Rofin-Sinar (CDAX, Technology)

CO M M E N T Publ ished 13 .11 .2015 1

A n a l y s t

Eggert Kuls ekuls@warburg-research.com

+49 40 309537-256

Value Indicators: EUR Share data: Description:

DCF: 28.30

FCF-Value Potential 16e: 32.23

Bloomberg: RSI GR

Reuters: RSTI

ISIN: US7750431022

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

Market Snapshot: EUR m Shareholders: Risk Profile (WRe): 2015/16e

Buy

EUR 30.00

Price EUR 25.86

Upside 16.0 %

Market cap: 724

No. of shares (m): 28

EV: 619

Freefloat MC: 724

Ø Trad. Vol. (30d): 3.75 m

Freefloat 100.0 %

Beta: 1.1

Price / Book: 1.3 x

Equity Ratio: 79 %

Q4 figures beat guidance; Strong earnings growth ahead

Stated Figures Q4/2014/15: Comment on Figures: FY End: 30.9. in USD m

Q4 14/15

Q4 14/15e

Q4 13/14 yoy 14/15 14/15e 13/14 yoy

Sales 142 139 146 -3 % 520 517 530 -2 %

EBIT 21 21 15 41 % 56 56 34 65 %

Margin 15.1 % 15.1 % 10.5 % 10.8 % 10.8 % 6.4 %

Net income 15 15 12 24 % 41 41 25 64 %

Margin 10.4 % 10.6 % 8.2 % 7.9 % 8.0 % 4.7 %

EPS 0.52 0.52 0.43 22 % 1.46 1.46 0.89 63 %

� Company reported order intake of USD 128.8m in Q4, down 9% yoy, but flat adjusted for FX

� Q4 turnover came in at USD 142m, beating our estimate and the quarterly guidance (USD 135–140m) driven by strong business with high power fibre and ultra short pulse laser, where sales more than doubled

� Results came in as expected. Net profit rose by 24% and EPS by 22% yoy. The EBIT margin amounted to 16.2% in Q4, up 480bps yoy

We keep our Buy recommendation on Rofin-Sinar shares following the release of strong Q4 figures. Price target, derived from DCF and FCF

value potential, remains unchanged at EUR 30.00.

While Q4 order intake looks slightly disappointing at first glance, the picture looks far better when adjusting for FX (-9% as reported, flat on

constant currencies). While Europe and North America were robust, the Asian business declined, but was flat adjusted for FX. Gross margin

arrived at 39.6% (expected 40.9%), up 20bps sequentially. Previously, Rofin-Sinar guided for a gross profit margin of at least 40% for Q4. Main

reason for the deviation was negative currency impact, management said. While Rofin-Sinar is accounting in USD, some 70% of business is

not USD-denominated.

Rofin-Sinar has guided for Q1 2015/16 turnover of USD 113–118m and EPS of between USD 0.19–0.24 as well as USD 525–545m and EPS

of USD 1.70–1.90 for fiscal 2015/16, ending September 30. Our 2015/16 estimates are already almost at the upper end of the guided ranges.

Q1 guidance is well below the figures generated in Q4 2014/15 and follows the usual seasonal pattern with stronger business from Q2

onwards. In addition, Q1 gross profit margin is expected to be 35–36% only, due to a less favourable product mix. At the mid-points, the FY

2015/16 guidance includes some 3% top-line growth and 23% net profit expansion. This reflects the efforts of management to return gross

profit margin in the direction of 40%+ driven by a new generation of fibre and ultra-short pulse lasers as well as the ramp-up of in-house

production of critical components for high-power fibre laser, so far expensively supplied to the company. Management sees the reduction of

costs in production of high power fibre laser at a high single-digit million USD figure. In addition, the company has started some measures to

improve the cost base further for example by merging subsidiaries in Germany, Switzerland and the US which should lead to savings of some

USD 5m in 2016 with more to come in 2017.

In the light of rather strong balance sheet ratios (equity ratio 76.8%, USD 152m net financial cash), Rofin-Sinar will start a new share buy-back

programme of up to USD 50m or almost 7% of its market capitalisation, which shall be executed over the next 18 months. During the

conference call management stated that in future too, excess cash is intended to be handed back to shareholders via share buy-backs.

Rel. Performance vs CDAX:

1 month: 0.2 %

6 months: 8.7 %

Year to date: -2.2 %

Trailing 12 months: 10.9 %

Company events:

FY End: 30.9. in USD m

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

Sales 3.7 % 598 540 560 530 520 543 559

Change Sales yoy 41.1 % -9.6 % 3.7 % -5.3 % -2.0 % 4.5 % 3.0 %

Gross profit margin 38.8 % 36.4 % 35.1 % 35.6 % 37.8 % 39.3 % 39.8 %

EBITDA 13.2 % 97 64 67 54 77 93 99

Margin 16.2 % 11.9 % 12.0 % 10.2 % 14.8 % 17.1 % 17.7 %

EBIT 16.6 % 84 50 49 34 56 71 76

Margin 14.0 % 9.3 % 8.8 % 6.4 % 10.8 % 13.1 % 13.6 %

Net income 16.8 % 60 35 35 25 41 53 56

EPS 16.7 % 2.06 1.20 1.22 0.89 1.46 1.86 1.99

EPS adj. 16.7 % 2.06 1.20 1.22 0.89 1.46 1.86 1.99

DPS - 0.00 0.00 0.00 0.00 0.00 0.00 0.00

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

FCFPS 0.76 -0.62 1.47 0.40 1.47 1.29 1.38

FCF / Market cap 3.0 % -0.8 % 6.0 % 3.7 % 4.8 % 4.6 % 4.9 %

EV / Sales 1.4 x 1.1 x 1.1 x 1.1 x 1.2 x 1.2 x 1.1 x

EV / EBITDA 8.7 x 9.2 x 8.8 x 10.6 x 7.8 x 6.9 x 6.0 x

EV / EBIT 10.1 x 11.7 x 12.0 x 16.9 x 10.8 x 9.0 x 7.8 x

P / E 15.7 x 18.8 x 19.5 x 26.7 x 17.7 x 15.0 x 14.0 x

P / E adj. 15.7 x 18.8 x 19.5 x 26.7 x 17.7 x 15.0 x 14.0 x

FCF Yield Potential 7.0 % 6.0 % 6.6 % 5.6 % 8.2 % 9.5 % 10.9 %

Net Debt -90 -58 -94 -101 -125 -164 -207

ROCE (NOPAT) 16.0 % 8.1 % 7.8 % 5.2 % 9.3 % 11.8 % 12.2 % Guidance: 2015/16: Sales USD 525-545m, EPS USD 1.70 - 1.90

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 2

Sales development in EUR m

Source: Warburg Research

Sales by regions 2014; in %

Source: Warburg Research

EBIT development in EUR m

Source: Warburg Research

Company Background

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

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

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

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

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

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

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

various other industries.

Competitive Quality

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

Trumpf (Germany).

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

Jenoptik for diode lasers.

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

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

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

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

continuous expansion of the application possibilities.

EBT development in EUR m

Source: Warburg Research

Sales by segments 2014; in %

Source: Warburg Research

Net income development in EUR m

Source: Warburg Research

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 3

DCF model

Detailed forecast period Transitional period Term. Value

Figures in USD m 15/16e 16/17e 17/18e 18/19e 19/20e 20/21e 21/22e 22/23e 23/24e 24/25e 25/26e 26/27e 27/28e

Sales 543 559 582 605 629 654 680 708 736 765 796 828 n.a.

Sales change 4.5 % 3.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % n.a. 1.0 %

EBIT 71 76 76 79 82 85 82 85 88 92 96 99 n.a.

EBIT-margin 13.1 % 13.6 % 13.0 % 13.0 % 13.0 % 13.0 % 12.0 % 12.0 % 12.0 % 12.0 % 12.0 % 12.0 % n.a.

Tax rate (EBT) 28.0 % 28.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % 30.0 % n.a.

NOPAT 51 55 53 55 57 60 57 59 62 64 67 70 n.a.

Depreciation 22 23 23 24 25 26 27 28 29 31 18 19 n.a.

in % of Sales 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 2.3 % 2.3 % n.a.

Changes in provisions 2 2 1 1 1 1 1 1 2 2 2 2 n.a.

Change in Liquidity from

- Working Capital 10 11 17 12 12 13 13 14 14 15 15 16 n.a.

- Capex 25 26 23 24 25 26 27 28 29 31 24 25 n.a.

Capex in % of Sales 4.6 % 4.6 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 3.0 % 3.0 % n.a.

Other 0 0 0 0 0 0 0 0 0 0 0 0 n.a.

Free Cash Flow (WACC Model)

40 43 37 45 46 48 46 47 49 51 48 50 n.a. 55

PV of FCF 38 38 30 34 33 32 28 27 26 25 22 21 n.a. 357 share of PVs 16.70 % 36.40 % 46.90 %

Model parameter Valuation (m)

Derivation of WACC: Derivation of Beta: Present values 2027/28e 404

Terminal Value 357

Debt ratio 5.00 % Financial Strength 1.00 Financial liabilities 15

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

Market return 7.00 % Cyclicality 1.50 Hybrid capital 0

Risk free rate 1.50 % Transparency 1.00 Minority interest 8

Others 1.20 Market val. of investments 0

Liquidity 142 No. of shares (m) 28.2

WACC 7.52 % Beta 1.14 Equity Value 854 Value per share (USD) 30.28

Sensitivity Value per Share (USD)

Terminal Growth Delta EBIT-margin

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

1.33 8.5 % 25.93 26.21 26.51 26.83 27.16 27.52 27.91 1.33 8.5 % 23.24 24.44 25.63 26.83 28.02 29.21 30.41

1.24 8.0 % 27.36 27.69 28.05 28.43 28.84 29.28 29.76 1.24 8.0 % 24.59 25.87 27.15 28.43 29.71 30.99 32.27

1.19 7.8 % 28.14 28.50 28.90 29.32 29.77 30.26 30.80 1.19 7.8 % 25.34 26.67 27.99 29.32 30.65 31.97 33.30

1.14 7.5 % 28.98 29.38 29.81 30.28 30.78 31.33 31.92 1.14 7.5 % 26.15 27.52 28.90 30.28 31.66 33.04 34.42

1.09 7.3 % 29.88 30.32 30.80 31.32 31.88 32.49 33.15 1.09 7.3 % 27.02 28.45 29.89 31.32 32.75 34.19 35.62

1.04 7.0 % 30.84 31.34 31.87 32.44 33.07 33.76 34.50 1.04 7.0 % 27.96 29.46 30.95 32.44 33.94 35.43 36.93

0.95 6.5 % 33.01 33.62 34.28 35.01 35.80 36.67 37.63 0.95 6.5 % 30.12 31.75 33.38 35.01 36.64 38.27 39.90

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

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

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

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 4

Free Cash Flow Value Potential Warburg Research's valuation tool "FCF Value Potential" reflects the ability of the company to generate sustainable free cash flows. It is based on the "FCF potential" - a FCF "ex growth" figure - which assumes unchanged working capital and pure maintenance capex. A value indication is derived via the perpetuity of a given year’s “FCF potential” with consideration of the weighted costs of capital. The fluctuating value indications over time add a timing element to the DCF model (our preferred valuation tool). in USD m 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16e 2016/17e

Net Income before minorities 61 35 35 25 41 52 56

+ Depreciation + Amortisation 13 14 18 20 21 22 23

- Net Interest Income 0 0 0 0 0 0 0

- Maintenance Capex 15 14 14 13 13 14 14

+ Other 0 0 0 0 0 0 0

= Free Cash Flow Potential 59 36 39 32 49 61 65

Free Cash Flow Yield Potential 7.0 % 6.0 % 6.6 % 5.6 % 8.2 % 9.5 % 10.9 %

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

= Enterprise Value (EV) 846 589 588 575 603 637 596 = Fair Enterprise Value 785 474 517 427 655 807 863

- Net Debt (Cash) -127 -127 -127 -127 -152 -194 -238

- Pension Liabilities 26 26 26 26 27 29 31

- Other 0 0 0 0 0 0 0

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

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

= Fair Market Capitalisation 881 570 614 524 775 966 1,062

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

= Fair value per share (USD) 30.71 20.01 21.60 18.60 27.70 33.77 37.13

premium (-) / discount (+) in % 21.4 % 33.5 %

Sensitivity Fair value per Share (USD)

10.52 % 23.48 15.54 16.65 14.35 21.02 26.27 29.14

9.52 % 25.59 16.81 18.03 15.49 22.78 28.43 31.46

8.52 % 28.18 18.38 19.74 16.91 24.95 31.11 34.31

WACC 7.52 % 31.47 20.37 21.91 18.70 27.70 34.49 37.93

6.52 % 35.77 22.96 24.74 21.04 31.28 38.91 42.65

5.52 % 41.62 26.50 28.60 24.22 36.17 44.93 49.09

4.52 % 50.07 31.59 34.16 28.82 43.22 53.62 58.37

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

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

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 5

Peer Group

Company

Price EV / Sales EV / EBITDA EV / EBIT P / E EPS CAGR

Prices in local currency 15/16e 15/16e 16/17e 15/16e 16/17e 15/16e 16/17e (14/15-16/17e)

Coherent 62,11 1,3 6,8 5,4 8,4 6,9 15,1 13,3 10,7 %

IPG Photonics 90,80 3,8 8,8 7,6 9,8 8,4 17,6 15,1 14,6 %

Manz 36,75 0,9 13,1 8,0 32,9 13,7 64,7 18,6 -

Muehlbauer Holding 22,63 - - - - - - - -

OC Oerlikon 9,98 1,0 5,8 5,1 8,6 7,4 13,6 11,9 13,1 %

Pfeiffer Vacuum 106,70 2,1 11,0 9,9 14,1 12,2 21,5 19,1 11,8 %

Coherent 61.56 1.3 6.6 5.3 8.2 6.7 14.8 13.0 10.7 %

IPG Photonics 86.72 3.9 9.0 7.7 10.0 8.6 18.0 15.4 14.6 %

Manz 35.21 0.9 12.5 7.6 31.3 13.0 61.0 17.5 -

Muehlbauer Holding 22.82 - - - - - - - -

OC Oerlikon 9.77 1.0 6.0 5.3 8.9 7.7 13.7 12.0 13.1 %

Pfeiffer Vacuum 106.50 2.1 11.1 10.0 14.2 12.3 21.6 19.3 11.8 %

Average 1.8 9.0 7.2 14.5 9.6 25.8 15.4 12.5 %

Median 1.3 9.0 7.6 10.0 8.6 18.0 15.4

Rofin-Sinar 25.86 1.2 6.9 6.0 9.0 7.8 15.0 14.0

Valuation difference to median -10.3 % -24.0 % -20.8 % -10.6 % -8.9 % -16.7 % -9.2 %

� P

Valuation

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

Price / Book 1.9 x 1.3 x 1.2 x 1.2 x 1.3 x 1.3 x 1.2 x

Book value per share ex intangibles 12.94 12.98 14.64 14.60 14.82 16.36 18.37

EV / Sales 1.4 x 1.1 x 1.1 x 1.1 x 1.2 x 1.2 x 1.1 x

EV / EBITDA 8.7 x 9.2 x 8.8 x 10.6 x 7.8 x 6.9 x 6.0 x

EV / EBIT 10.1 x 11.7 x 12.0 x 16.9 x 10.8 x 9.0 x 7.8 x

EV / EBIT adj.* 10.1 x 11.7 x 12.0 x 16.9 x 10.8 x 9.0 x 7.8 x

P / FCF 33.0 x n.a. 16.6 x 26.7 x 20.9 x n.a. n.a.

P / E 15.7 x 18.8 x 19.5 x 26.7 x 17.7 x 15.0 x 14.0 x

P / E adj.* 15.7 x 18.8 x 19.5 x 26.7 x 17.7 x 15.0 x 14.0 x

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

Free Cash Flow Yield Potential 7.0 % 6.0 % 6.6 % 5.6 % 8.2 % 9.5 % 10.9 %

*Adjustments made for: -

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 6

Consolidated profit and loss In USD m 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16e 2016/17e

Sales 598 540 560 530 520 543 559

Change Sales yoy 41.1 % -9.6 % 3.7 % -5.3 % -2.0 % 4.5 % 3.0 %

COGS 366 344 364 341 323 330 337

Gross profit 232 196 197 189 196 213 222

Gross margin 38.8 % 36.4 % 35.1 % 35.6 % 37.8 % 39.3 % 39.8 %

Research and development 38 43 43 46 40 41 42

Sales and marketing 0 0 0 0 0 0 0

Administration expenses 108 101 102 106 97 98 101

Other operating expenses 0 0 0 0 0 0 0

Other operating income 0 0 0 0 0 0 0

Unfrequent items 0 0 0 0 0 0 0

EBITDA 97 64 67 54 77 93 99

Margin 16.2 % 11.9 % 12.0 % 10.2 % 14.8 % 17.1 % 17.7 %

Depreciation of fixed assets 10 12 15 17 18 19 19

EBITA n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Amortisation of intangible fixed assets 3 2 3 3 3 3 3

Goodwill amortization 0 0 0 0 0 0 0

EBIT 84 50 49 34 56 71 76

Margin 14.0 % 9.3 % 8.8 % 6.4 % 10.8 % 13.1 % 13.6 %

EBIT adj. 84 50 49 34 56 71 76

Interest income 1 n.a. n.a. n.a. n.a. n.a. n.a.

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

Other financial income (loss) 3 2 0 3 1 2 2

EBT 86 52 49 37 57 73 78

Margin 14.4 % 9.6 % 8.7 % 6.9 % 11.0 % 13.4 % 14.0 %

Total taxes 26 17 14 12 16 20 22

Net income from continuing operations 61 35 35 25 41 52 56

Income from discontinued operations (net of tax) 0 0 0 0 0 0 0

Net income before minorities 61 35 35 25 41 52 56

Minority interest -1 -1 0 0 0 0 0

Net income 60 35 35 25 41 53 56

Margin 10.0 % 6.4 % 6.2 % 4.7 % 7.9 % 9.7 % 10.1 %

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

EPS 2.06 1.20 1.22 0.89 1.46 1.86 1.99

EPS adj. 2.06 1.20 1.22 0.89 1.46 1.86 1.99

*Adjustments made for:

Guidance: 2015/16: Sales USD 525-545m, EPS USD 1.70 - 1.90

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

Total Operating Costs / Sales n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Operating Leverage 2.2 x 4.1 x -0.6 x 5.8 x -32.7 x 5.9 x 2.5 x

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

Tax rate (EBT) 30.3 % 33.2 % 28.9 % 31.4 % 27.6 % 28.0 % 28.0 %

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

Sales per Employee 303,125 244,067 247,271 230,486 223,984 236,099 243,182

Sales, EBITDA in EUR m

Source: Warburg Research

Operating Performance in %

Source: Warburg Research

Performance per Share

Source: Warburg Research

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 7

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

Assets

Goodwill and other intangible assets 103 128 128 128 128 128 128

thereof other intangible assets 12 25 25 25 25 25 25

thereof Goodwill 91 103 103 103 103 103 103

Property, plant and equipment 66 80 80 81 90 96 103

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

Other long-term assets 18 7 12 7 1 1 0

Fixed assets 187 213 219 215 218 224 230

Inventories 189 202 198 190 181 188 193

Accounts receivable 119 108 111 108 96 100 106

Liquid assets 130 101 137 142 176 217 261

Other short-term assets 29 28 35 34 36 38 39

Current assets 467 440 481 474 489 542 599

Total Assets 654 653 700 689 706 766 829

Liabilities and shareholders' equity

Subscribed capital 0 0 0 0 0 0 0

Capital reserve 218 218 221 224 229 234 239

Retained earnings 394 428 463 488 529 582 582

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

Shareholders' equity 474 498 543 539 543 596 653

Minority interest 5 5 6 8 9 9 9

Total equity 479 502 549 546 552 605 662

Provisions 101 99 94 89 95 102 109

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

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

thereof short-term financial liabilities 8 17 4 3 5 5 5

Accounts payable 27 27 25 23 23 25 25

Other liabilities 24 10 19 18 22 21 18

Liabilities 175 159 156 144 164 171 176

Total liabilities and shareholders' equity 654 653 700 689 706 766 829

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

Efficiency of Capital Employment

Operating Assets Turnover n.a. n.a. n.a. n.a. n.a. n.a. n.a.

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

ROA 32.2 % 16.2 % 15.9 % 11.7 % 18.9 % 23.5 % 24.5 %

Return on Capital

ROCE (NOPAT) 16.0 % 8.1 % 7.8 % 5.2 % 9.3 % 11.8 % 12.2 %

ROE 13.5 % 7.1 % 6.7 % 4.7 % 7.6 % 9.2 % 9.0 %

Adj. ROE 13.5 % 7.1 % 6.7 % 4.7 % 7.6 % 9.2 % 9.0 %

Balance sheet quality

Net Debt -90 -58 -94 -101 -125 -164 -207

Net Financial Debt -108 -79 -118 -127 -152 -194 -238

Net Gearing -18.8 % -11.5 % -17.2 % -18.5 % -22.6 % -27.2 % -31.2 %

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

Book Value / Share 16.5 17.5 19.1 19.1 19.4 20.8 22.8

Book value per share ex intangibles 12.9 13.0 14.6 14.6 14.8 16.4 18.4

ROCE Development

Source: Warburg Research

Net debt in EUR m

Source: Warburg Research

Book Value per Share in EUR

Source: Warburg Research

Rofin-Sinar

CO M M E N T Publ ished 13 .11 .2015 8

Consolidated cash flow statement In USD m 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16e 2016/17e

Net income 61 35 35 25 41 52 56

Depreciation of fixed assets 10 12 15 17 18 19 19

Amortisation of goodwill 0 0 0 0 0 0 0

Amortisation of intangible assets 3 2 3 3 3 3 3

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

Other non-cash income and expenses -15 -23 8 -16 -13 0 0

Cash Flow 77 24 56 24 56 81 86

Increase / decrease in inventory -28 -13 4 8 9 -7 -5

Increase / decrease in accounts receivable -23 11 -3 3 12 -4 -6

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

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

Increase / decrease in working capital (total) -27 -2 -1 9 22 -10 -11

Net cash provided by operating activities 50 22 57 36 69 61 65

Investments in intangible assets 0 0 0 0 0 0 0

Investments in property, plant and equipment 22 27 16 10 34 25 26

Payments for acquisitions 11 13 0 6 0 0 0

Financial investments -4 -1 -1 8 3 10 10

Income from asset disposals 0 0 0 0 10 10 10

Net cash provided by investing activities 29 39 16 24 27 25 26

Change in financial liabilities -3 0 -4 -2 0 0 0

Dividends paid 0 0 0 0 0 0 0

Purchase of own shares -9 -11 -4 -6 -17 0 0

Capital measures 7 0 3 2 5 5 5

Other 0 0 -4 -5 0 0 0

Net cash provided by financing activities -5 -9 -9 -11 -12 5 5

Change in liquid funds 17 -27 32 1 30 41 44

Effects of exchange-rate changes on cash 0 -2 3 -6 4 0 0

Cash and cash equivalent at end of period 127 101 137 142 176 217 261

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

Cash Flow

FCF 21 -17 42 11 42 36 39

Free Cash Flow / Sales 4.7 % -1.0 % 7.3 % 4.7 % 6.7 % 6.7 % 7.0 %

Free Cash Flow Potential 59 36 39 32 49 61 65

Free Cash Flow / Net Profit 47.0 % -15.4 % 117.6 % 99.9 % 83.8 % 69.2 % 69.6 %

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

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

Management of Funds

Investment ratio 3.6 % 5.1 % 2.9 % 2.0 % 6.5 % 4.6 % 4.6 %

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

Capex / Dep 167.2 % 195.9 % 90.5 % 51.4 % 161.5 % 114.7 % 115.0 %

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

Trade Debtors / Trade Creditors 440.9 % 405.1 % 449.9 % 475.8 % 409.9 % 408.2 % 424.0 %

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

Receivables collection period (days) 73 73 72 74 67 67 69

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

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

CAPEX and Cash Flow in EUR m

Source: Warburg Research

Free Cash Flow Generation

Source: Warburg Research

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LEGAL DISCLAIMER

This research report was prepared by the Warburg Research GmbH, a fully owned subsidiary of the M.M.Warburg & CO (AG & Co.) KGaA and is

passed on by the M.M.Warburg & CO (AG & Co.) KGaA. It contains selected information and does not purport to be complete. The report is based on

publicly available information and data ("the information") believed to be accurate and complete. Warburg Research GmbH neither does examine the

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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 analyses 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 research report, 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

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DISCLOSURE ACCORDING TO §34B (1) OF THE GERMAN SECURITIES TRADING ACT (WHPG) AND THE ORDINANCE ON THE ANALYSIS OF FINANCIAL INSTRUMENTS (FINANV)

The valuation underlying the investment recommendation for the company analysed here is based on generally accepted and widely used methods of

fundamental analysis, such as e.g. DCF Model, Free Cash Flow Potential, Peer Group Comparison or Sum of the Parts Model. The result of this

fundamental valuation is modified to take into consideration the analyst’s assessment as regards the expected development of investor sentiment and

its impact on the share price.

Independent of the applied valuation methods, there is the risk that the price target will not be met, for instance because of unforeseen changes in

demand for the company’s products, changes in management, technology, economic development, interest rate development, operating and/or

material costs, competitive pressure, supervisory law, exchange rate, tax rate etc. For investments in foreign markets and instruments there are further

risks, generally based on exchange rate changes or changes in political and social conditions.

This commentary reflects the opinion of the relevant author at the point in time of its compilation. A change in the fundamental factors underlying the

valuation can mean that the valuation is subsequently no longer accurate. Whether, or in what time frame, an update of this commentary follows is not

determined in advance.

In accordance with § 5 (4) of the Ordinance on the Analysis of Financial Instruments (FinAnV) Warburg Research GmbH has implemented additional

internal and organisational arrangements to prevent or to deal with conflicts of interest. Among these are the spatial separation of Warburg Research

GmbH from M.M.Warburg & CO (AG & Co.) KGaA and the creation of areas of confidentiality. This prevents the exchange of information, which could

form the basis of conflicts of interest for Warburg Research in terms of the analysed issuers or their financial instruments.

The analysts of Warburg Research GmbH do not receive a gratuity – directly or indirectly – from the investment banking activities of M.M.Warburg &

CO (AG & Co.) KGaA or of any company within the Warburg Group.

All prices of financial instruments given in this financial analysis are the closing prices on the last stock-market trading day before the publication date

stated, unless another point in time is explicitly stated.

M.M.Warburg & CO (AG & Co.) KGaA and Warburg Research GmbH are subject to the supervision of the Federal Financial Supervisory Authority,

BaFin.

SOURCES

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

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Additional information for clients in the United States

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

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

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

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 34b of the German Securities Trading Act (WpHG) and the Ordinance on the Analysis of Financial Instruments (FinAnV) regarding possible conflicts of interest with the analysed company:

-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

financial analysis.

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

the financial analysis, in a market based on the provision of buy or sell contracts

-4-

Warburg Research, or an affiliated company, were in the last twelve months bound by a service agreement with the issuers,

who are themselves or their financial instruments are, subject of the financial analysis, in connection with investment banking

business for which a service or a promise of a service emanated.

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

analysis with the analysed company.

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

these.

-7- The company preparing the analysis as well as its affiliated companies and employees have other important interests in

relation to the analysed company, such as, for example, the exercising of mandates at analysed companies.

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

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

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CO M M E N T Publ ished 13 .11 .2015 11

INVESTMENT RECOMMENDATION

Investment recommendation: expected direction of the share price development of the financial instrument up to the given price target in the opinion of

the analyst who covers this financial instrument.

-B- Buy: The price of the analysed financial instrument is expected to rise over the next 12 months.

-H- Hold: The price of the analysed financial instrument is expected to remain mostly flat over the next 12

months.

-S- Sell: The price of the analysed financial instrument is expected to fall over the next 12 months.

“-“ Rating suspended: The available information currently does not permit an evaluation of the company.

WARBURG RESEARCH GMBH – RESEARCH UNIVERSE BY RATING

Rating Number of stocks % of Universe

Buy 115 63

Hold 56 31

Sell 7 4

Rating suspended 5 3

Total 183 100

WARBURG RESEARCH GMBH – ANALYSED RESEARCH UNIVERSE BY RATING J

J taking into account only those companies which were provided with major investment banking services in the last twelve

months.

Rating Number of stocks % of Universe

Buy 20 69

Hold 6 21

Sell 2 7

Rating suspended 1 3

Total 29 100

PRICE AND RATING HISTORY ROFIN-SINAR AS OF 13.11.2015

The chart has markings if Warburg Research GmbH changed its

rating in the last 12 months. Every marking represents the date

and closing price on the day of the rating change.

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CO M M E N T Publ ished 13 .11 .2015 12

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