SOLVAY · Chemicals: Soda Ash & Derivatives, Peroxides, Coatis and Acetow. Solvay’s Soda Ash & Derivatives division is the world’s largest producer of soda ash and sodium bicarbonate,

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Summary :

Conclusion: The complete integration of Cytec has significantly changed the nature of the group. The composite activities could eventually become a growth pole, but the sales currently suffer from the weak USD. The support from Solvac Holding and the healthy balance sheet limit the risk for shareholders. The price target offers significant upside potential for the next 6 to 18 months.

FOR QUALIFIED INVESTORS ONLY, Please see inside front cover for important disclosures

Share Price 110.65 EUR Number of shares 105.8 m

Fair Value 136.00 EUR Market Cap 11707 mEUR

Upside 23% Enterprise Value 17201 mEUR

Symbol ENXTBR:SOLB Credit Rating BBB

Isin Code BE0003470755

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales 7,564 10,668 9,862 10,214 11,404 9,569 10,125 10,463 10,886 11,223

Growth 26.9% 41.0% -7.6% 3.6% 11.7% -16.1% 6% 3.3% 4.0% 3.1%

EBITDA 1,126 1,740 1,563 1,742 1,883 1,982 2,259 2,288 2,358 2,414

Margin 14.9% 16.3% 15.8% 17.1% 16.5% 20.7% 22.3% 21.9% 21.7% 21.5%

EPS 3.04 6.84 3.25 0.96 3.86 5.88 10.27 7.93 9.08 9.75

P/E 28.5 12.6 33.6 119.3 29.7 15.6 10.8 14.0 12.2 11.4

EV/EBITDA 7.8 4.7 6.5 5.9 8.6 7.1 6.5 6.1 5.7 5.3

Dividend 3.07 3.20 3.20 3.20 3.30 2.55 3.60 3.65 3.70 3.75

Dividend Yield 3.5% 3.7% 2.9% 2.8% 2.9% 2.8% 3.3% 3.3% 3.3% 3.4%

0

20

40

60

80

100

120

140

160

Analyst Wim Lewi, CFA Valuescan.be [email protected]

SOLVAY Equity Report

07/03/2018

mailto:[email protected]

THIS DOCUMENT MAY NOT BE DISTRIBUTED TO PERSONS IN THE US, AUSTRALIA? CANADA OR JAPAN

1

I. Company Description

Description : Solvay is a Belgian multinational active in chemicals and plastics. The company was founded

by the brothers Alfred and Ernest Solvay in 1863. Today, Solvay is active in 56 countries with over 29,400

employees in 117 branches. The head office is in Brussels.

History

2018 CEO replacement announced

2017 Divestment of multiple plants for net total of 2.2bn EUR

2016 Divestment program announced, Polymers becomes non-continued business

2015 Solvay acquires US-based Cytec

2014 Solvay sells off its PVC activities

2012 Jean-Pierre Clamadieu, previous CEO of Rhodia, becomes CEO of the Solvay Group.

2011 Solvay acquires the french chemical company Rhodia ( the chemicals division of Rhône-Poulenc)

2009 Solvay sells its pharmaceutical activities to Abbott.

2006 To adress trends with regard to urbanization and mobility SolviCore is founded.

2003 The fluoric polymer division of Solvay and that of Ausimont merge into Solvay Solexis

2001 Solva, sells its polyolefin activities to BP acquires BP's engineering plastics activities.

1998 Daniel Janssen retires as CEO. Alois Michielsen succeeds him.

1980 Solvay becomes active in the life sciences industry by acquiring Dutch pharmaceutical Philips-Duphar

1967 Solvay becomes listed on the Brussels Stock Exchange

1863 Solvay was founded by Ernest and Alfred Solvay

Activities

Adv.Materials

49%

Adv.Formulations20%

Perf.Chemicals

31%

Polymers0%

Adv.Materials

43%

Adv.Formulations29%

Perf.Chemicals

28%

Polymers0%


2

Advanced Materials

The Advanced Materials unit is active in markets with high-entry barriers. This provides a market leader like

Solvay ample room to make profit. Solvay prides itself on its innovation, global presence and long-term

relationships with clients while keeping standards high with regard to energy efficiency and pollution.

Advanced Materials has 4 sub-divisions: Specialty Polymers, Composite Materials, Silica and Special Chem.

The Specialty Polymers division is the world leading producer of specialty polymers and high performance

polymers. Its products are used in the electronics, automotive, aircraft and healthcare industries as metal

replacements. Competitors include BASF, Dupont and EMS.

Composite Materials caters its products and capabilities to the aerospace engineered materials market.

With the acquisition of Cytec, this division has gained in importance.

Silica concentrates on highly dispersible silica primarily used in fuel-efficient and performance tire but its

silica is also used in toothpaste and industrial products. Key competitors are Evonik, OSC and PPG.

Special Chem produces fluor and rare-earth formulations for automotive, semi-conductor and lighting

applications. End products are for example cleaning and polishing materials for electronics. Other

important players in this market are Honeywell, SMI and Asahi.

Advanced Formulations

The business unit operations of Advanced Formulations operate in an environment where a high customer-

and application-driven approach are key. It does not contain very capital intensive activities. The focus of

this division is to address societal trends while maintaining a high standard of environmental and energy-

efficient solutions. There are three sub-divisions: Novecare, Technology Solutions and Aroma Performance.

Novecare develops and produces formulations that alter the properties of liquids. The end products are

then liquids that have cleansing, softening, moisturizing, hydrating, gelling, texturizing, penetrating or

dispersing properties. Novecare’s products are found in shampoos, detergents, paints, lubricants, plant

protection, mining and oil extraction. Novecare is a world player in this regard. Key competitors are AKZO

Nobel, BASF and Clariant.

Technology Solutions is specialized in phosphine-based chemistry, solutions for stabilization of polymers

and specialty mining reagents. This unit offers tailored solutions for its clients.

Aroma Performance is a world leader in producing vanillin for the food industries. Aroma Performance also

provides vanillin for the flavor and fragrance industries, as well as for synthetic intermediates that are used

in pharmaceuticals for example. Key competition includes Camlin, CST and BASF.


3

Performance Chemicals

The Performance Chemicals division operates in a mature and robust environment that is defined by

economies of scale, competitiveness, and quality of service. There are four subdivisions within Performance

Chemicals: Soda Ash & Derivatives, Peroxides, Coatis and Acetow.

Solvay’s Soda Ash & Derivatives division is the world’s largest producer of soda ash and sodium

bicarbonate, sold primarily to the glass industries but also used in detergents, agro, and food industries.

Key competition includes Tata Chemicals, Natronx and Tetra.

The Peroxide subdivision is also world leader as it is the largest supplier of hydrogen peroxide. Hydrogen

peroxide is mainly used by the paper industry to bleach pulp. Its properties are also of interest to many

applications such as chemicals, food, textiles and the environment. In this markets, Solvay’s faces

competition from companies like Evonik, Kemira and OCI.

The Coatis division is primarily focused on Latin America where it is market leader for oxygenated solvents

and phenol derivatives. These products and solutions are used in the production of synthetic resins for

foundries, construction and abrasives. Other big players include Dow, Ineos and Shell.

Solvay’s Acetow division is a supplier of cellulose acetate tow. This product is made from bio-sourced wood

pulp and is used in the cigarette and textile industry. The market environment is very specific, mature and

stable. Celanese, Eastman and Daicel/Mitsubishi are considered important competitors here.

Cytec stand alone


4

II. Business Model

A. Growth Expectations

Growth Conclusion

Solvay paid a high price to incorporate Cytec. It paid 16x the company's cash flow or 6.4bn USD.

Although Cytec barely grew in 2015, Solvay expects to achieve significant growth by introducing

the composite materials from Cytec into the automotive industry to replace steel. Composites

require less maintenance. Metal structures are subject to fatigue and corrosion. Composites

improve aerodynamics because they are formed without the production limitations of metal. They

also improve the power-to-weight ratio. That is important for fuel efficiency or range potential in

electric cars.

Sales by Segment overview

The growth drivers for the sales of Cytec are their Aerospace and Automotive activities which are expected

to have a compound annual growth rate (CAGR) of 10% and 9% for the period 2013-2020.

0

2,000

4,000

6,000

8,000

10,000

12,000Sales

SOLVAY Y2013 Y2014 Y2015 Y2016 Y2017 Y2018 Y2019

Adv.Materials 2,566 2,762 4,503 4,313 4,370 4,589 4,864

Adv.Formulations 2,436 2,854 2,885 2,668 2,966 3,025 3,116

Perf.Chemicals 2,944 2,944 2,526 2,581 2,766 2,849 2,906

Polymers 1,916 1,654 1,490 7 23 23 23

Totals 9,862 10,214 11,404 9,569 10,125 10,486 10,909

Growth%

Adv.Materials -7.7% 7.6% 63.0% -4.2% 1.3% 5.0% 6.0%

Adv.Formulations -5.3% 17.2% 1.1% -7.5% 11.2% 2.0% 3.0%

Perf.Chemicals -7.7% 0.0% -14.2% 2.2% 7.2% 3.0% 2.0%

Polymers -9.9% -13.7% -9.9% -99.5% 228.6%

Totals ###### 3.6% 11.7% -16.1% 5.8% 3.6% 4.0%


5

Last Quarter results

Adv. Materials

Adv. Materials

Perf. Chemicals


6

Long Term Growth Drivers

Aerospace

The rising demand for air transport and the greater use of composites in airplanes (for lightweighting and

improving fuel-efficiency) will drive growth in the Aerospace market. The Aerospace composites market is

expected to amount to 5bn USD by 2019, representing a CAGR of 7% for the period 2015-2019

Composites applications have expanded rapidly in general aviation (GA) design, from small secondary

structures to more demanding flight-control surfaces, empennage assemblies, fuselages and wings.

Examples of this growth are frequently found in the pages of this magazine. This trend can be attributed to

the material’s ability to enable the following improvements:

Greater impact resistance in airframe, wing and empennage: Carbon-fiber-reinforced polymer (CFRP)

structures, in particular, are significantly stiffer than similar aluminum structures of the same strength. This

provides more passive safety and greater resistance to erosion or impact damage.

Reduced unit costs: Parts integration and occurring strategies enable manufacturers to reduce

manufacturing and assembly time, as well as labor costs, and they eliminate a significant number of heavy,

drag-inducing fasteners.


7

Reduced maintenance: Metal structures are subject to long-term fatigue and corrosion; by contrast,

composite structures better retain their strength over time and won’t corrode. This reduces the airframe

inspection, maintenance and repair component of ongoing operating costs.

Enhanced aerodynamics: Composite structures are shaped without the production constraints of metal, so

ideal aerodynamic lines can be achieved.

Improved power-to-mass ratio: Composite airframes have lower mass but are stronger than conventional

airframes, resulting in improved operating efficiency and aircraft performance.

Cytec will take advantage of the market growth by actively engaging new programs with legacy customers

and new customers in emerging regions. Cytec will continue to invest in materials and applications research

such that new programs that present opportunities for mid- and long-term entry can be landed. In that

regard Cytec is already well positioned in the Aerospace Composites market where it is the number two

player. It maintains strong relations with its commercial clients as well as with its clients in the defense

sector.

Automotive

The growth in the automotive market will be driven by increasing demand for lightweight materials and the

adoption and development of carbon-fiber based structural parts. EU regulations will penalize CO2

emissions nineteen times as severely in 2020 compared to 2012 (95 EUR/g compared to 5EUR/g). One of


8

the ways manufacturers can accomplish lower emissions is to reduce the vehicle’s weight. So original

equipment manufacturers (OEMs) will increase their demand for lighter materials such as composites. For

example, by using Composite Technologies the weight of the chassis of cars can be reduced by fifty percent.

The Carbon Composites Technology market in the Automotive sector is expected to grow into a 2.3 bn USD

market, corresponding with a CAGR of 50% for the period 2010-2020.

Cytec’s strategy to leverage its developments with OEMs and engineering houses will place Cytec in an

excellent position to profit from that market growth. Cytec has already entered the highly customized

niches of the automotive industry, the extremely expensive and specialized vehicles like Formula 1 cars and

Super Cars. In the future, Cytec wants to penetrate the High End Luxury cars market (already happening)

and the luxury section (in 5 to 10 years).


9

B. Profitability

Profitability conclusion

The integration of Cytec improves the profit margin potential of Solvay as Cytec acheves on average a

higher profitability than the traditional chemical activities of Solvay. The integration weighs on costs in the

first 2 years (2017-18) because this expansion has a serious impact on the structure of the organization.

From 2019 onwards, the profit potential of the acquisition will be maximized. The company expects to

realize 100m Euro in synergies. This should allow Solvay to set new margin records.

Profit by segment

In our opinion the profitability will increase in the following years, although the combination of Solvay will

not reach the EBIT-margin heights of 2007. The Cytec part of the business will steadily improve its margins

and reach EBIT-margins of around 1 percent in 2017 again, approximately equal to the peak of 2013.

Margin improvements will stem from synergy advantages. In that way 100 million EUR per year in synergies

can be found, of which a large part can be allotted to the cutting of costs. Three years after the merger

most of the synergies should be realized.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

EBIT%

EBIT 2013 2014 2015 2016 2017 2018 2019

Adv.Materials 624 709 798 829 896 964 1,046

Adv.Formulations 347 426 378 327 374 408 436

Perf.Chemicals 682 724 470 534 566 584 581

Polymers 89 111 58 137 0 0 0

Corporate -960 -979 -950 -865 -860 -515 -500

Totals 782 991 754 962 976 1,441 1,563

Margin%

Adv.Materials 24.3% 25.7% 17.7% 19.2% 20.5% 21.0% 21.5%

Adv.Formulations 14.2% 14.9% 13.1% 12.3% 12.6% 13.5% 14.0%

Perf.Chemicals 23.2% 24.6% 18.6% 20.7% 20.5% 20.5% 20.0%

Polymers 4.6% 6.7% 3.9% ######

Totals 7.9% 9.7% 6.6% 10.1% 9.6% 13.7% 14.3%


10

Last Quarter Results


11

C. Capital Needs

(Source: Company data, Valuescan.be estimates)

Capital Needs conclusion

The acquisition of Cytec raised Solvay's debt ratio to 2.5x debts vs. EBITDA. That is still a relatively safe level

that leaves a certain margin for setbacks. The debt ratio will decline over the coming years. Due to the low

interest rate policy of central banks, the interest costs are below the historical interest costs. This allowed

Solvay to finance more than three quarters of the acquisition by debt. The issue of new shares for 1.5

billion also improved the liquidity of the shares.

Capex

Returns to relatively high maintenance level around 7% on sales

Working Capital

Moves in line with sales. Potential for further cash generation.

Debt

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,0003. Capex

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,0005. Net Financial debt

0

500

1,000

1,500

2,000

2,500

3,000

3,5004. Working capital

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.06. Dividend

Solvency 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

NetDebt/EBITDA 1.7 1.9 -3.4 1.6 0.6 0.7 0.4 2.3 2.2 1.4 1.1 0.8 0.5

ONCLiab/ONCAssets 2.4 2.8 2.2 3.7 4.6 4.6 4.3 3.4 3.6 3.1 3.1 3.1 3.1

EBIT/Fin.Costs 2.2 -9.1 1.2 2.2 8.5 1.9 1.5 2.4 2.8 3.3 4.9 6.3 6.9

Tangible IC/NetDebt 3.2 5.4 -1.4 3.8 5.7 5.9 8.2 1.8 1.9 2.3 2.9 3.7 5.4

NetDebt/Equity 0.3 0.3 -0.4 0.3 0.2 0.1 0.1 0.4 0.4 0.3 0.2 0.2 0.1

Fin.Costs/Net Debt 13.2% -2.5% -14.6% 16.9% 9.7% 37.1% 89.1% 7.4% 7.6% 9.2% 12.0% 13.0% 17.9%


12

ROIC ratios

Return 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

ROE 18% 9% 10% 1% 4% 9% 4% 1% 4% 6% 7% 8% 8%

ROIC 11% 5% 7% 1% 2% 5% 2% 1% 2% 4% 4% 5% 5%

ROIC tangible 15% 8% 7% 1% 4% 9% 4% 1% 5% 7% 8% 10% 11%


13

D. P&L and Balance Sheet tables with Cash Flow ratio’s

(Source: Company data, Valuescan.be estimates)

Price 110.65 EUR NOSH 106 MktCap 11,707 EV 17,201 Isin I_BE0003470755

Target 136.00 Debt 5,381 Minorities 113 CredRat BBB Code ENXTBR:SOLB

December 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales 6,791 5,694 5,959 7,564 10,668 9,862 10,214 11,404 9,569 10,125 10,463 10,886 11,223

Salesgrowth -16.2% 4.7% 26.9% 41.0% -7.6% 3.6% 11.7% -16.1% 5.8% 3.3% 4.0% 3.1%

Gross Profit 1,165 972 1,126 1,520 2,364 2,306 2,559 2,758 3,171 3,086 3,391 3,527 3,637

Gross Margin 17.2% 17.1% 18.9% 20.1% 22.2% 23.4% 25.1% 24.2% 33.1% 30.5% 32.4% 32.4% 32.4%

R&D 136 139 125 154 247 238 247 277 305 290 299 312 322

R&D% 2.0% 2.4% 2.1% 2.0% 2.3% 2.4% 2.4% 2.4% 3.2% 2.9% 2.9% 2.9% 2.9%

SG&A 711 672 615 852 1,188 1,286 1,321 1,440 1,508 1,435 1,560 1,592 1,627

SG&A% 10.5% 11.8% 10.3% 11.3% 11.1% 13.0% 12.9% 12.6% 15.8% 14.2% 14.9% 14.6% 14.5%

EBITDA 919 689 868 1,126 1,740 1,563 1,742 1,883 1,982 2,259 2,288 2,358 2,414

Margin 13.5% 12.1% 14.6% 14.9% 16.3% 15.8% 17.1% 16.5% 20.7% 22.3% 21.9% 21.7% 21.5%

Depreciation 465 389 357 458 811 781 751 1,129 1,020 1,052 847 795 787

Amortisation 0 0 0 0 0 0 0 0 0 0 0 0 0

Other operating income 136 139 125 154 0 0 0 -287 -396 -385 -91 -61 -61

EBIT 454 300 511 668 929 782 991 754 962 976 1,441 1,563 1,627

Margin 6.7% 5.3% 8.6% 8.8% 8.7% 7.9% 9.7% 6.6% 10.1% 9.6% 13.8% 14.4% 14.5%

Financials -211 33 -435 -302 -109 -404 -648 -320 -339 -297 -292 -247 -235

Pretax 243 333 76 366 820 378 343 434 623 679 1,149 1,316 1,392

Tax Rate -27% -26% -28% -6% -29% -45% -24% -8% -29% -27% -27% -26%

Tax -65 -85 -21 -22 -241 -170 -84 -35 0 -197 -310 -355 -362

Adjustments 0 0 1

Net adj. 405 516 55 247 563 270 80 399 623 1,061 839 961 1,031

EPS adj. 4.92 6.28 0.68 3.04 6.84 3.25 0.96 3.86 5.88 10.27 7.93 9.08 9.75

# Shares 82 82 81 81 82 83 83 103 106 103 106 106 106

Dividend 2.20 2.20 2.30 3.07 3.20 3.20 3.20 3.30 2.55 3.60 3.65 3.70 3.75

Valuations

EV/Sales 1.1 0.5 1.2 0.8 1.0 1.0 1.4 1.5 1.4 1.3 1.2 1.1

EV/EBITDA 9.1 3.6 7.8 4.7 6.5 5.9 8.6 7.1 6.5 6.1 5.7 5.3

PE 9.5 110.5 28.5 12.6 33.6 119.3 29.7 15.6 10.8 14.0 12.2 11.4

EBIT Growth -34% 70% 31% 39% -16% 27% -24% 28% 1% 48% 8% 4%

NET Growth 27% -89% 349% 128% -52% -70% 399% 56% 70% -21% 15% 7%

EPS Growth 28% -89% 350% 125% -53% -70% 302% 52% 74% -23% 15% 7%

Balance Sheet 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Tangibles 4,218 3,921 3,276 5,641 5,393 5,015 5,386 6,946 6,472 5,433 5,005 4,939 4,904

Intangibles 2,350 195 172 4,243 4,085 4,569 4,528 9,566 9,071 7,982 7,982 7,982 7,982

Other Fixed 966 682 959 1,307 1,066 899 1,071 1,680 1,409 1,422 1,422 1,422 1,422

Financial Assets 217 277 683 907 1,058 734 544 524 596 557 557 557 557

Non-Curr.A. 7,751 5,075 5,090 12,098 11,602 11,217 11,529 18,716 17,548 15,394 14,966 14,900 14,865

Inventory 1,255 805 761 1,578 1,422 1,300 1,420 1,867 1,670 1,504 1,554 1,617 1,667

Receivables 2,313 1,719 2,218 3,308 2,355 1,838 1,870 2,264 1,300 2,278 2,354 2,449 2,525

Cash 883 1,486 5,655 2,382 2,526 2,495 1,612 2,182 969 992 1,791 2,324 2,910

Other Current 62 3,461 -1 96 425 1,673 1,463 300 2,658 1,283 1,283 1,283 1,283

Curr.Ass. 4,513 7,471 8,633 7,364 6,728 7,306 6,365 6,613 6,597 6,057 6,982 7,673 8,386

Total Assets 12,264 12,546 13,723 19,462 18,330 18,523 17,894 25,329 24,145 21,451 21,948 22,573 23,250

Equity 4,746 5,160 6,708 6,647 6,573 7,453 6,778 9,668 9,956 9,752 10,205 10,774 11,407

LT Debt 1,852 2,635 2,535 3,374 3,321 2,809 1,485 5,628 4,087 3,182 3,182 3,182 3,182

Other NC Liabil. 2,332 1,900 2,157 4,835 4,906 4,117 4,602 5,702 5,101 4,389 4,389 4,389 4,389

Non-Curr.Liabil. 8,930 9,695 11,400 14,856 14,800 14,379 12,865 20,998 19,144 17,323 17,776 18,345 18,978

ST Debt 630 189 149 794 331 775 854 895 1,340 1,044 1,044 1,044 1,044

Payables 1,380 835 1,506 2,271 1,680 1,815 1,966 2,226 2,254 1,330 1,374 1,430 1,474

Other Curr.Liabil. 1,324 1,827 668 1,541 1,519 1,554 2,209 1,210 1,407 1,754 1,754 1,754 1,754

Current Liabilit. 3,334 2,851 2,323 4,606 3,530 4,144 5,029 4,331 5,001 4,128 4,172 4,228 4,272

Total Liabil. 12,264 12,546 13,723 19,462 18,330 18,523 17,894 25,329 24,145 21,451 21,948 22,573 23,250

Net Debt 1,599 1,338 -2,971 1,786 1,126 1,089 727 4,341 4,458 3,234 2,435 1,902 1,316

Working capital 926 3,323 804 1,170 1,003 1,442 578 995 1,967 1,981 2,063 2,165 2,247

Inv/Sales% 18.5% 14.1% 12.8% 20.9% 13.3% 13.2% 13.9% 16.4% 17.5% 14.9% 14.9% 14.9% 14.9%

Rec/Sales% 34.1% 30.2% 37.2% 43.7% 22.1% 18.6% 18.3% 19.9% 13.6% 22.5% 22.5% 22.5% 22.5%

Pay/Sales% 20.3% 14.7% 25.3% 30.0% 15.7% 18.4% 19.2% 19.5% 23.6% 13.1% 13.1% 13.1% 13.1%

Capex/Sales% 17.7% 8.5% 68.3% 48.7% 4.9% 17.7% 6.4% 53.6% 8.4% 0.7% 4.0% 6.7% 6.7%


14

III. Valuation

DCF valuation range:

(Source: business plan estimates from previous chapters by Valuescan.be, these can differ from the actual results)

The DCF

ROIC analysis

Saved 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Salesgrowth -16.1% 5.8% 3.3% 4.0% 3.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Sales 9569 10125 10463 10886 11223 11448 11677 11910 12148 12391 12639

Oper.Margin 10.1% 9.6% 13.8% 14.4% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5%

Oper.Income 962 976 1441 1563 1627 1660 1693 1727 1762 1797 1833

Depreciation 1020 1052 847 795 820 775 790 806 822 839 855

WC changes -14 -82 -102 -67 -45 -46 -46 -47 -48 -49

Taxes 0 -197 -310 -355 -370 -377 -385 -393 -400 -408 -417

Capex -807 70 -419 -729 -752 -767 -782 -798 -814 -830 -847

Free Cash Flow 1175 1887 1478 1171 1258 1246 1271 1296 1322 1348 1375

Working Capital 1967 1981 2063 2165 2232 2277 2323 2369 2416 2465 2514

Net Debt 5381 3494 2016 845 -412 -1658 -2929 -4225 -5547 -6895 -8270

Tax Rate 0% -20% -22% -23% -23% -23% -23% -23% -23% -23% -23%

WC/Sales 21% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%

Capex/Sales -8% 1% -4% -7% -7% -7% -7% -7% -7% -7% -7%

Deprec./Capex 126% -1503% 202% 109% 109% 101% 101% 101% 101% 101% 101%

Free Cash Flow 1887 1478 1171 1258 1246 1271 1296 1322 1348 1375

Discount Factor 1.000 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500

Discounted Flows 1887 1368 1004 999 916 865 817 771 728 688

Horizon Value 7,467

Terminal Value 11,696 Sensitivity Base Case

- net debt 5,381 Rg/WACC 8.5% 8.0% 7.5% WACC 8.0%

Equity Value 13,782 1.5% 114.1 126.5 141.0 LT Growth 2.0%

Nr Shares 106 2.0% 121.6 135.5 152.1

HV/TV Ratio 54% 2.5% 130.2 146.2 165.3 Target Price : 135.5Fin. Assets 557

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

ROIC vs WACC

ROIC (Beginning IC) WACC

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Invested Capital Growth

Beginning Invested Capital Invested Capital Growth

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

0%

2%

4%

6%

8%

10%

12%

14%

16%

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

NOPAT Mrg vs Avg IC Turns

NOPAT Margin IC Turns (Beginning IC)

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historic Equity vs. IC + EVA

Beginning Invested Capital EVA Enterprice Value


15

Contents and methodology

I. Company Description Brief company history to situate the roots and recent material events.

Description of the activities in the reported segments that are used for the business model.

The necessary background for investors to understand what the company does.

II. Sector Overview Description of the market environments in which the company operates.

Expectations of market growth potential and market share trends.

The necessary sector background for investors to understand the business model.

III. Business Model

Value = Growth x Profitability / Capital needs

A. Growth Expectations The growth expectations are modelled by reported segment on a 10y history and 3y forward.

The long term drivers by segment are evaluated, company expectations vs. sector dynamics.

Recent results are discussed and a growth conclusion is discussed with the segment table.

B. Profitability The profit margins are modelled by reported segment on a 10y history and 3y forward.

Competitive situation and operating costs are discussed per segment, peer comparison.

Profitability conclusion in a segment EBIT table, including corporate or exceptional costs.

C. Capital Needs Equity reports often spent too little attention to the capital needs to realise growth and profitability.

Hence, Capex, Working Capital, Debt and Dividends are discussed.

The Capex is modelled towards the maintenance level at the end of the 3Y forecasting horizon.

IV. Valuation We use a DCF to translate the future free cash flows into a fair value estimate.

The WACC is set at 8% for all companies as our expected return for the Equity investor.

ValueScan.be measures value with the same yardstick, independent of noise or hype.

For companies with higher risk profiles, a higher WACC is possible and will be justified.

A ROIC analysis backtests the valuation with an EVA analysis. The historic Equity value is compared to

the historic EVA calculation. This indicates whether the market has been over- or undervaluing the

company in the past.

http://www.valuescan.be/Salesgrowth

http://www.valuescan.be/ProfitMargin

http://www.valuescan.be/CapitalNeeds


16

Disclaimer : The Valuescan.be document is not an investment recommendation. The Valuescan Document has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed in this Valuescan Document do not constitute investment advice and independent advice should be sought where appropriate. The information provided on this Valuescan Document or in any communication containing a link to this Valuescan Document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Valuescan.be to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this Valuescan Document constitutes a solicitation or offer to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

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