ISRA VISION

(SDAX, Technology)

A n a l y s t

Robert-Jan van der Horst

rvanderhorst@warburg-research.com

+49 40 309537-290

A n a l y s t

Andreas Wolf

awolf@warburg-research.com

+49 40 309537-140

CO M M E N T Published 23.08.2019 08:15 1

RESEARCH

Buy

EUR 45.00

Price EUR 32.42

Upside 38.8 %

Value Indicators: EUR Share data: Description:

DCF: 44.59

Bloomberg: ISR GR

Reuters: ISRG

ISIN: DE0005488100

optical surface inspection and robot guidance systems

Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2018/19e

Market cap: 709.9

No. of shares (m): 21.9

EV: 698.5

Freefloat MC: 496.9

Ø Trad. Vol. (30d): 2.98 m

Freefloat 70.0 %

CEO 25.2 %

ISRA VISION Management 4.8 %

BlackRock 3.3 %

Beta: 1.1

Price / Book: 3.3 x

Equity Ratio: 65 %

ISRA extends its technological expertise with new acquisition

ISRA announced the acquisition of Photonfocus AG. The Swiss company specialises in a range of high-end CMOS image sensors and

industrial CMOS cameras for a wide field of applications, including 3D machine vision, hyperspectral metrology, high-speed cameras and

embedded solutions. The purchase price for 100% of the Photonfocus shares is slightly higher than its annual turnover, which is in the high

single-digit million range (WRe EUR 11.5m). The acquisition will be financed from the operational cash flow without additional debt.

We believe the acquisition is a very suitable fit for ISRA and offers attractive mid-term prospects. Although the current business, i.e. selling

high-end imaging sensors, is not at the core of ISRA’s strategy, the technology enables ISRA to improve existing products, offer new

applications to ISRA’s customer base and to enter new markets. For existing products Photonfocus’ expertise should help to maintain the

technological leadership for high-speed and 3D inspection and machine vision. Furthermore, especially hyperspectral, a technology that

combines imaging and spectroscopy, should allow ISRA to access new revenue potential. Within the existing customer base, spectroscopy can

detect flaws, e.g. in glass, that cannot be detected using conventional imaging. The technology is also facing increasing demand from end

markets untapped by ISRA, like life science, agriculture, and food & beverages. In 2018, the market for hyperspectral imaging had a volume of

USD 67m and is forecast to grow at a CAGR 18-24e of 10% (Source: Mordor Intelligence). Mid-term revenues based on Photonfocus’ sensors

could exceed EUR 35m. We adjusted our estimates to include the acquisition.

At the same time, we reduced our expectations for the organic growth rates slightly. In the first six months of the fiscal year, ISRA has shown a

remarkable performance. It grew roughly 10% yoy while most companies struggled to show any growth. In our opinion this was a result of the

low exposure to the semiconductor and consumer electronics industry (<1%) and some more innovation than capacity-driven demand,

especially for ISRA’s 3D machine vision and 3D surface inspection solutions.

We still expect ISRA to outperform the market. However, given the increasing number of reports throughout the peer group indicating

postponed and cancelled orders, e.g. from the automotive industry, and the continuing escalation of the trade conflict between the USA and

China, we slightly reduced our growth expectation for the year. The risks of a possible temporary weakening of the growth prospects seems to

be more than reflected in the current share price after a decline of approx. 20% since the end of July. After adjusting our estimates for both the

latest acquisition and the increasing macroeconomic uncertainty, we reiterate our target price of EUR 45 as well as our Buy recommendation.

Changes in Estimates: Comment on Changes:

FY End: 30.9. in EUR m

2018/19e (old)

+ / - 2019/20e (old)

+ / - 2020/21e (old)

+ / -

Sales 168.2 -2.7 % 187.6 0.4 % 208.8 0.2 %

EBITDA 55.0 -1.0 % 60.4 0.5 % 67.5 0.8 %

EBIT 37.2 -2.3 % 41.8 -0.9 % 46.9 0.5 %

Net income 25.6 -2.3 % 28.9 -0.9 % 32.4 0.5 %

EPS 1.17 -2.6 % 1.32 -0.8 % 1.48 0.7 %

� Organic growth and margin expectations reduced slightly to reflect the increasing macroeconomic uncertainty especially within the automotive industry

� For 2020 and beyond, the lower top-line expectations are compensated for by the revenue contribution from Photonfocus

FY End: 30.9. in EUR m

CAGR (17/18-20/21e) 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Sales 11.1 % 112.2 128.8 143.0 152.5 163.7 188.4 209.3

Change Sales yoy 9.5 % 14.8 % 11.0 % 6.7 % 7.3 % 15.1 % 11.1 %

Gross profit margin 55.8 % 56.4 % 56.6 % 56.5 % 56.8 % 56.6 % 56.7 %

EBITDA 11.5 % 32.4 37.7 42.8 49.0 54.4 60.7 68.0

Margin 28.9 % 29.3 % 30.0 % 32.1 % 33.2 % 32.2 % 32.5 %

EBIT 12.3 % 22.6 25.6 28.3 33.2 36.3 41.4 47.1

Margin 20.1 % 19.9 % 19.8 % 21.8 % 22.2 % 22.0 % 22.5 %

Net income 12.1 % 14.8 17.6 20.5 23.1 25.0 28.6 32.5

EPS 12.0 % 0.68 0.80 0.94 1.06 1.14 1.31 1.49

EPS adj. 12.0 % 0.68 0.80 0.94 1.06 1.14 1.31 1.49

DPS 6.3 % 0.08 0.10 0.12 0.15 0.16 0.17 0.18

Dividend Yield 0.7 % 0.7 % 0.5 % 0.4 % 0.5 % 0.5 % 0.6 %

FCFPS -0.10 0.85 0.93 0.27 1.28 0.84 1.10

FCF / Market cap -1.0 % 6.3 % 3.7 % 0.7 % 3.9 % 2.6 % 3.4 %

EV / Sales 2.4 x 2.5 x 3.9 x 6.0 x 4.3 x 3.6 x 3.2 x

EV / EBITDA 8.5 x 8.4 x 13.0 x 18.7 x 12.8 x 11.3 x 9.8 x

EV / EBIT 12.2 x 12.4 x 19.7 x 27.6 x 19.2 x 16.5 x 14.1 x

P / E 15.9 x 16.7 x 26.9 x 39.4 x 28.4 x 24.7 x 21.8 x

P / E adj. 15.9 x 16.7 x 26.9 x 39.4 x 28.4 x 24.7 x 21.8 x

FCF Potential Yield 6.0 % 6.1 % 4.0 % 2.7 % 3.9 % 4.5 % 5.3 %

Net Debt 38.1 23.2 4.6 1.7 -11.4 -26.2 -46.4

ROCE (NOPAT) 8.9 % 9.9 % 11.5 % 12.3 % 12.6 % 13.8 % 14.9 % Guidance: Approx. 10% in sales and earnings

Rel. Performance vs SDAX:

1 month: -16.7 %

6 months: 7.6 %

Year to date: 23.7 %

Trailing 12 months: -24.4 %

Company events:

30.08.19 Q3

13.12.19 Prel. FY 2018/19

ISRA VISION

CO M M E N T Publ ished 23 .08 .2019 2

RESEARCH

Sales development in EUR m

Source: Warburg Research

Sales by regions 2017/18

Source: Warburg Research

EBITDA development in EUR m

Source: Warburg Research

Company Background

� Global leader in concentrated niche markets for optical surface inspection systems such as flat glass inspection, metals inspection or

paper inspection. European leader in Robot Vision and 3D machine vision.

� These systems have very short amortisation periods of typically less than six months due to significant cost savings and yield

improvements.

� ISRA VISION's impressive track record of generating double-digit sales growth and double-digit EBIT margins is driven by a largely

untapped market (penetration only c. 15-20%) and a strong trend towards automation.

� Management’s interests are aligned with shareholder interest as the CEO controlls around 25% of the company.

Competitive Quality

� Strong competitive position based on ISRA VISION's relatively large size and more than 10,000 reference installations.

� Key customers are large, globally active blue chip industrial companies who value the one-stop-shop approach which few apart from

the larger suppliers can deliver.

� Strong global sales and service network, which is constantly being expanded.

� Competitive defence through high R&D expenditure.

� Diversification via technology, industry and region limits its dependencies in weak economic periods, as proved by the company’s

double-digit EBIT margin even in crisis year 2008/09.

EBIT development in EUR m

Source: Warburg Research

Sales by segments 2017/18

Source: Warburg Research

Net income development in EUR m

Source: Warburg Research

ISRA VISION

CO M M E N T Publ ished 23 .08 .2019 3

RESEARCH

DCF model

Detailed forecast period Transitional period Term. Value

Figures in EUR m 18/19e 19/20e 20/21e 21/22e 22/23e 23/24e 24/25e 25/26e 26/27e 27/28e 28/29e 29/30e 30/31e

Sales 163.7 188.4 209.3 231.7 256.0 282.4 310.9 342.0 376.2 413.8 446.9 480.4 492.4

Sales change 7.3 % 15.1 % 11.1 % 10.7 % 10.5 % 10.3 % 10.1 % 10.0 % 10.0 % 10.0 % 8.0 % 7.5 % 2.5 % 2.5 %

EBIT 36.3 41.4 47.1 51.9 57.6 63.0 68.7 75.2 82.8 91.0 98.3 105.7 108.3

EBIT-margin 22.2 % 22.0 % 22.5 % 22.4 % 22.5 % 22.3 % 22.1 % 22.0 % 22.0 % 22.0 % 22.0 % 22.0 % 22.0 %

Tax rate (EBT) 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 %

NOPAT 25.4 29.0 33.0 36.3 40.3 44.1 48.1 52.7 57.9 63.7 68.8 74.0 75.8

Depreciation 18.1 19.2 20.9 22.7 24.6 26.3 28.0 30.1 32.0 35.2 38.0 40.8 41.9

in % of Sales 11.0 % 10.2 % 10.0 % 9.8 % 9.6 % 9.3 % 9.0 % 8.8 % 8.5 % 8.5 % 8.5 % 8.5 % 8.5 %

Changes in provisions 0.1 0.1 0.1 0.5 0.5 0.5 0.5 0.6 0.6 0.7 0.6 0.6 0.2

Change in Liquidity from

- Working Capital -3.6 9.7 9.6 8.4 3.0 1.7 0.1 15.5 17.1 18.8 16.6 16.8 6.0

- Capex 19.0 20.0 20.1 22.0 23.0 24.0 26.4 29.1 32.0 35.2 38.0 40.8 41.9

Capex in % of Sales 11.6 % 10.6 % 9.6 % 9.5 % 9.0 % 8.5 % 8.5 % 8.5 % 8.5 % 8.5 % 8.5 % 8.5 % 8.5 %

Other 11.5 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)

16.7 18.6 24.3 29.1 39.3 45.1 50.1 38.7 41.5 45.6 52.9 57.9 70.1 72

PV of FCF 16.4 17.1 20.8 23.3 29.3 31.4 32.4 23.4 23.4 24.0 26.0 26.5 30.0 656 share of PVs 5.54 % 27.52 % 66.94 %

Model parameter Valuation (m)

Derivation of WACC: Derivation of Beta: Present values 2030/31e 324

Terminal Value 656

Debt ratio 6.00 % Financial Strength 1.00 Financial liabilities 33

Cost of debt (after tax) 1.4 % Liquidity (share) 1.00 Pension liabilities 4

Market return 7.00 % Cyclicality 1.20 Hybrid capital 0

Risk free rate 1.50 % Transparency 1.10 Minority interest 2

Others 1.20 Market val. of investments 0

Liquidity 35 No. of shares (m) 21.9

WACC 7.18 % Beta 1.10 Equity Value 976 Value per share (EUR) 44.59

Sensitivity Value per Share (EUR)

Terminal Growth Delta EBIT-margin

Beta WACC 1.75 % 2.00 % 2.25 % 2.50 % 2.75 % 3.00 % 3.25 % Beta WACC -1.5 pp -1.0 pp -0.5 pp +0.0 pp +0.5 pp +1.0 pp +1.5 pp

1.29 8.2 % 33.21 34.00 34.85 35.78 36.80 37.91 39.13 1.29 8.2 % 33.00 33.92 34.85 35.78 36.71 37.64 38.57

1.20 7.7 % 36.52 37.50 38.57 39.75 41.05 42.48 44.08 1.20 7.7 % 36.67 37.69 38.72 39.75 40.78 41.81 42.83

1.15 7.4 % 38.40 39.50 40.71 42.04 43.52 45.16 47.00 1.15 7.4 % 38.79 39.87 40.96 42.04 43.13 44.21 45.30

1.10 7.2 % 40.45 41.70 43.07 44.59 46.28 48.17 50.31 1.10 7.2 % 41.15 42.29 43.44 44.59 45.74 46.89 48.04

1.05 6.9 % 42.72 44.13 45.69 47.43 49.38 51.57 54.07 1.05 6.9 % 43.77 44.99 46.21 47.43 48.65 49.87 51.09

1.00 6.7 % 45.22 46.83 48.62 50.62 52.88 55.44 58.38 1.00 6.7 % 46.73 48.02 49.32 50.62 51.92 53.22 54.51

0.91 6.2 % 51.09 53.22 55.61 58.33 61.44 65.04 69.26 0.91 6.2 % 53.86 55.35 56.84 58.33 59.82 61.30 62.79

� Sales growth looks set to remain clearly above GDP growth driven by automation trend and need to increase efficiency.

� EBIT margins are assumed increase further driven by sales growth and operating leverage.

� Working capital requirements are expected to decrease and to converge to the industry average.

� The beta of 1.1 reflects the strong growth track record and the increasing level of customer's market diversification.

ISRA VISION

CO M M E N T Publ ished 23 .08 .2019 4

RESEARCH

Valuation

2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Price / Book 1.6 x 1.9 x 3.2 x 4.7 x 3.3 x 3.0 x 2.6 x

Book value per share ex intangibles 1.72 2.20 2.91 3.69 4.28 5.37 6.72

EV / Sales 2.4 x 2.5 x 3.9 x 6.0 x 4.3 x 3.6 x 3.2 x

EV / EBITDA 8.5 x 8.4 x 13.0 x 18.7 x 12.8 x 11.3 x 9.8 x

EV / EBIT 12.2 x 12.4 x 19.7 x 27.6 x 19.2 x 16.5 x 14.1 x

EV / EBIT adj.* 12.2 x 12.4 x 19.7 x 27.6 x 19.2 x 16.5 x 14.1 x

P / FCF n.a. 15.8 x 27.1 x 152.8 x 25.3 x 38.6 x 29.5 x

P / E 15.9 x 16.7 x 26.9 x 39.4 x 28.4 x 24.7 x 21.8 x

P / E adj.* 15.9 x 16.7 x 26.9 x 39.4 x 28.4 x 24.7 x 21.8 x

Dividend Yield 0.7 % 0.7 % 0.5 % 0.4 % 0.5 % 0.5 % 0.6 %

FCF Potential Yield (on market EV) 6.0 % 6.1 % 4.0 % 2.7 % 3.9 % 4.5 % 5.3 %

*Adjustments made for: -

ISRA VISION

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Consolidated profit and loss In EUR m 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Sales 112.2 128.8 143.0 152.5 163.7 188.4 209.3

Change Sales yoy 9.5 % 14.8 % 11.0 % 6.7 % 7.3 % 15.1 % 11.1 % COGS 49.7 56.1 62.1 66.3 70.7 81.8 90.6

Gross profit 62.6 72.7 80.9 86.2 93.0 106.6 118.7

Gross margin 55.8 % 56.4 % 56.6 % 56.5 % 56.8 % 56.6 % 56.7 %

Research and development 15.2 18.2 20.3 20.1 21.3 24.9 27.2

Sales and marketing 21.2 25.3 28.3 29.4 31.1 36.0 39.8

Administration expenses 4.6 4.9 5.0 5.1 5.7 6.0 6.5

Other operating expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other operating income 0.9 1.2 1.1 1.7 1.5 1.7 1.9

Unfrequent items 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBITDA 32.4 37.7 42.8 49.0 54.4 60.7 68.0

Margin 28.9 % 29.3 % 30.0 % 32.1 % 33.2 % 32.2 % 32.5 %

Depreciation of fixed assets 1.4 1.4 2.3 1.5 1.5 1.9 1.6

EBITA 31.0 36.3 40.5 47.5 52.9 58.8 66.4

Amortisation of intangible assets 8.5 10.7 12.2 14.3 16.5 17.3 19.3

Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBIT 22.6 25.6 28.3 33.2 36.3 41.4 47.1

Margin 20.1 % 19.9 % 19.8 % 21.8 % 22.2 % 22.0 % 22.5 %

EBIT adj. 22.6 25.6 28.3 33.2 36.3 41.4 47.1

Interest income 0.0 0.0 0.0 0.2 0.0 0.0 0.0

Interest expenses 0.8 0.5 0.3 0.3 0.3 0.3 0.3

Other financial income (loss) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBT 21.8 25.2 28.0 33.0 36.0 41.1 46.8

Margin 19.5 % 19.5 % 19.6 % 21.7 % 22.0 % 21.8 % 22.3 %

Total taxes 7.1 7.4 7.3 9.8 10.8 12.3 14.0

Net income from continuing operations 14.8 17.8 20.7 23.3 25.2 28.8 32.7

Income from discontinued operations (net of tax) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net income before minorities 14.8 17.8 20.7 23.3 25.2 28.8 32.7

Minority interest 0.0 0.2 0.2 0.2 0.2 0.2 0.2

Net income 14.8 17.6 20.5 23.1 25.0 28.6 32.5

Margin 13.2 % 13.6 % 14.3 % 15.2 % 15.3 % 15.2 % 15.5 % Number of shares, average 21.9 21.9 21.9 21.9 21.9 21.9 21.9

EPS 0.68 0.80 0.94 1.06 1.14 1.31 1.49

EPS adj. 0.68 0.80 0.94 1.06 1.14 1.31 1.49

*Adjustments made for:

Guidance: Approx. 10% in sales and earnings

Financial Ratios 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Total Operating Costs / Sales 35.7 % 36.6 % 36.8 % 34.8 % 34.6 % 34.6 % 34.2 %

Operating Leverage 1.3 x 0.9 x 1.0 x 2.6 x 1.3 x 0.9 x 1.2 x

EBITDA / Interest expenses 42.8 x 79.0 x 123.8 x 142.1 x 165.5 x 184.6 x 206.9 x

Tax rate (EBT) 32.3 % 29.4 % 26.1 % 29.6 % 30.0 % 30.0 % 30.0 %

Dividend Payout Ratio 11.8 % 12.3 % 12.7 % 14.1 % 13.9 % 12.9 % 12.0 %

Sales per Employee n.a. n.a. 221,698 218,209 204,578 n.a. n.a.

Sales, EBITDA in EUR m

Source: Warburg Research

Operating Performance in %

Source: Warburg Research

Performance per Share

Source: Warburg Research

ISRA VISION

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RESEARCH

Consolidated balance sheet In EUR m 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Assets

Goodwill and other intangible assets 105.6 109.6 111.7 115.2 121.0 122.5 122.0

thereof other intangible assets 13.8 12.7 10.9 10.0 8.3 6.9 5.1

thereof Goodwill 38.9 38.9 38.8 38.9 43.4 43.4 43.4

Property, plant and equipment 6.2 5.7 5.2 4.8 8.6 8.1 8.0

Financial assets 4.8 3.9 4.2 4.5 4.5 4.5 4.5

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

Fixed assets 116.6 119.2 121.1 124.5 134.1 135.1 134.5

Inventories 30.7 33.7 32.7 36.9 35.6 35.5 38.1

Accounts receivable 86.8 88.5 98.0 111.8 112.1 126.4 137.6

Liquid assets 15.1 16.9 29.7 34.7 47.9 62.8 83.2

Other short-term assets 7.1 5.5 3.4 4.9 4.9 4.9 4.9

Current assets 139.7 144.7 163.9 188.4 200.6 229.7 263.8

Total Assets 256.3 263.8 285.0 312.9 334.6 364.8 398.3

Liabilities and shareholders' equity

Subscribed capital 4.4 4.4 4.4 21.9 21.9 21.9 21.9

Capital reserve 38.6 38.8 38.8 21.7 21.7 21.7 21.7

Retained earnings 82.4 97.1 111.6 151.9 173.7 198.8 227.6

Other equity components 17.8 17.6 20.5 0.4 -2.5 -2.2 -2.0

Shareholders' equity 143.2 157.8 175.3 195.9 214.8 240.2 269.2

Minority interest 1.3 1.5 1.7 1.9 2.0 2.2 2.4

Total equity 144.5 159.3 177.0 197.8 216.8 242.4 271.6

Provisions 5.7 9.2 9.2 7.1 7.2 7.3 7.4

thereof provisions for pensions and similar obligations 3.1 4.1 3.4 3.6 3.7 3.8 3.9

Financial liabilities (total) 50.1 36.0 31.0 32.9 32.9 32.9 32.9

thereof short-term financial liabilities 50.1 36.0 31.0 32.9 32.9 32.9 32.9

Accounts payable 11.8 12.4 18.1 20.6 22.4 26.8 31.0

Other liabilities 44.2 46.9 49.8 54.6 55.4 55.5 55.5

Liabilities 111.8 104.5 108.0 115.1 117.8 122.4 126.7

Total liabilities and shareholders' equity 256.3 263.8 285.0 312.9 334.6 364.8 398.3

Financial Ratios 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Efficiency of Capital Employment

Operating Assets Turnover 1.0 x 1.1 x 1.2 x 1.2 x 1.2 x 1.3 x 1.4 x

Capital Employed Turnover 0.6 x 0.7 x 0.8 x 0.8 x 0.8 x 0.9 x 0.9 x

ROA 12.7 % 14.7 % 16.9 % 18.6 % 18.7 % 21.2 % 24.2 %

Return on Capital

ROCE (NOPAT) 8.9 % 9.9 % 11.5 % 12.3 % 12.6 % 13.8 % 14.9 %

ROE 10.9 % 11.7 % 12.3 % 12.4 % 12.2 % 12.6 % 12.8 %

Adj. ROE 10.9 % 11.7 % 12.3 % 12.4 % 12.2 % 12.6 % 12.8 %

Balance sheet quality

Net Debt 38.1 23.2 4.6 1.7 -11.4 -26.2 -46.4

Net Financial Debt 35.0 19.0 1.3 -1.8 -15.1 -30.0 -50.3

Net Gearing 26.4 % 14.5 % 2.6 % 0.9 % -5.2 % -10.8 % -17.1 %

Net Fin. Debt / EBITDA 108.1 % 50.5 % 2.9 % n.a. n.a. n.a. n.a.

Book Value / Share 6.6 7.2 8.0 8.9 9.8 11.0 12.3

Book value per share ex intangibles 1.7 2.2 2.9 3.7 4.3 5.4 6.7

ROCE Development

Source: Warburg Research

Net debt in EUR m

Source: Warburg Research

Book Value per Share in EUR

Source: Warburg Research

ISRA VISION

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RESEARCH

Consolidated cash flow statement In EUR m 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Net income 14.8 17.8 20.7 23.3 25.2 28.8 32.7

Depreciation of fixed assets 1.4 1.4 2.3 1.3 1.5 1.9 1.6

Amortisation of goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Amortisation of intangible assets 8.5 10.7 12.2 14.3 16.5 17.3 19.3

Increase/decrease in long-term provisions 0.0 0.0 0.0 0.0 0.1 0.1 0.1

Other non-cash income and expenses 11.4 0.3 -3.4 -0.7 0.0 0.0 0.0

Cash Flow before NWC change 36.0 30.2 31.9 38.2 43.4 48.1 53.7

Increase / decrease in inventory -2.5 -3.0 1.1 -4.1 1.3 0.1 -2.6

Increase / decrease in accounts receivable -18.5 -0.3 -9.1 -15.8 -0.3 -14.3 -11.2

Increase / decrease in accounts payable -3.6 6.5 14.6 7.0 2.6 4.5 4.2

Increase / decrease in other working capital positions 0.6 1.0 -1.4 0.3 0.0 0.0 0.0

Increase / decrease in working capital (total) -23.9 4.1 5.2 -12.6 3.6 -9.7 -9.6

Net cash provided by operating activities [1] 12.2 34.3 37.1 25.6 47.0 38.4 44.1

Investments in intangible assets -13.3 -14.9 -15.7 -18.3 -17.7 -18.6 -18.6

Investments in property, plant and equipment -1.1 -0.9 -1.0 -1.3 -1.3 -1.4 -1.5

Payments for acquisitions -2.2 0.0 0.0 -0.3 -11.5 0.0 0.0

Financial investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Income from asset disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash provided by investing activities [2] -16.6 -15.6 -16.7 -19.9 -30.5 -20.0 -20.1

Change in financial liabilities 10.1 -14.1 -5.0 0.0 0.0 0.0 0.0

Dividends paid 1.1 0.9 1.0 1.3 1.3 1.4 1.5

Purchase of own shares 0.2 -0.1 0.0 1.9 0.0 0.0 0.0

Capital measures 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other -0.7 -0.4 -0.3 0.4 0.0 0.0 0.0

Net cash provided by financing activities [3] 7.9 -16.4 -7.4 -0.3 -3.3 -3.5 -3.7

Change in liquid funds [1]+[2]+[3] 3.5 2.2 13.0 5.4 13.2 14.9 20.3

Effects of exchange-rate changes on cash 0.5 -0.5 -0.2 -0.5 0.0 0.0 0.0

Cash and cash equivalent at end of period 15.2 16.8 29.7 34.7 47.9 62.8 83.2

Financial Ratios 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20e 2020/21e

Cash Flow

FCF -2.3 18.7 20.4 6.0 28.0 18.4 24.0

Free Cash Flow / Sales -2.0 % 14.4 % 14.3 % 3.9 % 17.1 % 9.8 % 11.5 %

Free Cash Flow Potential 16.5 19.4 22.5 25.2 27.3 31.0 35.2

Free Cash Flow / Net Profit -15.4 % 105.5 % 99.5 % 25.9 % 111.8 % 64.4 % 73.9 %

Interest Received / Avg. Cash 0.3 % 0.3 % 0.2 % 0.5 % 0.0 % 0.0 % 0.0 %

Interest Paid / Avg. Debt 1.7 % 1.1 % 1.0 % 1.1 % 1.0 % 1.0 % 1.0 %

Management of Funds

Investment ratio 12.9 % 12.2 % 11.7 % 12.8 % 11.6 % 10.6 % 9.6 %

Maint. Capex / Sales 7.9 % 8.4 % 9.1 % 9.2 % 9.9 % 9.2 % 9.0 %

Capex / Dep 146.7 % 130.5 % 114.9 % 123.9 % 105.1 % 104.0 % 96.1 %

Avg. Working Capital / Sales 86.1 % 82.5 % 76.5 % 77.8 % 76.2 % 67.8 % 65.7 %

Trade Debtors / Trade Creditors 736.0 % 712.6 % 542.8 % 542.3 % 500.4 % 471.6 % 443.9 %

Inventory Turnover 1.6 x 1.7 x 1.9 x 1.8 x 2.0 x 2.3 x 2.4 x

Receivables collection period (days) 282 251 250 268 250 245 240

Payables payment period (days) 87 81 106 114 116 120 125

Cash conversion cycle (Days) 412 378 325 348 306 273 259

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")

believed to be accurate and complete. Warburg Research GmbH neither examines the information for accuracy and completeness, nor guarantees its

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

Co.) KGaA or Warburg Research GmbH for damages of any kind whatsoever, and M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research

GmbH are not liable for indirect and/or direct and/or consequential damages. In particular, neither M.M.Warburg & CO (AG & Co.) KGaA nor Warburg

Research GmbH are liable for the statements, plans or other details contained in these 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

recommendation is being transmitted in connection with an existing contractual relationship, i.e. financial advisory or similar services, the liability of

M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH shall be restricted to gross negligence and wilful misconduct. In case of failure in

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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

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.

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exchange of information, which could form the basis of conflicts of interest for Warburg Research in terms of the analysed issuers or their financial

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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 investment recommendation 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. M.M.Warburg & CO (AG & Co.) KGaA is additionally subject to the supervision of the European Central Bank (ECB).

SOURCES

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

ISRA VISION

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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

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.

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 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

company.

-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.

This report has been made accessible to the company analysed and was modified thereafter.

Company Disclosure Link to the historical price targets and rating changes (last 12 months)

ISRA VISION 5 http://www.mmwarburg.com/disclaimer/disclaimer_en/DE0005488100.htm

ISRA VISION

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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 119 60

Hold 68 34

Sell 7 4

Rating suspended 5 3

Total 199 100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING J

J 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 32 76

Hold 8 19

Sell 0 0

Rating suspended 2 5

Total 42 100

PRICE AND RATING HISTORY ISRA VISION AS OF 23.08.2019

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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