rofin-sinar · rofin-sinar develops and produces laser sources and laser-based system solutions....

Rofin-Sinar (CDAX, Technology)

CO M M E N T Publ ished 07 .08 .2015 1

A n a l y s t

Eggert Kuls [email protected]

+49 40 309537-256

Value Indicators: EUR Share data: Description:

DCF: 27.36

FCF-Value Potential 16e: 32.67

Bloomberg: RSI GR

Reuters: RSTI

ISIN: US7750431022

Rofin-Sinar is one of two world-leading manufacturers of industrial laser equipment

Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2014/15e

Buy

EUR 30.00 (EUR 28.00)

Price EUR 21.63

Upside 38.7 %

Market cap: 606

No. of shares (m): 28

EV: 476

Freefloat MC: 606

Ø Trad. Vol. (30d): 3.27 m

Freefloat 100.0 %

Beta: 1.1

Price / Book: 1.1 x

Equity Ratio: 79 %

Strongly improved gross margin, new orders disappoint, sales guidance reduced

Stated Figures Q3/2014/15: Comment on Figures: FY End: 30.9. in USD m

Q3 14/15

Q3 14/15e

Q3 13/14 yoy

9M 14/15

9M 14/15e

9M 13/14 yoy

Sales 133 136 134 -1 % 378 381 384 -2 %

EBIT 17 17 9 95 % 35 34 19 84 %

Margin 12.8 % 12.3 % 6.5 % 9.1 % 9.0 % 4.9 %

Net income 12 12 6 78 % 26 27 13 101 %

Margin 8.7 % 8.7 % 4.8 % 7.0 % 7.0 % 3.4 %

EPS 0.41 0.42 0.23 78 % 0.94 0.95 0.47 101 %

� Q3 order intake was somewhat disappointing, arriving at USD 130m, down 8% sequentially and some 10% below the previous year´s level

� Turnover and EPS missed our expectation only slightly. However, a 240bps rise in gross margin to 39.4% underpins that the company is clearly on the way back to levels above 40%

� Cash generation was rather strong in Q3. Rofin raised net cash to USD 148.6m, up USD 25.5m in the quarter driven by strong results. In addition, net working capital decreased by more than 10% so far this year, which was clearly better than expected

Despite reduced earnings estimates for 2015 and beyond, we have slightly raised our price target for Rofin-Sinar shares to EUR 30.00, mainly

because of the USD/EUR exchange rate and because we are now expecting net cash (incl. pensions) to amount to USD 147m. This is USD

30m higher than expected so far, mainly owing to lower net working capital.

In our view, Rofin-Sinar´s figures were mixed as order intake plunged and sales and earnings missed our estimates slightly. As expected, the

strength of the USD burdened the top line by 10% and orders by 13%. However the company delivered on its promise to bring the gross

margin back in the direction of 40%+. Q3 margin improved to 39.4%, up 500bps yoy driven by a new generation of fibre and ultra-short pulse

lasers as well as the ramp-up of in-house production of critical components for high-power fibre laser. Rofin’s growth areas showed a strong

upswing with high-power fibre lasers up 29% and ultra-short pulse lasers up 50% sequentially. Quarterly EBIT margin almost doubled to 12.8%

driven by gross margin and lower R&D. The company gave sales guidance for Q4 of USD 135–140m and EPS of USD 0.48–0.53 which

indicates a further improvement in gross margin to more than 40%. Q4 guidance represents a miss of roughly 10% to our previous estimates

on both figures. Furthermore, Q4 guidance includes the reduction in FY 2014/15 sales guidance from USD 515–535m to USD 513–518m,

partly due to the postponement of a solar order worth some USD 5m from a Chinese customer into H1 2015/16.

Changes in Estimates: Comment on Changes: FY End: 30.9. in USD m

2014/15e (old)

+ / - 2015/16e (old)

+ / - 2016/17e (old)

+ / -

Sales 533 -3.0 % 554 -2.1 % 576 -3.0 %

EBIT 58 -4.8 % 74 -0.4 % 80 -2.5 %

EPS 1.53 -4.8 % 1.87 -0.8 % 2.02 -2.4 %

DPS 0.00 0.0 % 0.00 0.0 % 0.00 0.0 %

Net Debt -117 0.0 % -157 0.0 % -203 0.0 %

� We have reduced our FY 14/15 turnover estimate as Q3 sales missed our expectation by some 2% and order intake by 9%

� Lower turnover leads to a worsening of fixed-cost coverage while the gross margin should continue to benefit from new products. Overall, this year’s estimate for operating result is down by 4.8% compared to our previous estimate

� Net cash expectation sharply up due to stronger than expected progress in reducing working capital

Rel. Performance vs CDAX:

1 month: -21.7 %

6 months: -6.2 %

Year to date: -28.0 %

Trailing 12 months: -2.9 %

Company events: 10.08.15 Q3

12.11.15 FY 2015

FY End: 30.9. in USD m

CAGR (13/14-16/17e) 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e

Sales 1.8 % 598 540 560 530 517 543 559

Change Sales yoy 41.1 % -9.6 % 3.7 % -5.3 % -2.5 % 5.0 % 3.0 %

Gross profit margin 38.8 % 36.4 % 35.1 % 35.6 % 38.1 % 40.4 % 41.0 %

EBITDA 23.0 % 97 64 67 54 77 95 101

Margin 16.2 % 11.9 % 12.0 % 10.2 % 14.8 % 17.5 % 18.1 %

EBIT 31.9 % 84 50 49 34 56 73 78

Margin 14.0 % 9.3 % 8.8 % 6.4 % 10.8 % 13.5 % 14.0 %

Net income 30.5 % 60 35 35 25 41 53 56

EPS 30.3 % 2.06 1.20 1.22 0.89 1.46 1.86 1.97

EPS adj. 30.3 % 2.06 1.20 1.22 0.89 1.46 1.86 1.97

DPS - 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Dividend Yield 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

FCFPS 0.76 -0.62 1.47 0.40 1.49 1.43 1.51

FCF / Market cap 3.0 % -0.8 % 6.0 % 3.7 % 6.4 % 6.0 % 6.3 %

EV / Sales 1.4 x 1.1 x 1.1 x 1.1 x 1.0 x 0.9 x 0.8 x

EV / EBITDA 8.7 x 9.2 x 8.8 x 10.6 x 6.8 x 5.2 x 4.4 x

EV / EBIT 10.1 x 11.7 x 12.0 x 16.9 x 9.3 x 6.7 x 5.7 x

P / E 15.7 x 18.8 x 19.5 x 26.8 x 16.2 x 12.7 x 12.0 x

P / E adj. 15.7 x 18.8 x 19.5 x 26.8 x 16.2 x 12.7 x 12.0 x

FCF Yield Potential 7.0 % 6.0 % 6.6 % 5.6 % 9.5 % 12.5 % 14.6 %

Net Debt -90 -58 -94 -101 -147 -190 -236

ROCE (NOPAT) 16.0 % 8.1 % 7.8 % 5.2 % 9.0 % 11.6 % 12.0 % Guidance: FY 2014/15: Sales USD 513-518m, net profit margin 8%

Rofin-Sinar


Sales development in EUR m

Source: Warburg Research

Sales by regions 2014; in %


EBIT development in EUR m


Company Background

� Laser technology company Rofin-Sinar was founded in 1975. In 1996 the company was listed on the American technology stock

exchange, Nasdaq, as the first 100% spin-off of Siemens AG.

� The company has production sites in the USA, Germany, UK, Finland, Sweden, Spain, Singapore and China. The two operating

headquarters are based in Plymouth (Michigan, USA) and Hamburg.

� Rofin-Sinar develops and produces laser sources and laser-based system solutions. The technology basis includes CO2 laser, lamp

and diode-pumped solid-state lasers as well as fibre and diode lasers.

� In addition to its main customer industries, automotive, machine tools as well as semiconductors and electronics, Rofin-Sinar supplies

various other industries.

Competitive Quality

� With a world market share of ca. 23% Rofin-Sinar is the clear world market leader in industrial lasers together with the non-listed

Trumpf (Germany).

� The most important competitors in macro applications are Trumpf, Fanuc, Coherent and Synrad for CO2 lasers and Laserline and

Jenoptik for diode lasers.

� In the Micro and Marking segments the main competitors are Trumpf, GSI Group, Unitek Miyachi, Lasag, IPG and Control Laser.

� IPG Photonics is market leader in the field of fibre lasers. This technology in part has advantages over the common laser technologies

such as improved energy efficiency. Rofin-Sinar is the No. 2 here.

� In the past the sector generally grew by ca. 10% p.a. and more over an economic cycle. Growth in the laser industry benefits from a

continuous expansion of the application possibilities.

EBT development in EUR m


Sales by segments 2014; in %


Net income development in EUR m


Rofin-Sinar


DCF model

Detailed forecast period Transitional period Term. Value

Figures in USD m 14/15e 15/16e 16/17e 17/18e 18/19e 19/20e 20/21e 21/22e 22/23e 23/24e 24/25e 25/26e 26/27e

Sales 517 543 559 581 605 629 654 680 707 736 765 796 827

Sales change -2.5 % 5.0 % 3.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 1.0 %

EBIT 56 73 78 76 79 82 85 82 85 88 92 95 99

EBIT-margin 10.8 % 13.5 % 14.0 % 13.0 % 13.0 % 13.0 % 13.0 % 12.0 % 12.0 % 12.0 % 12.0 % 12.0 % 12.0 %

Tax rate (EBT) 28.5 % 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 40 51 55 53 55 57 60 57 59 62 64 67 70

Depreciation 21 22 23 23 24 25 26 27 28 29 31 18 19

in % of Sales 4.1 % 4.0 % 4.1 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 2.3 % 2.3 %

Changes in provisions 2 2 2 1 1 1 1 1 1 2 2 2 2

Change in Liquidity from

- Working Capital -23 10 11 17 12 12 13 13 14 14 15 15 16

- Capex 40 21 22 23 24 25 26 27 28 29 31 24 25

Capex in % of Sales 7.7 % 3.9 % 3.9 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 3.0 % 3.0 %

Other 0 0 0 0 0 0 0 0 0 0 0 0 0

Free Cash Flow (WACC Model)

45 44 46 37 45 46 48 45 47 49 51 48 50 55

PV of FCF 45 41 40 30 33 32 31 27 26 25 25 21 21 350 share of PVs 16.80 % 36.36 % 46.84 %

Model parameter Valuation (m)

Derivation of WACC: Derivation of Beta: Present values 2026/27e 397

Terminal Value 350

Debt ratio 5.00 % Financial Strength 1.00 Financial liabilities 15

Cost of debt (after tax) 2.8 % Liquidity (share) 1.00 Pension liabilities 26

Market return 7.00 % Cyclicality 1.50 Hybrid capital 0

Risk free rate 1.50 % Transparency 1.00 Minority interest 8

Others 1.20 Market val. of investments 0

Liquidity 142 No. of shares (m) 28.2

WACC 7.52 % Beta 1.14 Equity Value 841 Value per share (USD) 29.82

Sensitivity Value per Share (USD)

Terminal Growth Delta EBIT-margin

Beta WACC 0.25 % 0.50 % 0.75 % 1.00 % 1.25 % 1.50 % 1.75 % Beta WACC -1.5 pp -1.0 pp -0.5 pp +0.0 pp +0.5 pp +1.0 pp +1.5 pp

1.33 8.5 % 25.50 25.77 26.06 26.37 26.70 27.06 27.44 1.33 8.5 % 22.88 24.04 25.21 26.37 27.54 28.70 29.87

1.24 8.0 % 26.92 27.25 27.60 27.97 28.37 28.81 29.27 1.24 8.0 % 24.22 25.47 26.72 27.97 29.22 30.47 31.72

1.19 7.8 % 27.70 28.06 28.45 28.86 29.31 29.79 30.31 1.19 7.8 % 24.97 26.27 27.56 28.86 30.16 31.45 32.75

1.14 7.5 % 28.54 28.93 29.36 29.82 30.31 30.85 31.43 1.14 7.5 % 25.77 27.12 28.47 29.82 31.17 32.51 33.86

1.09 7.3 % 29.44 29.87 30.35 30.85 31.41 32.00 32.66 1.09 7.3 % 26.65 28.05 29.45 30.85 32.26 33.66 35.06

1.04 7.0 % 30.40 30.89 31.41 31.98 32.59 33.27 34.00 1.04 7.0 % 27.59 29.05 30.52 31.98 33.44 34.90 36.37

0.95 6.5 % 32.57 33.17 33.82 34.53 35.31 36.17 37.11 0.95 6.5 % 29.74 31.34 32.93 34.53 36.13 37.73 39.33

� The industrial laser sector has grown by some 10% p.a. over a cycle in the last decades.

� We expect CAGR of 8% over the next 10 years due to the higher basis reached meanwhile

� Capex at below 3% of sales is due to low vertical integration for an engineering company

Rofin-Sinar


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 USD m 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e

Net Income before minorities 61 35 35 25 41 53 56

+ Depreciation + Amortisation 13 14 18 20 21 22 23

- Net Interest Income 0 0 0 0 0 0 0

- Maintenance Capex 15 14 14 13 13 14 14

+ Other 0 0 0 0 0 0 0

= Free Cash Flow Potential 59 36 39 32 50 61 65 Free Cash Flow Yield Potential 7.0 % 6.0 % 6.6 % 5.6 % 9.5 % 12.5 % 14.6 %

WACC 7.52 % 7.52 % 7.52 % 7.52 % 7.52 % 7.52 % 7.52 %

= Enterprise Value (EV) 846 589 588 577 519 491 446 = Fair Enterprise Value 785 474 517 427 658 813 866

- Net Debt (Cash) -127 -127 -127 -127 -174 -219 -267

- Pension Liabilities 26 26 26 26 27 29 31

- Other 0 0 0 0 0 0 0

- Market value of minorities 5 5 5 5 5 6 8

+ Market value of investments 0 0 0 0 0 0 0

= Fair Market Capitalisation 881 570 614 524 800 997 1,094

No. of shares (total) (m) 29 29 28 28 28 29 29

= Fair value per share (USD) 30.71 20.01 21.60 18.55 28.58 34.87 38.26

premium (-) / discount (+) in % 21.1 % 47.7 % 62.1 %

Sensitivity Fair value per Share (USD)

10.52 % 23.48 15.54 16.65 14.35 21.88 27.34 30.26

9.52 % 25.59 16.81 18.03 15.49 23.64 29.52 32.58

8.52 % 28.18 18.38 19.74 16.91 25.82 32.21 35.45

WACC 7.52 % 31.47 20.37 21.91 18.70 28.58 35.61 39.08 6.52 % 35.77 22.96 24.74 21.04 32.19 40.07 43.82

5.52 % 41.62 26.50 28.60 24.22 37.10 46.13 50.28

4.52 % 50.07 31.59 34.16 28.82 44.19 54.88 59.59

� FCF value potential going forward is mainly driven by the expectation of rising results

� Maintenance capex is expected to be at 1.5% p.a. only due to a low vertical integration and thus fixed asset base

Rofin-Sinar


Peer Group

Company

Price EV / Sales EV / EBITDA EV / EBIT P / E EPS CAGR Prices in local currency 14/15e 14/15e 15/16e 14/15e 15/16e 14/15e 15/16e (13/14-16/17e) Coherent 58,79 1,3 7,1 5,7 9,3 7,3 15,8 13,6 16,9 %

IPG Photonics 93,68 4,6 10,8 9,3 11,9 10,2 19,9 17,7 19,5 %

Manz 72,29 1,3 49,7 9,8 - 16,7 - 24,9 -

Muehlbauer Holding 23,55 - - - - - - - -

OC Oerlikon 12,00 1,2 7,3 6,5 10,9 9,4 17,4 14,8 7,2 %

Pfeiffer Vacuum 85,49 1,7 9,5 8,5 12,6 10,9 19,5 17,4 17,0 %

Coherent 58.48 1.3 7.3 6.0 9.7 7.5 16.2 14.0 16.9 %

IPG Photonics 94.95 4.7 10.9 9.4 12.0 10.3 20.2 17.9 19.5 %

Manz 69.17 1.3 49.6 9.8 - 16.7 - 24.9 -

Muehlbauer Holding 25.60 - - - - - - - -

OC Oerlikon 11.80 1.2 7.4 6.5 10.9 9.4 17.2 14.7 7.2 %

Pfeiffer Vacuum 86.14 1.8 9.7 8.7 12.8 11.2 19.8 17.7 17.1 %

Average 2.1 17.0 8.1 11.4 11.0 18.4 17.8 15.2 %

Median 1.3 9.7 8.7 11.5 10.3 18.5 17.7

Rofin-Sinar 21.63 1.0 6.8 5.2 9.3 6.7 16.2 12.7

Valuation difference to median -25.1 % -30.2 % -40.6 % -18.6 % -35.1 % -12.6 % -28.0 %

� P

Valuation

2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Price / Book 1.9 x 1.3 x 1.2 x 1.2 x 1.1 x 1.1 x 1.0 x

Book value per share ex intangibles 12.94 12.98 14.64 14.56 15.93 17.59 19.73

EV / Sales 1.4 x 1.1 x 1.1 x 1.1 x 1.0 x 0.9 x 0.8 x

EV / EBITDA 8.7 x 9.2 x 8.8 x 10.6 x 6.8 x 5.2 x 4.4 x

EV / EBIT 10.1 x 11.7 x 12.0 x 16.9 x 9.3 x 6.7 x 5.7 x

EV / EBIT adj.* 10.1 x 11.7 x 12.0 x 16.9 x 9.3 x 6.7 x 5.7 x

P / FCF 33.0 x n.a. 16.6 x 26.8 x n.a. n.a. n.a.

P / E 15.7 x 18.8 x 19.5 x 26.8 x 16.2 x 12.7 x 12.0 x

P / E adj.* 15.7 x 18.8 x 19.5 x 26.8 x 16.2 x 12.7 x 12.0 x

Dividend Yield 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Free Cash Flow Yield Potential 7.0 % 6.0 % 6.6 % 5.6 % 9.5 % 12.5 % 14.6 %

*Adjustments made for: -

Rofin-Sinar


Consolidated profit and loss In USD m 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Sales 598 540 560 530 517 543 559 Change Sales yoy 41.1 % -9.6 % 3.7 % -5.3 % -2.5 % 5.0 % 3.0 %

COGS 366 344 364 341 320 324 330

Gross profit 232 196 197 189 197 219 229 Gross margin 38.8 % 36.4 % 35.1 % 35.6 % 38.1 % 40.4 % 41.0 %

Research and development 38 43 43 46 40 42 43

Sales and marketing 0 0 0 0 0 0 0

Administration expenses 108 101 102 106 98 101 104

Other operating expenses 0 0 0 0 0 0 0

Other operating income 0 0 0 0 0 0 0

Unfrequent items 0 0 0 0 0 0 0

EBITDA 97 64 67 54 77 95 101 Margin 16.2 % 11.9 % 12.0 % 10.2 % 14.8 % 17.5 % 18.1 %

Depreciation of fixed assets 10 12 15 17 18 19 19

EBITA n.a. n.a. n.a. n.a. n.a. n.a. n.a. Amortisation of intangible fixed assets 3 2 3 3 3 3 3

Goodwill amortization 0 0 0 0 0 0 0

EBIT 84 50 49 34 56 73 78 Margin 14.0 % 9.3 % 8.8 % 6.4 % 10.8 % 13.5 % 14.0 %

EBIT adj. 84 50 49 34 56 73 78 Interest income 1 n.a. n.a. n.a. n.a. n.a. n.a.

Interest expenses 1 n.a. n.a. n.a. n.a. n.a. n.a.

Other financial income (loss) 3 2 0 3 2 2 2

EBT 86 52 49 37 58 75 80 Margin 14.4 % 9.6 % 8.7 % 6.9 % 11.1 % 13.8 % 14.3 %

Total taxes 26 17 14 12 16 23 24

Net income from continuing operations 61 35 35 25 41 53 56 Income from discontinued operations (net of tax) 0 0 0 0 0 0 0

Net income before minorities 61 35 35 25 41 53 56 Minority interest -1 -1 0 0 0 0 0

Net income 60 35 35 25 41 53 56 Margin 10.0 % 6.4 % 6.2 % 4.7 % 8.0 % 9.7 % 10.0 %

Number of shares, average 29 29 28 28 28 29 29

EPS 2.06 1.20 1.22 0.89 1.46 1.86 1.97 EPS adj. 2.06 1.20 1.22 0.89 1.46 1.86 1.97

*Adjustments made for:

Guidance: FY 2014/15: Sales USD 513-518m, net profit margin 8%

Financial Ratios 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Total Operating Costs / Sales n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Operating Leverage 2.2 x 4.1 x -0.6 x 5.8 x -25.3 x 6.4 x 2.2 x

EBITDA / Interest expenses 131.9 x n.a. n.a. n.a. n.a. n.a. n.a.

Tax rate (EBT) 30.3 % 33.2 % 28.9 % 31.4 % 28.5 % 30.0 % 30.0 %

Dividend Payout Ratio 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

Sales per Employee 303,125 244,067 247,271 230,486 222,786 235,960 243,038

Sales, EBITDA in EUR m


Operating Performance in %


Performance per Share


Rofin-Sinar


Consolidated balance sheet In USD m 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Assets Goodwill and other intangible assets 103 128 128 128 128 128 128

thereof other intangible assets 12 25 25 25 25 25 25

thereof Goodwill 91 103 103 103 103 103 103

Property, plant and equipment 66 80 80 81 103 105 108

Financial assets 0 -1 -1 -1 -1 -1 -1

Other long-term assets 18 7 12 7 -15 -13 -10

Fixed assets 187 213 219 215 215 220 225 Inventories 189 202 198 190 178 185 193

Accounts receivable 119 108 111 108 98 102 106

Liquid assets 130 101 137 142 189 234 282

Other short-term assets 29 28 35 34 35 37 39

Current assets 467 440 481 474 500 558 620 Total Assets 654 653 700 689 735 798 865 Liabilities and shareholders' equity Subscribed capital 0 0 0 0 0 0 0

Capital reserve 218 218 221 224 229 234 239

Retained earnings 394 428 463 488 529 582 582

Other equity components -138 -149 -166 -173 -178 -178 -178

Shareholders' equity 474 498 543 539 574 631 692

Minority interest 5 5 6 8 9 9 9

Total equity 479 502 549 546 583 640 701 Provisions 101 99 94 89 95 102 109

thereof provisions for pensions and similar obligations 18 21 24 26 27 29 31

Financial liabilites (total) 23 23 19 15 15 15 15

thereof short-term financial liabilities 8 17 4 3 3 3 3

Accounts payable 27 27 25 23 23 24 25

Other liabilities 24 10 19 18 28 26 24

Liabilities 175 159 156 144 161 167 173 Total liabilities and shareholders' equity 654 653 700 689 735 798 865

Financial Ratios 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Efficiency of Capital Employment Operating Assets Turnover n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Capital Employed Turnover 1.5 x 1.2 x 1.2 x 1.2 x 1.2 x 1.2 x 1.2 x

ROA 32.2 % 16.2 % 15.9 % 11.7 % 19.2 % 23.9 % 24.8 %

Return on Capital ROCE (NOPAT) 16.0 % 8.1 % 7.8 % 5.2 % 9.0 % 11.6 % 12.0 %

ROE 13.5 % 7.1 % 6.7 % 4.7 % 7.4 % 8.7 % 8.4 %

Adj. ROE 13.5 % 7.1 % 6.7 % 4.7 % 7.4 % 8.7 % 8.4 %

Balance sheet quality Net Debt -90 -58 -94 -101 -147 -190 -236

Net Financial Debt -108 -79 -118 -127 -174 -219 -267

Net Gearing -18.8 % -11.5 % -17.2 % -18.5 % -25.1 % -29.7 % -33.7 %

Net Fin. Debt / EBITDA n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Book Value / Share 16.5 17.5 19.1 19.1 20.5 22.1 24.2

Book value per share ex intangibles 12.9 13.0 14.6 14.6 15.9 17.6 19.7

ROCE Development


Net debt in EUR m


Book Value per Share in EUR


Rofin-Sinar


Consolidated cash flow statement In USD m 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Net income 61 35 35 25 41 53 56

Depreciation of fixed assets 10 12 15 17 18 19 19

Amortisation of goodwill 0 0 0 0 0 0 0

Amortisation of intangible assets 3 2 3 3 3 3 3

Increase/decrease in long-term provisions 18 -2 -5 -5 7 7 7

Other non-cash income and expenses -15 -23 8 -16 0 0 0

Cash Flow 77 24 56 24 69 82 86 Increase / decrease in inventory -28 -13 4 8 12 -7 -8

Increase / decrease in accounts receivable -23 11 -3 3 10 -4 -4

Increase / decrease in accounts payable 3 0 -2 -2 0 1 1

Increase / decrease in other working capital positions 21 0 0 0 0 0 0

Increase / decrease in working capital (total) -27 -2 -1 9 23 -10 -11

Net cash provided by operating activities 50 22 57 36 82 62 65 Investments in intangible assets 0 0 0 0 0 0 0

Investments in property, plant and equipment 22 27 16 10 40 21 22

Payments for acquisitions 11 13 0 6 0 0 0

Financial investments -4 -1 -1 8 10 10 10

Income from asset disposals 0 0 0 0 10 10 10

Net cash provided by investing activities 29 39 16 24 40 21 22 Change in financial liabilities -3 0 -4 -2 0 0 0

Dividends paid 0 0 0 0 0 0 0

Purchase of own shares -9 -11 -4 -6 0 0 0

Capital measures 7 0 3 2 5 5 5

Other 0 0 -4 -5 0 0 0

Net cash provided by financing activities -5 -9 -9 -11 5 5 5 Change in liquid funds 17 -27 32 1 47 46 48

Effects of exchange-rate changes on cash 0 -2 3 -6 0 0 0

Cash and cash equivalent at end of period 127 101 137 142 189 234 282

Financial Ratios 2010/11 2011/12 2012/13 2013/14 2014/15e 2015/16e 2016/17e Cash Flow FCF 21 -17 42 11 42 41 43

Free Cash Flow / Sales 4.7 % -1.0 % 7.3 % 4.7 % 8.1 % 7.5 % 7.6 %

Free Cash Flow Potential 59 36 39 32 50 61 65

Free Cash Flow / Net Profit 47.0 % -15.4 % 117.6 % 99.9 % 102.1 % 77.1 % 76.4 %

Interest Received / Avg. Cash 0.7 % n.a. n.a. n.a. n.a. n.a. n.a.

Interest Paid / Avg. Debt 3.4 % n.a. n.a. n.a. n.a. n.a. n.a.

Management of Funds Investment ratio 3.6 % 5.1 % 2.9 % 2.0 % 7.7 % 3.9 % 3.9 %

Maint. Capex / Sales 2.5 % 2.5 % 2.5 % 2.5 % 2.5 % 2.5 % 2.5 %

Capex / Dep 167.2 % 195.9 % 90.5 % 51.4 % 190.0 % 95.9 % 96.5 %

Avg. Working Capital / Sales n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Trade Debtors / Trade Creditors 440.9 % 405.1 % 449.9 % 475.8 % 426.1 % 425.0 % 424.0 %

Inventory Turnover 1.9 x 1.7 x 1.8 x 1.8 x 1.8 x 1.7 x 1.7 x

Receivables collection period (days) 73 73 72 74 69 69 69

Payables payment period (days) 27 28 25 24 26 27 28

Cash conversion cycle (Days) n.a. n.a. n.a. n.a. n.a. n.a. n.a.

CAPEX and Cash Flow in EUR m


Free Cash Flow Generation


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LEGAL DISCLAIMER

This research report 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 contains selected information and does not purport to be complete. The report is based on

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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.

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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

research analyst(s) reside outside the United States and are not associated persons of any U.S. regulated broker-dealer and therefore are not subject

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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.

4. J.P.P. Euro-Securities, Inc. does not accept or receive any compensation of any kind for the dissemination of the research reports from Warburg.

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) Rofin-Sinar 3, 6 http://www.mmwarburg.com/disclaimer/disclaimer_en/US7750431022.htm

http://www.mmwarburg.com/disclaimer/disclaimer_en/US7750431022.htm

Rofin-Sinar


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 112 61

Hold 64 35

Sell 6 3

Rating suspended 3 2

Total 185 100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING I

I 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 94 65

Hold 45 31

Sell 3 2

Rating suspended 2 1

Total 144 100

PRICE AND RATING HISTORY ROFIN-SINAR AS OF 07.08.2015

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.

Rofin-Sinar


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