HANSA GROUP AG MORE VALUE IN THE CHAINhansagroup.de/_downloads/analyst-reports/Hansa...Group is the only producer of LAB (linear alkyl benzene, the major building block for manufacturing

research . hansa group agr

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h HANSA GROUP AGMORE VALUE IN THE CHAIN

_hansa group is substantially undervalued relative to peers, must upgrade to ca 50% ev/sales to reflect fair value

_transformation of group completed, value added chain now seamlessly operational (surfactants, feeding into consumer products, e.g. detergents, cleansers, cosmetics)

_cost benefits compared to consumer goods majors provide ample scope for positive operating leverage, amidst economic recovery in europe

_hansa group’s fortunes should grow in future as discount retailers (aldi et al) are gaining market shares and address foreign markets (eastern europe, usa etc) for swift growth

Harald Gruber, Head of Chemicals Research22 November 2010

ric h4gg.declose 19/11/2010 € 2.64price target € 4.00rating buy

SILVIA QUANDT RESEARCH GMBH

01HANSA GROUP AG_

Content

HANSA Group AG

Company Description

HANSA Group reminiscent of Henkel, but much leaner costs in place

Value added chain: surfactant raw materials, surfactants, consumer products

Sector profile

Valuation

SWOT

Appendix

page 02__

page 04__

page 08__

page 10__

page 14__

page 16__

page 18__

page 19__

RESEARCH . HANSA GROUP AG

_SILVIA QUANDT RESEARCH GMBH02

HANSA Group AG

Source: Silvia Quandt Research

Price target€ 4.00

Up/downside53.3 %

RatingBuy

Current price€ 2.64

HeadquarterHANSA Group AG

DuisburgGermany

IRSilvia Kostova

[email protected]+49 203 73804 309

Stock dataMain Market

General Standard

Market cap (m)€ 125.9

No. of shares (m)48.2

Daily volume (shares m)0.0030

IndicesDAX Industrial

Next event FY 2010 results: March 2011

Year end 31 Dec. in €m 2009* 2010e 2011e 2012e

Profit loss

Sales 196.1 402.3 495.8 525.5

y-o-y in % 105.1% 23.2% 6.0%

EBITDA 55.7 22.9 37.7 45.2

EBIT 50.3 11.2 24.0 31.5

EBIT margin in % 25.7% 2.8% 4.8% 6.0%

Net income 45.6 4.9 12.9 17.7

EPS SQR (€) 0.95 0.10 0.27 0.37

y-o-y in % 950.4% -89.3% 162.7% 38.0%

EPS consensus (€) 0.11 0.13 0.27

DPS (€) 0.00 0.00 0.00 0.00

Payout ratio % 0.0% 0.0% 0.0% 0.0%

Dividend yield % n/a n/a n/a n/a

Cash flow

Net income 45.6 4.9 12.9 17.7

Depreciation/Amortisation 5.4 11.7 13.7 13.7

Working capital movements -27.3 0.0 -10.0 -10.0

Operating cash flow 34.8 54.6 26.6 30.4

Net capex -7.3 -20.0 -10.0 -10.0

Free cash flow 12.7 -26.4 15.1 18.9

Free cash flow yield 14.0% -19.9% 10.3% 11.6%

Balance sheet/Key ratios

Total Assets 246.7 332.0 354.9 381.6

Closing net debt (cash) -59.2 -59.6 -45.5 -27.6

Gearing 74.3% 53.1% 37.7% 23.7%

Capex ratio (tangible) 4.5% 8.7% 4.4% 4.5%

ROE 66.6% 4.4% 9.2% 11.5%

ROCE 32.6% 5.3% 10.4% 13.7%

ROA 36.7% 5.7% 10.3% 13.7%

Valuation

Enterprise value 26.4 187.3 178.9 162.9

Book value 91.0 132.9 145.8 163.5

Market cap 52.1 125.9 125.9 125.9

EV/Sales 13% 47% 36.1% 31.0%

EV/EBITDA 0.5 8.2 4.7 3.6

PER 1.1 25.7 9.8 7.1

PBV 0.8 1.1 0.9 0.8*) €41.3m negative goodwill recognised, resulting from takeover of WASCHMITTELWERK GENTHIN


HANSA GROUP AG_03

0,5

0

1

4

3,5

3

2,5

2

1,5

17.11.201017.11.2006 17.11.2007 17.11.2008 17.11.2009

Share price development




Company Description

HANSA Group AG is a chemicals and consumer goods producer. Its business portfolio comprises care chemicals which are sold to producers of detergents, cleaning agents and cosmetics. HANSA Group was founded in 1980 and has since expanded and diversified.

The company has undergone two major transformations since then. Firstly, after origination of business as a chemicals wholesaler, adding finished surfactants and surfactant raw materials to establish production units (WIBARCO, WWG). As its latest move to extend the value chain downstream HANSA Group has just recently acquired LUHNS to establish consumer products to become the major user of upstream products (namely surfactants).

HANSA Group acquired the Duisburg site from ARAL AG (1986) and the Dueren site from Akzo-Nobel (1999). It also bought WIBARCO from BASF (2007) and last year established Waschmittelwerk Genthin (WWG) as a core production site through purchase of major parts of former Henkel production facilities. The company took over regional consumer care chemicals maker LUHNS in May 2010.

HANSA Group’s production facilities are all located in Germany, however, approx. 60% (in H1 2010) of group revenue origination is abroad.

The company’s core products are surfactants and surfactant raw materials. HANSA Group is the only producer of LAB (linear alkyl benzene, the major building block for manufacturing surfactants) in Germany. LAB is produced at various sites, i.e. Dueren, Ibbenbühren and Genthin. The company also provides services for other chemical companies, including solid treatment, liquid treatment and toll-manufacturing, logistics and laboratory. Furthermore, HANSA Group produces polymer granules (helping to reduce plant watering, for instance)

The company’s product portfolio is divided into several categories including Textile & Paper, Petrochemicals, Industrial Chemicals, Special Chemicals, Polymers, Paints & Varnishes, Surfactants, Foods & Animal Feed, Water Treatment and Gas Scrubbing & Oil Refinery.

Through this years purchase of LUHNS, a Germany-based manufacturer of care chemical products, i.e. detergents (powder, liquid), personal care and aerosols. HANSA Group has added valuable downstream operations to the existing business portfolio. The rationale behind this move is 1) HANSA Group can now approach end consumers directly via retailers (discounters like Aldi, Edeka et al) while 2) considerably improving value adding along the operational chain, providing to LUHNS full access to captive feedstock within the joint production network of the group.

Sourcing raw materials such as N-paraffines and benzene is done mostly via annual contracts (paraffines) but also (benzene) via short-term contracts (mostly 1 month terms). Hence, changes in raw material costs can usually passed to customers with some time lag. We estimate that in raw material production (e.g. LAB) raw material costs (paraffine, benzene) account for approx. 70% of total costs.


COMPANY DESCRIPTION_05

Strategic business units

Production/services (FY 2010e group share: 69% sales, 59% EBITDA): this cluster comprises surfactants (raw materials, e.g. LAB, and intermediate/process chemicals, e.g. LAS) as well as production of other chemicals (polymers). Surfactants production covers all types, i.e. anionic surfactants, non-ionic surfactants, cationic surfactants. Still, HANSA Group namely through its operational units WIBARCO and WaschmittelwerkGenthin (WWG), is focussing on anionic surfactants which are particularly suitable for non-heavy duty detergents, e.g. low-duty detergents, fabric softeners. This segment as part of global surfactant markets offers disproportional growth rates (we estimate 3-4% p.a.) compared to other surfactants (non-ionic, cationic; we estimate ca 2% p.a.) with backward integration into in-house LAB production (like holding for HANSA Group) being the key success factor.

Aside, HANSA Group offers contract manufacturing and logistic services to other companies. One benefit is complete utilisation of tank capacities (namely surfactants) which reduces fixed costs volatility over time.

Effective May 2010 HANSA Group acquired LUHNS GmbH, a traditional (founded 140 years ago) regional producer of detergents, household cleansers and cosmetics, LUHNS’s product range consists of roughly 800 articles which are established in the shelves of retail discounters (such as Aldi et al). The new entity represents the missing downstream link for HANSA Group as it will ensure seamless docking to the company’s existing surfactant operations. The latter are key ingredients of any of LUHNS’s products. Hence the takeover has been comparative for the firm’s strategic performance as it is poised to generate considerable cost synergies within the portfolio.

Wholesale (FY 2010e group share: 31% sales, 41% EBITDA): apart from producing chemicals HANSA Group is a chemicals wholesaler as well. The company originally started up its businesses trading chemicals and has since (1980) established such activities comprising a variety of chemical products, IT etc. The products are either purchased by HANSA themselves or made on contract by third parties.

Strategy

A large majority of HANSA Group’s products, about 90%, are made “in house”. They manufacture most of their products with their own plants, do research and development with their own team, store and distribute their own products. Following two major transformations since foundation the group has gradually enlarged value adding in the portfolio, by creating a seamless backward integration into their core feedstock, namely LAB. By adding a new cluster - consumer products - we believe HANSA Group will be able to capitalize extensively on the economic benefits such succession of production steps potentially offers.


_SILVIA QUANDT RESEARCH GMBH

Value adding HANSA Group

The merits of selling consumer goods through discount retailers

While HANSA Group may at some point in future seek accessing new foreign markets (predominately Middle East, Asia) with its own branding, perhaps by re-launching LUHNS, we anticipate the company to stay mostly with existing discount retailer partners who are seeking via their own strategies international expansion of networks. For example, Aldi is aggressively tapping the 300 million-consumer markets in the USA. US consumers do prefer mega-retailers, boding well for German food/non-food retailers’ future footprint in the USA. Food discounters (same presumably applies to non-food retailers) currently fetch only ca 2% of total food turnover in the USA while in Germany this percentage is already about one third of the corresponding local sales volume.

Following established and powerful discount retailer partners into new markets should create future markets for HANSA Group automatically as products are well established in the shelves of the former. Plainly, we expect Aldi and other distributors of HANSA’s products, now boosted by the addition of Luhn’s consumer products range, to provide opportunities for new markets to HANSA Group as well, as the former seek international expansion. Precondition for HANSA Group to siphon those growth opportunities is to move synchronized with partners, by likewise expanding production facilities for surfactants and consumer goods.

We have estimated annual capex in the coming years to be around €10m although any bigger expansion goal, for example, tapping USA markets through partners, would command reasonably larger cash outflows.

06

Fossile raw materials TensidesPetrochemicals Tenside raw

materialsConsumer products

TensidesOleochemicals Tenside alcohols

Consumer products

Renewable raw materials

oil, natural gas, coal

LAS, OSethylene, N-Paraffine, benzene

LAB, LAO Detergents, Cleansers

FAESFatty alcohols EO, FA(EO) CosmeticsNative oils, fats

Source: HANSA Group


07

Shareholder structure

Some 57.3% of the outstanding share capital (48.08m shares outstanding on 31 December 2009) is free float. The remainder is held by HANSA Invest & Trust AG, Switzerland.

HANSA Group shares are quoted at the Deutsche Börse exchange and are listed in the General Standard (transparency standards apply, such as ad-hoc disclosure, application of international accounting standards, i.e. IFRS/IAS in the case of HANSA Group, interims reports).

COMPANY DESCRIPTION_

The company’s CEO is Zolfaghar Alambeigi. He joined the company in 1983 and become member of the management board in 2003. Since 2009 he is also at the helm of WIBARCO and WWG. He is in charge of HANSA Group’s corporate strategy, finance and controlling. His educational background is business major (“Diplom-Kaufmann”), graduated at the business school in Teheran, Iran.

The CFO of HANSA Group, Thomas Pfisterer is heading the distribution/marketing departments and is responsible for production and engineering. Since 2007 he is member of the management board. From 2004 to 2007 he used to be company manager of WIBARCO. Before joining HANSA Group (via takeover of WIBARCO in 2007) he was with BASF where he started his career in 1987. At BASF he was a segment head within BASF textile chemicals and until middle of 2000 running the marketing department of BASF Colorants in Singapore.

Management



Comparing HANSA Group with Henkel KGaA of past shape (i. e. during the 1990’s) is feasible given that both are focusing on care chemicals. Before carving out Cognis in 2001 Henkel like HANSA Group nowadays featured backward integration into feedstock, i.e. raw materials such as surfactants for processing further into consumer products (detergents, house hold cleansers). Although Henkel’s business range then (during the 1990s) also included other consumer goods like adhesives which are not part of HANSA Group’s value added chain, we believe it is fair to refer Henkel as a peer to HANSA Group if only for value adding in care chemicals (detergents, household cleansers, cosmetics). This particularly holds after HANSA’s acquisition of LUHNS.

With respect to costs HANSA Group boasts much leaner overheads structure than is applying to major consumer goods producers. During the 1990’s Henkel boasted personnel costs as a percentage of group revenues in the 20-23% range whereas HANSA Group will feature (including LUHNS). according to our forecasts, only approx 7% p.a. in the coming years.

Part of HANSA’s overhead costs superiority relative to Henkel relates to the latter’s direct exposure to end consumers through selling products bearing well-recognised brand names, for example Persil (detergents). On the contrary HANSA is selling products via discount retailers who are using their own name for branding (private labels), for example Aldi and Edeka. As a result, marketing costs are much lower than incurred by Henkel. Furthermore, HANSA Group’s structure (running operations 100% independently as profitcenter) allows for leaner costs structures for administrative and other corporate costs related to overheads than applying Henkel, P&G etc.

Referring to FY 2009 HANSA Group boasted SG&A costs accounting for approx. 12.5% of sales while Henkel featured approx. 35% in the 1990s (then including Cognis), Procter &Gamble approx. 30% in FY 2009.

The leaner cost structure of HANSA Group versus branded consumer goods makers should, in our view, be reflected in continued EVA (economic value added) gains sticking in coming years. For once, this should be a function of lower cost of sales generation at group level due to the addition of LUHNS. plus superior labour and overhead cost structures (versus Henkel, P&G et al).

Adding consumer goods to the existing business lines will help increase value adding at group level due to additional steps being processed to create final products (such as detergents, cleansers) when starting with feedstock, namely LAB. Furthermore, less capital employed is needed in consumer goods production (LUHNS) due to lower input of net working capital and lower-scale capacities deployed. deployed. As a result returns on invested capital should widen in future to leverage EVA also as capital costs should stay rather constant.

HANSA Group reminiscent of Henkel, but much leaner costs in place


09HANSA GROUP REMINISCENT OF HENKEL, BUT MUCH LEANER COSTS IN PLACE_

EVA to benefit from leaner cost structures. downstream expansion with LUHNS

Sales - Cost of sales

Sales

20 %

Currentassets -

Net fixed assets

Net workingcapital

Material Labour Overheads Stock Debtors Cash Creditors

Non interestbearing current

liabilities

Premisesand land

Plant and M/cs

EVA = Net Operating Profit - (Cost of Capital * Capital Employed)




Thanks to the acquisition of LUHNS HANSA Group now boasts seamless coverage of the value chain for production of care chemicals (detergents, cleansers, cosmetics). By potentially ensuring 100% captive use of surfactants and surfactant raw materials, namely LAB, benefits for costs, sales and capital returns, earnings etc. are obvious:

__Independence from raw material suppliers, namely petrochemicals derivatives. We expect prices for crude oil and its derivatives to gradually rise in future, basically due to strong demand from emerging countries (China, India etc). Hence, we expect profitability and earnings of companies not providing sufficient backward integration into feedstock to suffer larger volatility for earnings and margins in future than assumed for HANSA Group.

__We expect high efficiency gains arising in future from backward integration into feedstock docking LUHNS onto HANSA Group’s existing production facilities. By providing in-house sourcing of feedstock and directly approaching end consumers (via discount retailers) HANSA Group is set to save costs due to much better spreading of operational costs as well as full utilisation of capacities along the value chain. While the next chart refers to fabric/textiles economies we believe the bottom line is the same as for HANSA Group-type of business.

__Subsequent expansion of LAS capacity at Genthin WIBARCO will supply approx. 60% of LAB production to the former as a feedstock while the remainder is destined to be supplied to third parties. As a result, HANSA Group will ensure decent plant loading in LAB and LAS production. Apart from the economic benefits of adding LUHNS as a user of LAS for consumer goods production such efficiency gains are reflected in our assumption of rising gross margins going forward, i.e. gradually rising from approx. 22% this year to reach 25% by 2013.

Value added chain: surfactant raw materials, surfactants,consumer products

1

Three Variants

Growth in Value Added an Selling Price

Cost perShirt

PercentSavings

Figure 1 Value-Added Chains in the Shirt Industry

*Consumer transactions are not considered

Producer v Wholesaler v Retailer v Consumer* $52.72 0%

2 Producer Wholesaler v Retailer v Consumer* $41.34 28%

3 Producer Wholesaler Retailer Consumer* $20.45 62%v

Producer Wholesaler Retailer Consumer*

Value Added $20.45 $11.36 $20.91

Selling Price $20.45 $31.81 $52.72 $52.72

The benefits of optimising the value chain

Source: E. Thomton


11VALUE ADDED CHAIN: SURFACTANT RAW MATERIALS, SURFACTANTS, CONSUMER PRODUCTS_

Surfactant raw materials

LAB (linear alkyl benzene) is the key feedstock for producing LAS (alkyle benzene sulfonate) which is a major biodegradable synthetic surfactant. The latter is the most crucial raw material for producing synthetic detergents (made from petrochemicals and native sources, such as palm oil or coconut oil when it comes to washing-activeness and in terms of excellent environmental compatibility.

Approx. 760 kilograms are needed to produce one ton of LAS. Plainly, HANSA Group’s emphasis on captive use in-house to feed downstream operations like Genthin’s LAS facilities ensures high security of raw material supply which is imperative for consumer goods business like LUHNS. with respect to business done with discount retailers. Such reliance on in-house sources of feedstock also dampens costs volatility given virtually nil need to source raw material (LAB) from third parties. We generally expect operating margins of HANSA Group to reflect steadiness in coming years especially for that reason.



Sufactants

The most critical ingredient for detergents and household cleansers is LAS (liner alkyle benzene sulfonate) which is bio-degradable thanks to the merits of LAB. HANSA’s subsidiary WIBARCO produces LAB since more than 30 years in which it has gained high reputation as a highly reliable and high-quality maker. There is no waste of by products during the production process with acid chloride and heavy alkyl benzene sold to third parties (e.g. lubricants).

HANSA Group has substantially upgraded value adding within the portfolio by integrating WIBARCO and WWG (Waschmittelwerke Genthin), apart from existing sites Düren and Ibbenbühren. Together with LAB production subsequent value adding to LAS (and other sulfates etc) is thus decent in efficiency terms.

Depending on price differentials oleochemical-based surfactants (i.e. based on coconut, palm oil) can be used for producing care chemicals (mostly applying to cosmetics). Still, much of the impetus to switch from petrochemical-based surfactants is supply availability and costs. High petroleum prices and growing supply of Asian palm oil has driven the replacement of petrochemical-based alcohols with oleochemical-derived ones for several years. Alcohol is a major raw material for surfactant manufacture.

Oleochemicals are particularly competitive in Southeast Asia, now accounting (oleo alcohols) for almost 70% of global detergent alcohols. However, natural oil costs are set to show large volatility in future due to adverse weather and continued consolidation in the global oleochemical industry. We believe emphasis on petrochemical based surfactants should pay in the coming year as Asia will increasingly rely on olechemicals which should help improve petrochemical-based surfactants’ economies.

Feedstock split petrochemicals versus native oils (coconut, palmoil) at HANSA Group is roughly 70:30. This mirrors greater emphasis on detergents and cleansers than cosmetics, the latter mostly relying on oleo-chemicals for dermatologic reasons. LUHNS is mostly active in detergents and cleansers.

Private label markets accelerating

We believe HANSA Group is a beneficiary of opportunistic growth of private label retailers. This is because of

__Low cost manufacturing base offers headroom to increase profitability despite muted product price inflation due to cost synergies along the value added chain

__Focus on anionic surfactants is warranted due to disproportional growth potential in soft conditioners, low-duty detergents

__Large growth potential to tap especially in Eastern Europe but also looking further into the future. USA. by moving synchronized with customers, e.g. Aldi et al


13

__Private label is poised to gain market shares worldwide; penetration highest in Europe (for example. 34% in Germany) and lower in emerging markets (for example 3% in Russia). USA relatively low too (19%. all based on Nielsen data).

Consumer products (LUHNS)

HANSA Group purchased regional consumer good producer (detergents, cleansers, cosmetics) LUHNS in May 2010. The new entity faces optimal backward integration namely into surfactants, the key building block of LUHNS’ products. LUHNS generated ca. €170m revenues in 2008.

LUHNS is a supplier to major discount retail groups such as Aldi, Edeka, Schlecker et al. While constant concentration among discounters has intensified price pressure from the viewpoint of suppliers like LUHNS. HANSA Group offer cost competitiveness and quality due to the superior (versus competitors) value adding shape within the business portfolio.

VALUE ADDED CHAIN: SURFACTANT RAW MATERIALS, SURFACTANTS, CONSUMER PRODUCTS_



The personal care industry (cosmetics, toiletry, detergents, perfumery) has demonstrated resilience to economic fluctuations in the recent past, witness the rather narrow range-bound trending of producer prices since 1998.

Producer price trend German detergents & body care

Pricing apparently is not much sensitive to production volatility tough. Volumes declined sharply in 2009 as companies scaled down output volumes sharply in order to preserve corporate liquidity. But prices for end products held up very well, rising 1% year-on-year.

Production trend German detergents & body care

Sector profile

1%

0%

2%

3%

2002 200420031998 1999 2000 2001 2005 2006 2007 2008 2009

Source: VCI

-10%

6%

8%

10%

2002 200420031998 1999 2000 2001 2005 2006 2007 2008 2009

4%

2%

0%

-2%

-4%

-6%

-8%

Source: VCI


15SECTOR PROFILE_

In revenue terms the domestic markets for detergents, care and cleaning products outperformed the care-products sector in 2009, recording an increase of 3.7% y/y versus +1.7% y/y respectively. According to IKW, the German association of care chemicals, the German market was worth roughly €4bn in 2009. Global market value was approx. €91bn with Europe accounting for approx. 30%. North America approx. 25%Asia approx. 35% and South America approx. 10%.

(Chemicals, surfactants et al) account for approx. one fifth of the detergents/cleansers volume, as feedstock, P&G is the leader in the household segment with some 27% share, followed by Unilever 21%. Henkel 7% and Reckitt Benckiser 5%. HANSA Group is supplier of surfactants etc. to many of those majors.

The global market for detergent and cleansers is largely driven by growth of population (namely emerging countries) and consumer preference, e.g. seeking lowest prices for products but demanding certain quality. The latter paves the way for retail discounters such as Aldi, Lidl et al.

We anticipate lively demand for consumer goods in Europe, namely in Germany, in 2011 and beyond. For 2011 we estimate real GDP in Germany to expand by 3% y/y.


16_SILVIA QUANDT RESEARCH GMBH

We derive a fair value for HANSA Group of €4.00 per share, based on 1) comparative peer analysis, 2) sum of parts, 3) EVA. Medium term, EVA metrics suggests continued share price enhancement to the tune of roughly 45% p.a.

Comparative peer analysis

We have compared HANSA Group to consumer goods makers Henke and McBride. The latter comes closest to HANSA Group in terms of business profiling. The XY analysis of EV/sales 2011e as a function of average EBITDA profitability on sales for 2010-13 indicates HANSA Group is undervalued relative to McBride. Trading on the same multiple as McBride, i.e. 50% EV/sales 2011e implies an intrinsic value for HANSA Group of €4.00 per share.

Comparative peer valuation

Sum of parts analysis

On sum-of-parts grounds we arrive at a fair value for HANSA Group of €4.10 per share. We use 1) Brenntag as a proxy for chemicals wholesale and 2) McBride as a proxy for retail discounter of care chemicals. We argue, that HANSA Group may well deserve to be rated level with McBride. As a bottom line, we believe the sum of parts analysis represents true and fair view of comparative valuation of HANSA Group versus peers but certainly highlights the stock’s undervaluation at current price.

Valuation

0,0

8% 12%10%0% 2% 4% 6% 14% 16% 18%

1,0

EV

/Sal

es 2

011e

(x)

AVG EBITDA ROS 2010-2013

R2 = 0.8572

0,8

0,6

0,4

0,2

Henkel

McBride

Hansa Group

Source: Silvia Quandt Research estimates

17


VALUATION_

Sum-of-parts valuation: Brenntag, McBride

EVA analysis

We forecast positive and steady-state progress in EVA creation in coming years. We assume 1) ROIC to more than quadruple in the period 2009 to 2013 as strong efficiency gains across the value chain materialise (lower NWC consumption relative to sales, higher fixed asset turnover, higher operating margins), 2) capital costs will only modestly increase thanks to decreasing gearing, higher earnings visibility and stability (reflected in lower beta).

HANSA Group EVA: steady progress going forward

Historically, share price trends have traced EVA progression very closely. Hence we look for steady enhancement of HANSA Group share price suggested by the positive EVA trend to stick in the coming years. On those grounds we look for circa 45% p.a. price enhancement.

EBITDA ROS 2011e peer(s)

EBITDA ROS 2011e

EV/sales proxy

EV/EBITDA proxy

EV(EV/sales)

EV (EV/EBITDA)

Proxy

Wholesale 7.8% 8.1% 0.60 7.6 80 82 Brenntag

Consumer Goods 8.5% 7.4% 0.50 5.3 181 142 McBride

Implied EV 243 261 224

Net debt 2011e -44

Minorities 2011e 0

Equity value 198

No. Shares (m) 48.22

Fair value per share (€) 4.1


0

2011 201320122007 2008 2009 2010

10 40

25

30

35

20

15

10

5

0

-5

-10

EVA (€m)

8

6

4

2




Strengths

__Efficient value added range thanks to backward integration into feedstock (namely LAB), potentially reduces margin and profit volatility over the cycle

__Full capacity loading of surfactants and surfactant raw materials after adding LUHNS and providing other services (contract manufacturing)

__Lean costs (overhead, labour) profile versus larger consumer goods producers (Henkel, P&G et al)

__Care chemicals market rather resilient to economic cycles

Weaknesses

__HANSA Group less competitive in surfactants other than anionic surfactants, due to lack of backward integration into EO (ethylene oxide) et al

__Low market share in non-ionic surfactants

Opportunities

__Substantial market growth offered in Eastern Europe, Russia, North Africa (all types of surfactants)

__Pricing power gains through larger surfactant capacities (as a buyer of feedstock, e. g. N-paraffine, benzene)

__Prospering consumer goods markets in Europe in coming years

__Optimization of Genthin site will impact group profitability strongly. due to implementing decent cost structures

Threats

__Strong competition in Europe

__Discount retailers very price sensitive versus suppliers (e. g. Aldi versus HANSA Group)

SWOT

19


APPENDIX_

Appendix

P&L


(€ m) 2009 2010e 2011e 2012e

Sales 196.1 402.3 495.8 525.5

Costs of sales -146.4 -313.8 -381.7 -399.4

% of sales 74.8% 78.0% 77.0% 76.0%

Gross Profit 49.7 88.5 114.0 126.1

Gross ROS 25.3% 22.0% 23.0% 24.0%

Other operating income 42.9 0.0 0.0 0.0

Labour costs -12.0 -29.4 -36.7 -38.9

% of sales -6.1% -7.3% -7.4% -7.4%

Other operating expenses -24.4 -36.2 -39.7 -42.0

EBITDA 55.7 22.9 37.7 45.2

EBDITA ROS 28.4% 5.7% 7.6% 8.6%

EBIT 50.3 11.2 24.0 31.5

EBIT margin 25.7% 2.8% 4.8% 6.0%

Interest expenses -3.8 -4.5 -5.0 -5.0

Interest income 0.8 0.8 0.8 0.8

Net interest expenses -3.0 -3.7 -4.2 -4.2

PTP 47.3 7.5 19.8 27.3

PTP ROS 24.1% 1.9% 4.0% 5.2%

Income taxes -1.7 -2.6 -6.9 -9.6

Tax rate 3.6% -35.0% -35.0% -35.0%

Net Profit 45.6 4.9 12.9 17.7

Net Profit ROS 23.3% 1.2% 2.6% 3.4%

Minorities 0.0 0.0 0.0 0.0

Attributable income 45.6 4.9 12.9 17.7

Adjusted Net Profit 45.6 4.9 12.9 17.7

Total aver. # of shares (m) 48.22 48.22 48.22 48.22

Attributable EPS 0.95 0.10 0.27 0.37

Adjusted EPS 0.95 0.10 0.27 0.37

DPS (€) 0.00 0.00 0.00 0.00

Ratios

ROCE 32.6% 5.3% 10.4% 13.7%

FCFF return on sales 23.8% 1.7% 7.3% 8.8%

ROE 66.6% 4.4% 9.2% 11.5%

Sales/Capital employed (x) 1.27 1.90 2.15 2.29

Interest cover (x) 14.24 3.50 5.80 7.30

Payout ratio 0.0% 0.0% 0.0% 0.0%



Balance sheet


(€ m) 2009 2010e 2011e 2012e

Goodwill & intangible assets 5 65 66 66

Property, plant & equipment 157 165 162 158

Other fixed assets, financials 2 3 4 5

Fixed Assets 164 233 231 229

Inventories 24 24 29 34

Trade accounts receivable 41 41 46 51

Trade accounts payable 35 65 73 80

Net working capital 30 0 2 5

Liquid funds 15 18 34 52

Other assets 3 15 15 15

Capital employed 192 231 230 229

382

Stated Equity 48 48 48 48

Group reserves 43 85 98 115

Shareholders equity 91 133 146 163

Minorities 0 0 0 0

Total equity 91 133 146 163

Pension provisions 4 8 9 10

Other provisions 2 6 7 8

Total provisions 6 14 16 18

Short term debt 37 37 37 37

Long term debt 34 34 34 34

Interest bearing debt 70 70 70 70

Other liabilities 45 50 50 50

Total liabilities 247 332 355 382

Ratios 2009 2010 2011 2012

BVPS 1.4 2.3 2.9 3.2

NWC/Sales 9.7% 3.8% 0.3% 0.7%

Net gearing 74.3% 53.1% 37.7% 23.7%

Sales/Capital employed (x) 1.27 1.90 2.15 2.29

Current ratio (x) 2.02 1.64 1.40 1.61

Debtor turnover (days) 59.8 37.1 31.9 33.5

Stock turnover (days) 35.2 21.5 19.2 21.6

Creditor turnover (days) 60.2 44.8 50.2 52.5

21


Cash flow


(€ m) 2009 2010e 2011e 2012e

Operating Activities

Net profit 46 5 13 18

Depreciation & amortization 5 12 14 14

Cash earnings 51 17 27 31

Allocation to pensions 1 4 1 1

Cash flow 52 21 28 32

Special items 0 0 0 0

Other provisions 0 4 1 1

Working capital -27 0 -10 -10

Other liabilities 11 0 0 0

Change in other assets 0 0 0 0

Accounts payable 0 30 8 7

Cash operations 35 55 27 30

Investment Activities

Intangibles -12 -60 -1 -1

Tangibles -7 -20 -10 -10

Financials -7 -1 -1 -1

Disposals 4 0 0 0

Acquisitions 0 0 0 0

Cash investment activities -22 -81 -12 -12

Free cash flow 13 -26 15 19

Financing Activities

Shares 0 0 0 0

Debt 16 0 0 0

Minorities 0 0 0 0

Dividend paid to shareholders 0 0 0 0

Cash financing activities 16 0 0 0

Effect of FX/others on cash -29 30 0 0

Increase (decrease) in cash and cash equivalents

1 4 15 19

Cash and cash equivalents at beginning of fiscal year

14 15 18 34

Cash and cash equivalents at end of fiscal year

15 18 34 52

Net cash/(debt) beginning of yr -43 -59 -60 -46

Net cash/(debt) end of yr -59 -60 -46 -28

APPENDIX_



EVA


(€ m) 2009 2010e 2011e 2012e

Net Tangible Assets 135.3 196.3 228.8 225.6

Working Capital 19.0 15.3 1.3 3.8

Invested Capital 154.2 211.6 230.1 229.4

NOPAT 48.5 15.2 32.4 42.5

Invested Capital Turnover (Sales/IC)

105% 190% 215% 229%

ROIC 5.2% 7.2% 14.1% 18.5%

WACC

Mkt Cap 91.0 132.9 145.8 70.3

Debt+Market Cap 153.2 203.2 216.1 233.8

Debt

Share Debt (Debt/(Debt+Mkt cap) 40.6% 34.6% 32.5% 30.1%

Market cost of Debt (10 yr bond yield)

3.0% 3.4% 3.6% 3.8%

(1-tax rate) 96.4% 135.0% 135.0% 135.0%

Net cost of Debt 5.8% 8.6% 8.9% 9.2%

Equity

Proportion of Mkt cap 59.4% 65.4% 67.5% 69.9%

Market risk Premium 5.0% 5.0% 5.0% 5.0%

Beta 1.25 1.10 1.03 0.93

Cost of Mkt cap (equity) 9.3% 8.9% 8.7% 8.4%

WACC 7.8% 8.8% 8.8% 8.7%

Return on reinvestment (RORI=ROIC-WACC)

-2.6% -1.6% 5.3% 9.9%

Invested capital 154.2 211.6 230.1 229.4

EVA=economic profit -4.1 -3.5 12.2 22.7

This analysis was prepared by Harald Gruber, Head of Chemicals Research, and was first published on 22 November 2010. Silvia Quandt Research GmbH, Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439 Frankfurt.

Publication according to article 5 (4) no. 3 of the German Regulation concerning the analysis of financial instruments (Finanzanalyseverordnung):

Company disclosuresArticle 34b of the German Securities Trading Act (Wertpapierhandelsgesetz) in combination with the German regulation concerning the analysis of financial instruments (Finanzanalyseverordnung) requires an enterprise preparing a securities analysis to point out possible conflicts of interest with respect to the company or companies that are the subject of the analysis. A conflict of interest is presumed to exist, in particular, if an enterprise prepar-ing a securities analysis:

(a) holds more than 5 % of the share capital of the company or companies analysed;(b) has lead managed or co-lead managed a public offering of the securities of the company or companies in the previous 12 months;(c) has provided investment banking services for the company or companies analysed during the last 12 months for which a compensation has been or will be paid;(d) is serving as a liquidity provider for the company’s securities by issuing buy and sell orders;(e) is party to an agreement with the company or companies that is the subject of the analysis relating to the production of the recommendation;(f) or the analyst covering the issue has other significant financial interests with respect to the company or companies that are the subject of this analysis, for example

holding a seat on the company’s boards.

In this respective analysis the following of the above-mentioned conflicts of interests exist: c

Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG, and its affiliated companies regularly hold shares of the analysed company or companies in their trading portfolios. The views expressed in this analysis reflect the personal views of the analyst about the subject securities or issuers. No part of the analyst’s compensation was, is or will be directly or indirectly tied to the specific recommendations or views expressed in this analysis. It has not been determined in advance whether and at what intervals this report will be updated.

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This publication has been prepared and published by Silvia Quandt Research GmbH, a subsidiary of Silvia Quandt & Cie. AG. This publication is intended solely for distribu-tion to professional and business customers of Silvia Quandt & Cie. AG. It is not intended to be distributed to private investors or private customers. Any information in this report is based on data obtained from publicly available information and sources considered to be reliable, but no representations or guarantees are made by Silvia Quandt Research GmbH with regard to the accuracy or completeness of the data or information contained in this report. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. Prior to this publication, the analysis has not been communicated to the analysed companies and changed subsequently. This report is for information purposes only; it is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. In compliance with statutory and regulatory provisions, Silvia Quandt & Cie. AG and Silvia Quandt Research GmbH have set up effective organisational and administrative arrangements to prevent and avoid possible conflicts of interests in preparing and transmitting analyses. These include, in particular, inhouse information barriers (Chinese walls). These information barriers apply to any information which is not publicly available and to which any of Silvia Quandt & Cie. AG and Silvia Quandt Research GmbH or its affiliates may have access from a business relationship with the issuer. For statutory or contractual reasons, this information may not be used in an analysis of the securities and is therefore not included in this report. Silvia Quandt & Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may conduct or may have conducted transactions for their own account or for the account of other parties with respect to the securities mentioned in this report or related investments before the recipient has received this report. Silvia Quandt & Cie.AG and Silvia Quandt Research GmbH or its affiliates, its executives, managers and employees may hold shares or positions, possibly even short sale positions, in securities mentioned in this report or in related investments. Silvia Quandt & Cie. AG in particular may provide banking or other advisory services to interested parties. Neither Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG or its affiliates nor any of its officers, shareholders or employees accept any liability for any direct or consequential loss arising from any use of this publica-tion or its contents. Copyright and database rights protection exists in this publication and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of Silvia Quandt Research GmbH. All rights reserved. Any investments referred to herein may involve significant risk, are not necessarily available in all jurisdictions, may be illiquid and may not be suitable for all investors. The value of, or income from, any investments referred to herein may fluctuate and/or be affected by changes in exchange rates. Past performance is not indicative of future results. Investors should make their own investment decisions without relying on this publication. Only investors with sufficient knowledge and experience in financial matters to evaluate the merits and risks should consider an investment in any issuer or market discussed herein and other persons should not take any action on the basis of this publication.

Specific notices of possible conflicts of interest with respect to issuers or securities forming the subject of this report according to US or English law: None

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Frankfurt am Main, 22 November 2010

Silvia Quandt Research GmbH . Grüneburgweg 18 . 60322 Frankfurt am Main . Germany . Tel: + 49 69 95 92 90 93 -0 . Fax: + 49 69 95 92 90 93 – 11

Number of recommendations from Silvia Quandt Research GmbH in 2010 Thereof recommendations for issuers to which investment banking services were pro-vided during the preceding twelve months

Buy 67 29

Neutral 24 2

Avoid 9 0

Silvia Quandt Research GmbH

Grüneburgweg 1860322 Frankfurt, Germany Fon: +49 (69) 95 92 90 93-0 Fax: +49 (69) 95 92 90 [email protected]

22 November 2010

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