 2.0 %

Maint. Capex / Sales 1.1 % 1.5 % 1.3 % 1.0 % 1.7 % 3.8 % 3.8 %

Capex / Dep 167.9 % 139.2 % 85.9 % 47.3 % 66.8 % 37.7 % 38.4 %

Avg. Working Capital / Sales 23.9 % 22.0 % 20.6 % 22.1 % 22.3 % 22.5 % 22.3 %

Trade Debtors / Trade Creditors 520.4 % 834.0 % 937.2 % 784.3 % 903.2 % 899.2 % 903.1 %

Inventory Turnover n.a. n.a. 2137.4 x 2493.5 x n.a. n.a. n.a.

Receivables collection period (days) 141 93 101 99 99 99 99

Payables payment period (days) 145 66 76 95 84 85 84

Cash conversion cycle (Days) n.a. n.a. -39 -50 n.a. n.a. n.a.

CAPEX and Cash Flow in EUR m

Source: Warburg Research

Free Cash Flow Generation

Source: Warburg Research

Working Capital

Source: Warburg Research

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LEGAL DISCLAIMER

This research report (“investment recommendation”) was prepared by the Warburg Research GmbH, a fully owned subsidiary of the M.M.Warburg &

CO (AG & Co.) KGaA and is passed on by the M.M.Warburg & CO (AG & Co.) KGaA. It is intended solely for the recipient and may not be passed on

to another company without their prior consent, regardless of whether the company is part of the same corporation or not. It contains selected

information and does not purport to be complete. The investment recommendation is based on publicly available information and data ("information")

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accuracy and completeness. Possible errors or incompleteness of the information do not constitute grounds for liability of M.M.Warburg & CO (AG &

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Research GmbH are liable for the statements, plans or other details contained in these investment recommendations 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 investment recommendation, 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 investment recommendation. Provided a investment

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DISCLOSURE ACCORDING TO §85 OF THE GERMAN SECURITIES TRADING ACT (WPHG), MAR AND MIFID II INCL. COMMISSION DELEGATED REGULATION (EU) 2016/958 AND (EU) 2017/565

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 (see also

http://www.mmwarburg.de/disclaimer/disclaimer.htm#Valuation). 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

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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

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SOURCES

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

GFT

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Additional information for clients in the United States

1. This research report (the “Report”) is a product of Warburg Research GmbH, Germany, a fully owned subsidiary of M.M.Warburg & CO (AG & Co.)

KGaA, Germany (in the following collectively “Warburg”). Warburg is the employer of the research analyst(s), who have prepared the Report. The

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to the supervision of any U.S. regulated broker-dealer.

2. The Report is provided in the United States for distribution solely to "major U.S. institutional investors" under Rule 15a-6 of the U.S. Securities

Exchange Act of 1934.

3. Any recipient of the Report should effect transactions in the securities discussed in the Report only through J.P.P. Euro-Securities, Inc., Delaware.

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Reference in accordance with section 85 of the German Securities Trading Act (WpHG) and Art. 20 MAR regarding possible conflicts of interest with companies analysed:

-1- Warburg Research, or an affiliated company, or an employee of one of these companies responsible for the compilation of the research, hold

a share of more than 5% of the equity capital of the analysed company.

-2-

Warburg Research, or an affiliated company, within the last twelve months participated in the management of a consortium for an issue in

the course of a public offering of such financial instruments, which are, or the issuer of which is, the subject of the investment

recommendation.

-3- Companies affiliated with Warburg Research manage financial instruments, which are, or the issuers of which are, subject of the

investment recommendation, in a market based on the provision of buy or sell contracts.

-4-

MMWB, Warburg Research, or an affiliated company, reached an agreement with the issuer to provide investment banking and/or

investment services and the relevant agreement was in force in the last 12 months or there arose for this period, based on the relevant

agreement, the obligation to provide or to receive a service or compensation - provided that this disclosure does not result in the disclosure of

confidential business information.

-5- The company compiling the analysis or an affiliated company had reached an agreement on the compilation of the investment

recommendation with the analysed company.

-6- Companies affiliated with Warburg Research regularly trade financial instruments of the analysed company or derivatives of these.

-6a- Warburg Research, or an affiliated company, holds a net long position of more than 0.5% of the total issued share capital of the analysed

company.

-6b- Warburg Research, or an affiliated company, holds a net short position of more than 0.5% of the total issued share capital of the analysed

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-6c- The issuer holds shares of more than 5% of the total issued capital of Warburg Research or an affiliated 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)

GFT 3, 5, 6 http://www.mmwarburg.com/disclaimer/disclaimer_en/DE0005800601.htm

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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 – ANALYSED RESEARCH UNIVERSE BY RATING

Rating Number of stocks % of Universe

Buy 129 65

Hold 57 29

Sell 6 3

Rating suspended 8 4

Total 200 100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING M

M taking into account only those companies which were provided with major investment services in the last twelve months.

Rating Number of stocks % of Universe

Buy 28 72

Hold 9 23

Sell 0 0

Rating suspended 2 5

Total 39 100

PRICE AND RATING HISTORY GFT AS OF 05.03.2019

Markings in the chart show rating changes by Warburg Research

GmbH in the last 12 months. Every marking details the date and

closing price on the day of the rating change.

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