Tomorrow Focus. Q2 figures - Operating margin ahead of expectations. Hold. PT EUR 2.90 (old: 2.80)

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1 Hold (old: Hold) Q2 figures - Operating margin ahead of expectations PT EUR 2.90 (old: 2.80) Price EUR 2.76 Bloomberg Reuters Sector TFA GR TFAG Software Marketer of internet portals with editorial and user-generated contents. Revenues generated through online advertising as well as innovative B2C monetary assessment concepts Tomorrow Focus has published preliminary Q2 figures on August 3, Sales were in line with expectations. At 14.2%, the operating margin (EBIT) was 2.7 pp better than expected. The high earnings margin implies a disproportionate development of E-commerce, the most profitable segment. On top, earnings in the Portal segment also improved significantly in a poor market environment. Tomorrow Focus - Q in EUR m Q2/09 Q2/09e Q2/08 yoy 6M/09 6M/09e 6M/08 yoy Sales % % EBITDA % % margin 18.3% 16.1% 15.6% 14.1% 13.0% 13.5% EBIT % % margin 14.2% 11.5% 11.0% 9.8% 8.4% 8.5% EBT % % margin 11.1% 9.2% 6.7% 2.1% 1.2% 4.9% EPS in EUR % Sources: Tomorrow Focus (historical data), SES Research (estimates) By dynamically expanding the E-commerce business model Tomorrow Focus has established a basis for scalable growth and considerably reduced the dependency on the online advertising market. Share data: Market cap: Enterprise Value (EV): Book value: No. of shares: Trading volume Ø: Shareholders: / Closing price EUR 130 m EUR 150 m EUR 66.6 m 47.1 m EUR 0.0 m Freefloat 36.2 % Burda Digital Ventures 22.5 % GmbH Hubert Burda Media Holding 15.7 % GmbH & Co. KG Burda GmbH 12.0 % FOCUS Magazin Verlag 7.1 % GmbH Management 6.5 % Calendar: Q2 08/13/2009 Q3 11/12/2009 Change 2009E 2010E 2011E old Δ old Δ old Δ Sales EBIT EPS Analysis: SES Research Date of publication: Analyst: Finn Henning Breiter +49 (0) breiter@ses.de Accordingly, the poor environment in the online advertising market which weighed down on the Portal segment has less influence on the group development......and, at the same time, enables an active, anti-cyclical multi-channel marketing for the E-commerce platforms (especially HolidayCheck), providing for market share gains. Management consistently adheres to this strategy and has increased the net marketing budget in E-commerce by EUR 8 m to EUR 20 m in At the same time, a sum of EUR 2.8 m was spent in H1 on the internationalisation of HolidayCheck and the further development of the Portal segment, thus preparing for further growth. The expectations for FY 2009 remain unchanged for now. On account of the enhanced visibility the DCF based PT is revised upwards from EUR 2.80 to EUR Rating: Hold. The final Q2 figures will be published on August 13. Fiscal year ending: E 2010E 2011E Sales Change Sales yoy 9.3 % 23.2 % 14.2 % 2.9 % 13.4 % 10.0 % 10.9 % Gross profit Gross margin 53.8 % 60.6 % 73.8 % 77.0 % 76.4 % 76.7 % 77.1 % EBITDA EBITDA-margin 4.5 % 11.6 % 20.7 % 12.5 % 14.6 % 16.9 % 17.5 % EBIT EBIT-margin 0.8 % 7.3 % 15.6 % 7.4 % 10.5 % 13.4 % 14.4 % Net income EPS Free Cash Flow per share Dividend Dividend Yield n.a. n.a. n.a. n.a. n.a. n.a. n.a. EV/Sales EV/EBITDA EV/EBIT PER ROCE 1.0 % 10.8 % 18.3 % 7.0 % 10.6 % 14.0 % 15.9 % Adj. Free Cash Flow Yield 0.7 % 3.4 % 8.7 % 6.1 % 7.1 % 10.1 % 12.7 % Per Share figures in EUR, other figures in EUR m., price: EUR 2.76 SES Research A Member of the Warburg Group 1

2 Consolidated Profit & Loss Tomorrow Focus in EUR m E 2010E 2011E Sales Increase / decrease in inventory Own work capitalised Total sales Material Expenses Gross profit Personnel expenses Other operating income Other operating expenses EBITDA Depreciation of fixed assets EBITA Amortisation of intangible fixed assets Impairment charges and amortisation of goodwill EBIT Interest income Interest expenses Financial result Recurring pretax income from cont. operations Extraordinary income/loss EBT Taxes total Net income from continuing operations Income from discontinued operations (net of tax) Net income before minorities Minority interest Net income Consolidated Profit & Loss Tomorrow Focus in % of Sales E 2010E 2011E Sales % % % % % % % Increase / decrease in inventory 0.0 % 0.0 % 0.1 % 0.0 % 0.0 % 0.0 % 0.0 % Own work capitalised 1.3 % 2.2 % 3.7 % 2.7 % 1.8 % 1.8 % 1.8 % Total sales % % % % % % % Material Expenses 47.5 % 41.7 % 30.0 % 25.7 % 25.4 % 25.1 % 24.7 % Gross profit 53.8 % 60.6 % 73.8 % 77.0 % 76.4 % 76.7 % 77.1 % Personnel expenses 27.9 % 26.7 % 28.8 % 30.2 % 27.4 % 26.0 % 26.0 % Other operating income 4.3 % 3.3 % 9.7 % 4.3 % 3.7 % 3.3 % 3.3 % Other operating expenses 25.6 % 25.6 % 34.1 % 38.7 % 38.1 % 37.1 % 36.9 % EBITDA 4.5 % 11.6 % 20.7 % 12.5 % 14.6 % 16.9 % 17.5 % Depreciation of fixed assets 3.7 % 4.3 % 5.1 % 2.6 % 2.3 % 1.9 % 1.6 % EBITA 0.8 % 7.4 % 15.6 % 9.9 % 12.3 % 15.0 % 15.9 % Amortisation of intangible fixed assets 0.0 % 0.0 % 0.0 % 2.5 % 1.8 % 1.7 % 1.5 % Impairment charges and amortisation of goodwill 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % EBIT 0.8 % 7.4 % 15.6 % 7.4 % 10.5 % 13.4 % 14.4 % Interest income 1.4 % 2.2 % 1.3 % 0.7 % 0.5 % 0.1 % 0.2 % Interest expenses 0.0 % 0.2 % 2.2 % 4.2 % 4.7 % 4.0 % 3.4 % Financial result 1.3 % 2.0 % -0.9 % -3.5 % -4.6 % -3.9 % -3.2 % Recurring pretax income from cont. operations 2.1 % 9.4 % 14.7 % 3.9 % 5.9 % 9.5 % 11.2 % Extraordinary income/loss 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % EBT 2.1 % 9.4 % 14.7 % 3.9 % 5.9 % 9.5 % 11.2 % Taxes total 5.6 % 0.4 % 3.0 % 0.9 % 1.2 % 1.9 % 2.2 % Net income from continuing operations -3.5 % 8.9 % 11.6 % 3.0 % 4.7 % 7.6 % 9.0 % Income from discontinued operations (net of tax) 0.0 % -1.2 % -0.4 % 0.0 % 0.0 % 0.0 % 0.0 % Net income before minorities -3.5 % 7.8 % 11.3 % 3.0 % 4.7 % 7.6 % 9.0 % Minority interest 0.0 % 1.2 % 2.9 % 0.0 % 0.3 % 0.2 % 0.2 % Net income -3.5 % 6.6 % 8.4 % 3.0 % 4.4 % 7.4 % 8.8 % SES Research A Member of the Warburg Group 2

3 Balance sheet Tomorrow Focus in EUR m E 2010E 2011E Assets Intangible assets thereof other intangible assets thereof Goodwill Property, plant and equipment Financial assets Fixed assets Inventories Accounts receivable Other Assets Liquid assets Current assets Total assets Liabilities and shareholders' equity Subscribed capital Additional paid-in capital Surplus capital Other equity components Book value Minority Interest Total equity Provision for pensions and similar obligations Provisions Financial liabilities Accounts payable Other liabilities Liabilities Total liabilities and shareholders equity Balance sheet Tomorrow Focus in % of Balance Sheet Total E 2010E 2011E Assets Intangible assets 19.9 % 45.0 % 67.5 % 69.0 % 79.6 % 78.8 % 75.2 % thereof other intangible assets 13.0 % 15.9 % 15.5 % 16.1 % 18.6 % 19.7 % 19.9 % thereof Goodwill 6.9 % 29.1 % 52.0 % 52.9 % 61.0 % 59.2 % 55.3 % Property, plant and equipment 1.4 % 0.8 % 0.6 % 1.0 % 1.4 % 0.9 % 0.6 % Financial assets 3.8 % 0.1 % 0.1 % 2.1 % 2.4 % 2.3 % 2.2 % Fixed assets 25.1 % 45.9 % 68.2 % 72.1 % 83.4 % 82.1 % 77.9 % Inventories 1.0 % 0.8 % 0.6 % 0.6 % 0.8 % 0.8 % 0.8 % Accounts receivable 14.8 % 12.9 % 7.7 % 7.6 % 10.0 % 10.6 % 11.0 % Other Assets 14.2 % 9.5 % 5.9 % 5.2 % 2.7 % 2.6 % 2.4 % Liquid assets 45.0 % 30.9 % 17.6 % 14.6 % 3.3 % 3.9 % 7.9 % Current assets 75.0 % 54.1 % 31.8 % 27.9 % 16.6 % 17.9 % 22.1 % Total assets % % % % % % % Liabilities and shareholders' equity Subscribed capital 77.5 % 52.7 % 31.1 % 33.9 % 39.1 % 38.0 % 35.5 % Additional paid-in capital % % 74.5 % 79.5 % 91.7 % 89.0 % 83.1 % Surplus capital 0.0 % % -1.5 % -1.5 % 1.4 % 7.1 % 13.7 % Other equity components % 0.0 % % % % % % Book value 72.7 % 54.2 % 35.3 % 45.4 % 55.3 % 62.0 % 67.3 % Minority Interest 0.0 % 4.1 % 0.4 % 0.3 % 0.3 % 0.3 % 0.3 % Total equity 72.7 % 58.3 % 35.7 % 45.7 % 55.7 % 62.3 % 67.6 % Provision for pensions and similar obligations 0.0 % 0.0 % 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % Provisions 1.2 % 1.5 % 1.2 % 0.6 % 0.6 % 0.6 % 0.6 % Financial liabilities 0.0 % 0.0 % 20.5 % 13.3 % 19.1 % 12.1 % 7.5 % Accounts payable 16.3 % 11.0 % 6.8 % 6.5 % 8.7 % 9.6 % 9.9 % Other liabilities 9.7 % 29.2 % 35.9 % 33.9 % 15.9 % 15.4 % 14.4 % Liabilities 27.2 % 41.7 % 64.3 % 54.3 % 44.3 % 37.7 % 32.4 % Total liabilities and shareholders equity % % % % % % % SES Research A Member of the Warburg Group 3

4 Statement of Cash Flows Tomorrow Focus in EUR m E 2010E 2011E Net income Depreciation of fixed assets Amortisation of goodwill Amortisation of intangible assets Increase/decrease in long-term provisions Other costs affecting income / expenses Cash Flow Increase / decrease in inventory Increase / decrease in accounts receivable Increase / decrease in accounts payable Increase / decrease in other working capital positions Increase / decrease in working capital Cash flow from operating activities CAPEX Payments for acquisitions Financial investments Income from asset disposals Cash flow from investing activities Change in financial liabilities Dividends paid Purchase of own shares Capital measures Others Cash flow from financing activities Change in liquid funds Effects of exchange rate changes on cash Liquid assets at end of period SES Research A Member of the Warburg Group 4

5 Financial Ratios Tomorrow Focus E 2010E 2011E Operational Efficiency Total Operating Costs / Sales 96.8 % 90.7 % 83.1 % 90.3 % 87.2 % 84.9 % 84.3 % Sales per Employee 245, , , , , , ,819 EBITDA per Employee 11,042 22,787 37,614 20,870 28,359 35,327 40,568 EBIT-margin 0.8 % 7.3 % 15.6 % 7.4 % 10.5 % 13.4 % 14.4 % EBITDA / Operating Assets % % % % % % % ROA % 11.6 % 6.7 % 2.3 % 3.8 % 7.0 % 9.1 % Efficiency of Capital Employment Plant Turnover Operating Assets Turnover Capital Employed Turnover Return on Capital ROCE 1.0 % 10.8 % 18.3 % 7.0 % 10.6 % 14.0 % 15.9 % EBITDA / Avg. Capital Employed 5.7 % 17.0 % 24.3 % 11.9 % 14.7 % 17.7 % 19.3 % ROE -4.6 % 9.1 % 12.7 % 3.6 % 5.7 % 9.2 % 10.4 % Net Profit / Avg. Equity -4.5 % 9.9 % 13.0 % 4.0 % 5.9 % 9.8 % 11.2 % Recurring Net Profit / Avg. Equity -4.5 % 13.4 % 18.1 % 4.0 % 6.3 % 10.1 % 11.5 % ROIC -4.5 % 11.9 % 10.6 % 2.6 % 4.4 % 7.6 % 9.2 % Solvency Net Debt Net Gearing % % 7.9 % -2.7 % 28.5 % 13.2 % -0.5 % Book Value of Equity / Book Value of Debt n.a. n.a % % % % % Current ratio Acid Test Ratio EBITDA / Interest Paid Interest Cover n.a. n.a Cash Flow Free Cash Flow Free Cash Flow / Sales 2.0 % 3.2 % 4.5 % 6.7 % 8.3 % 10.3 % 10.9 % Adj. Free Cash Flow Adj. Free Cash Flow / Sales 1.3 % 7.6 % 14.1 % 4.3 % 6.6 % 9.0 % 10.0 % Free Cash Flow / Net Profit % 47.8 % 54.1 % % % % % Interest Received / Avg. Cash 3.0 % 5.9 % 3.9 % 2.2 % 3.3 % 2.3 % 2.6 % Interest Paid / Avg. Debt n.a. n.a. 5.8 % 13.7 % 19.8 % 20.3 % 28.8 % Dividend Payout Ratio 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % Fund Management Investment ratio 5.6 % 3.3 % 5.7 % 11.2 % 3.3 % 3.0 % 2.7 % Maint. Capex / Sales 2.8 % 2.6 % 2.4 % 2.3 % 2.2 % 2.0 % 1.9 % Capex / Dep % 76.7 % % % 79.2 % 85.3 % 87.9 % Avg. Working Capital / Sales 1.3 % 2.0 % 4.6 % 5.5 % 4.1 % 3.7 % 3.4 % Trade Creditors / Trade Debtors 90.4 % % % % % % % Inventory turnover (days) Receivables collection period (DSOs) Payables collection period (days) Cash conversion cycle (days) Valuation P/B EV/sales EV/EBITDA EV/EBIT EV/FCF P/E P/CF SES Research A Member of the Warburg Group 5

6 Free Cash Flow Yield - Tomorrow Focus in EUR m e 2010e 2011e Net Income Depreciation + Amortisation Net Interest Income Taxes Maintenance Capex Others = Adjusted Free Cash Flow Adjusted Free Cash Flow Yield 0.7% 3.4% 8.7% 6.1% 7.1% 10.1% 12.7% Hurdle rate 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% = Enterprise Value = Fair Enterprise Value Net Debt (Cash) Pension Liabilities Others = Fair Market Capitalisation No. of shares (m) = Fair value per share (EUR) premium (-) / discount (+) in % -92.2% -65.3% -12.6% -39.1% -33.8% 0.6% 26.6% Sensitivity Fair value per Share (EUR) Hurdle rate 13.0% % % % % % % Sources: Tomorrow Focus (historical data), SES Research (estimates) SES Research A Member of the Warburg Group 6

7 DCF Model - Tomorrow Focus in EUR m 2009e 2010e 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e Sales Change 13.4% 10.0% 10.9% 11.5% 11.0% 11.0% 10.0% 10.0% 8.0% 8.0% 6.0% 6.0% 5.0% 5.0% EBIT EBIT-Margin 10.5% 13.4% 14.4% 14.5% 14.0% 13.0% 13.0% 12.0% 12.0% 11.0% 11.0% 11.0% 10.0% 10.0% Tax rate 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% NOPAT Depreciation in % of Sales 4.1% 3.5% 3.1% 3.0% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Change in Liquidity from - Working Capital Capex Capex in % of Sales 35.3% 3.0% 2.7% 3.0% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Other Free Cash Flow (WACC-Model) Model parameter Valuation (mln) Debt ratio 10.00% Beta 1.50 Present values 2022e 77.3 Costs of Debt 6.5% WACC 11.21% Terminal Value 55.6 Market return 9.25% Liabilities Risk free rate 4.00% Terminal Growth 2.50% Liquidity 20.0 No. of shares (mln) Equity Value Value per share (EUR) 2.85 Sensitivity Value per Share (EUR) Terminal Growth Delta EBIT-margin WACC 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% WACC -1.5 pp -1.0 pp -0.5 pp pp +1.0 pp +1.5 pp 12.21% % % % % % % % % % % % % % Source: SES Research SES Research A Member of the Warburg Group 7

8 CAPEX and Cash Flow - Tomorrow Focus Balance Sheet Quality - Tomorrow Focus EUR m EUR m 16,0 10 4% e 2010e 2011e e 2010e 2011e 3% 14,0 CAPEX 1,1 2,1 4,3 5,8 2,9 2,9 2,9 8 Net Debt -24,9-25,1 3,9-1,7 19,1 10,2-0,5 2% 12,0 Maintenance CAPEX 1,5 1,7 1,8 1,8 1,9 1,9 2,0 Book value of Equity 40,2 47,4 49,2 63,4 67,0 77,3 89,8 Cash Flow 2,2 4,2 7,7 10,9 10,1 12,8 14,6 6 Net Gearing -61,9% -53,0% 7,9% -2,7% 28,5% 13,2% 1% -0,5% 1 % 8,0 4-1% 6,0 2-2% -3% 4,0-4% 2, e 2010e 2011e -5% -6% e 2010e 2011e -4-7% CAPEX Maintenance CAPEX Cash Flow Net Debt Book value of Equity Net Gearing Continuously rising cash flows; only 2008 burdened by weak online advertising market Elitepartner etc. Low investment intensity necessitates only low investments Formerly high cash portfolio consumed due to acquisitions of HolidayCheck, Cash inflow from capital increase in 2008: EUR 11.9 m Free Cash Flow Generation - Tomorrow Focus Working Capital - Tomorrow Focus EUR m EUR m 14,0 12,0% 6,0 7,0% e 2010e 2011e e 2010e 2011e 12,0 Free Cash Flow 1,1 2,1 3,4 5,1 7,2 9,9 1% 11,7 5,0 Working Capital 0,6 2,0 4,9 3,5 3,6 3,5 6,0% 3,8 Free Cash Flow 2,0% / Sales 3,2% 4,5% 6,7% 8,3% 10,3% 10,9% Working Capital 1,2% / Sales 3,1% 6,5% 4,6% 4,1% 3,6% 3,6% 1 5,0% 8,0% 4,0 8,0 4,0% 6,0% 3,0 6,0 3,0% 4,0% 2,0 4,0 2,0% 2,0 2,0% 1,0 1,0% % e 2010e 2011e Free Cash Flow Free Cash Flow / Sales % e 2010e 2011e Working Capital Working Capital / Sales FCF in 2007 and 2008 burdened by expansion capex From 2009: positive development due to improved operating CF Working Capital boosted by changed of the business model towards B2C Operating Leverage - Tomorrow Focus ROCE Development - Tomorrow Focus 5 10% 2% 1, e 2010e 2011e 18,0% e 2010e 2011e 4 1,4 Operating Leverage- 45,6 10,1-17,8 4,5 4,0 1,8 ROCE 1,0% 10,8% 18,3% 7,0% 10,6% 14,0% 15,9% 95,0% 16,0% 3 OPEX / Sales96,8% 90,7% 83,1% 90,3% 87,2% 84,9% 84,3% EBIT-margin 0,8% 7,3% 15,6% 7,4% 10,5% 13,4% 14,4% 1,2 14,0% Capital Employed 1,3 Turnover 1,4 0,9 0,9 1,0 1,0 1,1 12,0% 1,0 2 9% 1% 0,8 1 8,0% 0,6 85,0% 6,0% 0, e 2010e 2011e 4,0% -1 8% 2,0% 0,2-2 % -3 75,0% e 2010e 2011e Operating Leverage OPEX / Sales ROCE EBIT-margin Capital Employed Turnover OL strongly volatile due to changes in the business model Positive ROCE development in 2008 temporarily disrupted by weak advertising market Sustainable ROCE between 10% and 15% expected SES Research A Member of the Warburg Group 8

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10 Disclaimer Investment recommendation: expected direction of the share price development for equity security up to the given Target price in the opinion of the analyst who covers the issue. B Buy: The price of the analysed equity security is expected to rise over the next 12 months. H Hold: The price of the analysed equity security is expected to remain mostly flat over the next 12 months. S Sell: The price of the analysed equity security is expected to fall over the next 12 months. - Rating suspended: The available information does not currently permit an evaluation of the company. M.M.Warburg & CO KGaA and SES Research GmbH research universe by rating: Rating Number of stocks % of Universe Buy % Hold 61 29% Sell 26 13% Rating suspended 10 5% Total 207 M.M.Warburg & CO KGaA and SES Research GmbH research universe by rating, looking only at companies for which a disclosure according to section 34b German Securities Trading Act has to be made: Rating Number of stocks % of Universe Buy 77 61% Hold 38 30% Sell 5 4% Rating suspended 6 5% Total 126 The charts have markings if SES 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. SES Research A Member of the Warburg Group 10

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