Leifheit AG INVESTMENT CASE: CLEAN AS A WHISTLE. Date: 19/08/2014. Recommendation:

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1 Leifheit AG INVESTMENT CASE: CLEAN AS A WHISTLE Date: 19/08/2014 Recommendation: Price target: Buy EUR

2 BANKHAUS LAMPE // 2 Contents CONTENTS 2 INVESTMENT CASE 3 CATALYSTS 3 VALUATION 3 COMPANY OVERVIEW 4 SUMMARY 5 INVESTMENT CASE 6 CURRENT BUSINESS TREND 12 COMPANY VALUATION 14 COMPANY BACKGROUND 20 KEY FIGURES 23 DISCLAIMER 27 CONTACTS 30

3 BANKHAUS LAMPE // 3 Leifheit AG INVESTMENT CASE: CLEAN AS A WHISTLE 19/08/2014 Buy (Hold) EUR (38.00 EUR) Close 15/08/ EUR Bloomberg: LEI GY WKN: Sector Consumer Share price performance 52 week high EUR 52 week low EUR Compared to Prime All Share YTD 26.1% 1 month -2.1% 12 months 23.0% We are increasingly gaining the impression that our present earnings forecasts for Leifheit are too cautious. We believe Thomas Radke, who joined the company as its new CEO at the start of the year, has clearly placed the issues of innovation and distribution to the fore, which should get Leifheit on the road to stronger and more profitable growth in future. We are raising our price target for the share from EUR to EUR and we upgrade the share from Hold to BUY. Thus the stock currently has upside potential of 36%. INVESTMENT CASE As a European brand provider for the product categories cleaning, laundry care, kitchen and well-being Leifheit clearly benefits from trends and market developments in the household sector. The following trends should have a positive impact on the company s business performance in future and constitute the core of the investment case: Consumers increasing comfortable with online shopping Shift towards a greater awareness of quality and increased demand for products from sustainable production Desire for deceleration Increasing household counts CATALYSTS We believe that the strategic ideas of the new CEO Thomas Radke will help the business make progress faster and that the second management level is now also staffed in such a way that a more systematic innovation process and a greater market penetration should lead to stronger growth. Share data EV (m EUR; 2014) 174 Market Cap (m EUR) 175 No. of shares (m) 5 Free float 26.5% Next event Quarterly Results 10/11/2014 VALUATION Our price target of EUR is based on a DCF model (50%) and a CF-yield model (50%). We also see Leifheit as a high-dividend stock with a current dividend yield of 4.9% and in light of the solid balance sheet and improved earnings and cash flows we expect dividends to continue increasing in the next few years. in m EUR e 2015e 2016e Sales EBIT Change in model EBIT margin 6.3% 6.8% 7.3% 8.0% 8.4% Sales EBIT EPS 2014e -1.5% 1.7% 2.0% 2015e -0.5% 5.2% 5.8% 2016e 0.4% 4.8% 5.4% Analyst Christoph Schlienkamp, Investmentanalyst DVFA Phone: +49 (0) [email protected] See end of document for disclaimer. Net financial debt Free cash-flow EPS (in EUR) DPS (in EUR) Dividend yield 5.2% 5.3% 4.9% 5.7% 6.5% EV/Sales EV/EBIT Price Earnings ratio (P/E) Source: Company information, Bankhaus Lampe Research estimates

4 BANKHAUS LAMPE // 4 Company Overview SWOT Strengths/Opportunities Optimisation of product portfolio largely complete E-commerce is a growth driver Attractive dividend yield Brand and communications strategy focused on POS Well placed for potential M&A transactions MANAGEMENT Thomas Radke (CEO) Dr. Claus-Otto Zacharias (CFO) SHORT-TERM GUIDANCE 2014: Steady business growth In 2014, focusing on brand and margins HISTORICAL P/E 40 Weaknesses/Threats (Risks) Expansion of international sales activities necessary High volume business with slow growth rates COMPANY BACKGROUND Leifheit AG is one of Europe s leading producers of household products. Its product portfolio offers cleaning, laundry care and kitchen products as well as scales. Apart from Leifheit, the company s brands also include Soehnle, Birambeau and Herby. The group employs some 1,000 people mostly in Germany, the Czech Republic, and in France. It was founded in 1959 and is headquartered in Nassau, Germany. MEDIUM-TERM GUIDANCE 2016: Revenues close to EUR 250 m and EBIT margin of 8% REVENUE BREAKDOWN (LAST ACTUAL YEAR) PER AVG STD + 1 STD % 78.9% Brand business Volume business COMPANY EVENTS MAJOR SHAREHOLDERS (%) Next event: 10/11/2014 Quarterly Results Robert Schuler Voith 50.3 Manuel Knapp Voith 10.0 Joachim Loh 6.6 BHL VS. CONSENSUS 14e 15e 16e Sales (in m EUR) BHL Consensus EBIT (in m EUR) BHL Consensus EPS (EUR) BHL Consensus Source: Company information, Bankhaus Lampe Research estimates

5 BANKHAUS LAMPE // 5 Summary 1st Overall, Leifheit enjoys corporate strategy opportunities from its position as one of the leading companies in the household sector in Europe with a focus on innovative products. The group continues to focus on the product categories cleaning, laundry care, kitchen products and wellbeing in order to be able to extend its market position yet further in future too by offering pioneering products. 2nd In order to be able to grasp the opportunities arising from product innovations and further developments, Leifheit runs its own development unit and is investing in building up internal and external expertise. This is the source of the pipeline of medium and long-term innovation projects. These constantly new and innovative products offer customers a clear added value and put Leifheit on the road to stronger growth. 3rd At the same time, in future Leifheit will be gearing its organisation structure to react more flexibly when opportunities arise from market trends and customer requirements. 4th In addition, we believe the company will be able to grasp strategic opportunities by building up its market presence in the e-commerce sector as well as in the over-the-counter retail trade. In order to be able to make use of the resultant opportunities, Leifheit will also invest in various distribution channels in future and support these with intelligent communications concepts. 5th Greater penetration of existing markets and further regional diversification also offer opportunities. 6th We also see Leifheit as a high-dividend stock with a current dividend yield of 4.9% and in light of the solid balance sheet and improved earnings and cash flows we expect dividends will continue increasing in the next few years. 7. We are increasingly gaining the impression that our present earnings forecasts for Leifheit are too cautious. We believe Thomas Radke, who has been on board as the new CEO since the beginning of the year, has clearly placed the issues of innovation and distribution to the fore. This should get Leifheit on the road to stronger and more profitable growth in future. We are raising our price target for the share from EUR to EUR and we upgrade the share from Hold to BUY. Thus, the stock currently has upside potential of 36%.

6 BANKHAUS LAMPE // 6 Investment Case Stock offers good dividends ARE THERE NO SHORTCOMINGS? In the past five years the Leifheit share price has risen more than fourfold from EUR 9.00 to EUR In addition, after divestments the company has paid shareholders several attractive special dividends. The main reasons for this good performance are to be found in the restructuring managed by CFO Dr Claus-Otto Zacharias. By slimming down and optimising the organisational structure and by improving efficiency the company has managed to: Strengthen the balance sheet (net cash EUR 51 m in 2013 vs. EUR 4 m in 2008) Increase the profitability (EBIT margin 6.8% in 2013 vs. 1.9% in 2008) Improve the free cash flow (EUR 23.4 m in 2013 vs. EUR -12 m in 2008) So on the bottom line this has made the Leifheit share a high-dividend stock. At the current share price, the dividend yield is just 5%. But given the likely further progress, we expect dividend increases in the next few years as in light of the comfortable balance sheet situation we assume that higher earnings will also be reflected in higher dividends. Dividend performance e e 2015e 2016e dividend extra dividend Source: Bankhaus Lampe Improve innovation and market penetration THERE ARE SHORTCOMINGS TOO AND THESE ALSO CREATE GROWTH POTENTIAL At first glance, all of these positive figures appear to suggest that Leifheit is living in a perfect world. However, we believe the company also has shortcomings; otherwise it would not have been necessary to replace the CEO. In particular, we believe that two areas have been treated very much as poor relations of late: Innovations Market penetration

7 BANKHAUS LAMPE // 7 We are confident that the new CEO, Thomas Radke, will now put the corresponding changes in place very quickly, which will also lead to greater earnings momentum in the group and give the share price a chance of reaching record highs. Increase key innovations INNOVATIONS It would not be accurate to say that Leifheit has not been innovative in recent years. At present, 40% of the company's revenue is generated with new products developed in the past three years. It is therefore important to ask whether these fresh developments are new production techniques/processes or new products. In our view, it is useful to distinguish between two types of innovation: Evolutionary innovations (improvements) Step-change innovations (game-changing products) It should be noted that, in our view, Leifheit s innovations have mostly been evolutionary in nature, i.e. products with a high degree of development that were offered with a new design or in a new colour. However, we believe that step-change innovations, in particular, must and will become far more important for Leifheit in future. Step 1: Window vacuum cleaner is a prime example The window vacuum cleaner is a good example to formulate our expectations for future developments. Last year Leifheit generated revenues of around EUR 10 m with this window vacuum cleaner. Put simply, structurally this means: In step 1 a new technical solution is found for a consumer problem that had not been solved previously After cleaning the window vacuum cleaner vacuums the water off the windowpane reliably and without leaving any smears. It received the internationally recognised Best Product of the Year 2013 award for its high quality, user friendliness and functionality and we would be surprised if further awards do not follow. Window vacuum cleaner Source: In future, therefore, the to dos for Leifheit s R&D department are to find even better answers to the following questions: How can everyday housework be completed in less time? How can the design of equipment make it a pleasure to use?

8 BANKHAUS LAMPE // 8 The company consequently scrutinises sector trends, analyses consumer behaviour, examines the target markets and evaluates the feedback from its consumer service and salesforce. Market-acceptance and feasibility studies are the next step. Here, product ideas are tested with target groups of potential consumers for their relevance and suitability for everyday use. In the third step, the group establishes the legal basis and stipulates the necessary production parameters including the sustainable use of raw materials. Innovation management Step 2: Launch & leverage We see that Leifheit is currently gearing its organisation even more systematically towards innovation management and the optimisation of innovation processes. We believe that today the entire group takes its lead more from the retail trade and that under the new CEO Thomas Radke it will in future gear its corporate strategy more to meet consumer needs. Large global groups such as Procter & Gamble or L Oréal have already gone much further down this road and to a certain extent serve Leifheit as a role model for this structurally necessary change. In step 2 of the innovation cycle we assume that Leifheit will in future seek an answer to the following question far more systematically than previously: how can existing consumer problems be combined with new technological solutions (Launch & Leverage)? Applying this to the window vacuum cleaner means working on new product features. While with Generation 1 the consumer was able to squeegee horizontally, vertically and overhead, it was not possible to clean curved windowpanes without leaving smears. As such, this product feature is an example of a possible systematic innovation step 2, which at the same time also addresses new customer groups. Other issues here could be a longer life for the rechargeable battery or the combination of the product in a set with wipers etc. This should create additional contributions to earnings and sales revenues for two to three years. Step 3: Marketing innovations Human resources requirement in place Step 3 of the innovation cycle involves marketing innovations as the technology of the product is changed only very slightly and new colours and so on freshen up mature products. This also includes generating additional sales revenues through positive reviews from consumer magazines and other consumer organisations. The human resources requirements for the systematic growth steps are also in place at the secondary management level. The new head of marketing has been on board since We expect the new head of R&D to join the company by no later than So the main management positions for the new growth steps are manned. In a nutshell this means: The R&D pipeline will probably be planned more systematically in future, which should have a positive impact on expected revenue and profitability. In future, there is likely to be a clearer corporate strategy depending on product lifecycle and resale behaviour as to how full the pipeline needs to be in step 1, 2 or 3.

9 BANKHAUS LAMPE // 9 Compared to the past, innovations will be more geared to meet the needs of consumers rather than the retail trade. Our talks with the management lead us to believe that the innovation processes due also to personnel changes at the second level of management will be managed more systematically in future and will thus foster growth. But we feel the example of the window vacuum cleaner also shows that digital changes do not make Leifheit obsolete. The management s to-do list also includes promoting the ideas process and carrying out systematic market research. Broad innovation strategy The window vacuum cleaner is a good example of a systematic innovation strategy. The key question is: What products are there elsewhere or are waiting to be developed in the household segment? Seeking an answer to this question brings us quickly to the subject of robotics. One industry application could be the use of robots for vacuuming homes (Cleaning category). However, examples can be found in all four of Leifheit s product areas: Cleaning Laundry care Kitchen utensils and Well-being At the same time, this also means that the company s growth does not rely on a single business area. Revenue by segment in % 25% 21% 40% Cleaning Laundry Care Kitchen Wellbeing Rise in SKUs Source: Leifheit AG At present, Leifheit has 1,100 stock keeping units (SKU) in its portfolio. A more systematic innovation policy is likely to increase this number appreciably. We expect it to increase to 1,500 products. However, the growth in working capital made absolutely necessary by Leifheit s efficient structure means that we do not expect any negative implications for the cash-flow trend.

10 BANKHAUS LAMPE // 10 KEY MARKETS CHIEFLY IN EUROPE Given the current size of the company and the resources available, we believe it is correct to concentrate on Europe as the key market and develop corresponding products for this market. Group revenue by region in % 5% 42% 44% Germany Central Europe Eastern Europe Others Source: Leifheit AG Focus 1a German-speaking Europe RETAIL SALES: INNOVATIVE PRODUCTS AND EFFICIENCY German-speaking Europe (Germany, Austria, and Switzerland) currently accounts for 49% of group revenue. The future target should be to achieve steady growth in retail sales based on the company s good market position; this region will be one point of focus for the POS excellence activities. We see two growth drivers here: Innovative products and Improved marketing solutions offering greater efficiency In order to achieve these growth targets, the group must develop solutions to centralise customer and consumer data. Focus 1b company s own branches Leifheit s key European markets include the Netherlands, Belgium, France, Spain/Portugal, Italy, the Czech Republic, Poland, Scandinavia, the major cities in Russia and Turkey (since 2014). The company is aiming to develop/expand its distribution based on the principle: Think regionally, act locally Leifheit still has to tailor its organisational structure in order to implement this part of the strategy. Our discussions with the management team repeatedly showed that this topic is very firmly anchored in the company philosophy. Focus 1c Exports In retail sales, there is further potential to make greater use of distributors to address international export markets. Even though we assume in our model that the

11 BANKHAUS LAMPE // 11 company's footprint in the United States and China is still small, it is nevertheless evident that the expansion of the distributors has laid the foundation to be able to serve these end markets better in the long term as well. E-COMMERCE IS A GROWTH AREA We also see growth potential for Leifheit in the e-commerce sector and a further expansion of these activities. In 2013, Leifheit achieved ~28% growth in this segment with online sales of close to EUR 20 m. This corresponded to almost 10% of total revenue. We assume that the online business will continue to grow at doubledigit rates in the next few years - particularly in international markets, where Leifheit collaborates around the globe with international trading partners. E-commerce supporting growth In our view, the product ranges offered by Leifheit and Soehnle are very suitable for online marketing. This means there are few if any product-related reasons why the online business should not continue to grow. While consumers buy low-price items primarily in stationary retail outlets, Leifheit offers many products in the mid-toupper price segments, which are relevant to online sales. In addition, we believe consumers increasingly appreciate having their purchases delivered to their home - especially cumbersome products such as dryers or cleaning devices. In cooperation with well-known online distributors, Leifheit can increase its presence particularly in international markets where it has had a smaller footprint up to now. Accordingly, the group is investing in expanding the cooperation with online distributors primarily in terms of staffing and technology. If Leifheit seizes market opportunities, there is a chance of further profitable growth. Further growth requires targeted and professional support for sales via online, multi-channel and crosschannel activities. As end consumers are expected to be addressed more strongly, suitable online and offline campaigns must be implemented in this area, too. M&A NOT INCLUDED IN OUR ESTIMATES With a comfortable cash position of EUR 51 m at the end of 2013, Leifheit s balance sheet provides sufficient funds for acquisitions. We therefore do not believe that capital raising measures are on the agenda. We assume that Leifheit will pursue M&A activities in future, not least in order to top up the innovation pipeline. Nevertheless, we have not yet included revenue or earnings contributions from acquisitions in our estimates. We assume that Leifheit will continue to apply the following M&A profile under the aegis of the new CEO: Activities in Leifheit s core categories Must generate strong margins and/or offer market entries or expand the business in target markets Focus on Europe No restructuring candidates

12 BANKHAUS LAMPE // 12 Current business trend Considerable earnings increase in H The Q2/H1 numbers published on 13/08/2014 clearly confirm that the company has implemented its focus on brand and margin strategy, in our view. Consolidated revenues of EUR m in H were virtually on a par with last year s adjusted number of EUR m. When analysing the numbers, one must consider that the reported basis for comparison in H was EUR m. The difference is due to the fact that Leifheit withdrew from the business with Dr. Oetker bakeware products. The gross margin grew from 43.6% to 47.4%. The EBIT, which grew significantly from EUR 5.0 m to EUR 8.1 m, came paired with a correspondingly clear increase in the EBIT margin of 300 basis points to 7.5%. BHL BHL Leifheit [ m] Q Q2 2014e Q % yoy H H1 2014e H % yoy Sales % % EBIT % % EBIT-margin 7.9% 7.5% 4.1% 3.8 PP 7.5% 7.3% 4.5% 3 PP EBT >100% % EBT-margin 7.2% 6.9% 3.4% 3.8 PP 6.8% 6.7% 3.8% 3 PP Net income (after min.) % % EPS [ ] % % Source: Company information, Factset, Bankhaus Lampe Research In the branded products business, which includes products under the Leifheit and Soehnle brands, the company generated revenue of EUR 90.4 m in H1 2014, up 1.8% yoy on an adjusted basis. Although a major DIY customer exited the market in the course of the year (Praktiker/Max Bahr), which had a noticeable impact on business, Leifheit successfully compensated for the loss via other business channels. Cleaning and laundry care products in particular turned out to be revenue drivers. The branded products business s share in group revenue accordingly grew by 1.9 percentage points to 83.5%. The segments EBIT clearly improved from EUR 4.1 m to EUR 6.9 m yoy. The strategic focus on the branded products business led to declining business volumes in the volume segment (which is much smaller), as expected. Revenue fell 10.9% to EUR 17.9 m vs. H1 2013, and the segment s share in group revenue declined by 1.9 percentage points to 16.5% accordingly. Despite the lower revenue, however, an improved gross margin and cost savings led to an improvement in the segment s EBIT from EUR 0.9 m to EUR 1.2 m yoy, as planned.

13 BANKHAUS LAMPE // 13 BHL BHL Leifheit [ m] Q Q2 2014e Q % yoy H H1 2014e H % yoy Brand Business Sales % % EBIT % % Volume Business Sales % % EBIT % % Source: Company information, Factset, Bankhaus Lampe Research Source: Company information, Bankhaus Lampe Research, FactSet Guidance confirmed As expected, Leifheit confirmed its full-year guidance along with the H1 numbers. The company is still pursuing a conservative target for 2014 with results on a par with the previous year: Consolidated revenues are expected to reach last year s adjusted number. In line with this year s brand and margin strategy, the executive board expects revenue in the branded products segment to grow by 1-3%. By contrast, the company intends to keep focusing on profitability in the volume business, which is likely to be reflected in slightly lower revenues. For FY 2014, Leifheit forecasts an EBIT on a par with last year, when it achieved a strong EUR 14.9 m.

14 in m BANKHAUS LAMPE // 14 Company valuation Increase in earnings forecasts Brands & Margins is the general theme Leifheit is currently focusing on. As a result, the company is likely to generate consolidated revenues of around EUR 250 m in 2016 with an EBIT margin of 8%. We see further potential for positive surprises in particular in terms of margins. Our understanding of Leifheit s corporate structure leads us to believe that its set-up allows for revenues of some EUR 280 m. Revenue growth of EUR 10 m therefore comes paired with an EBIT increase of EUR 2 m and a threshold margin of 20%. The following chart illustrates the maths behind this assumption: Corporate structure set for further growth Sales Cost of sales Gross profit Variable costs Profit margin Fix costs EBIT Source: Company information, Bankhaus Lampe Research Overall, we have raised our EBIT estimates by 5.2% for 2015 and by 4.8% for We thereby assume that Leifheit s margin forecast of 8.0% will be achieved before the end of 2015.

15 BANKHAUS LAMPE // 15 Bankhaus Lampe EUR m 2014e old 2014e new Change 2015e old 2015e new Change 2016e old 2016e new Change Sales % % % EBIT % % % EBIT margin 7.1% 7.3% 0.2 PP 7.6% 8.0% 0.4 PP 8.1% 8.4% 0.3 PP EPS ( ) % % % DPS ( ) % % % Source: Bankhaus Lampe Research, Numbers new adjusted for sale of Dr. Oetker Backgeräte BHL vs. Consensus 2014e 2015e 2016e EUR m BHL Consensus Delta BHL Consensus Delta BHLe Consensus Delta Sales % % % EBIT % % % EBIT margin 7.3% 7.5% -0.2 PP 8.0% 8.0% 0 PP 8.4% 8.2% 0.2 PP EPS ( ) % % % DPS ( ) % % % Source: Company information, Consensus FactSet, Bankhaus Lampe Research Consequently, we have raised our dividend estimates along with our adjusted earnings expectations. We now forecast a payout of EUR 2.10 for 2015 (previously: EUR 2.00) and EUR 2.40 for 2016 (previously: EUR 2.25). Strong dividend In conclusion, it must be said that Leifheit yields one of the strongest returns on the German stock market. For the years thereafter, we arrive at considerable dividend yields based on the current share price: 2014: 4.9% 2015: 5.7% 2016: 6.5% As the company currently has a comfortable cash position of about EUR 50 m, which we believe is likely to grow to nearly EUR 60 m by the end of 2014, we see no risk of a capital increase for the time being to refinance M&A transactions. The rising dividends are essentially due to the trend in operating cash flow rather than decreasing investments or short-term balance sheet optimisation. Two valuation models applied The valuation is based on two valuation models: a three-layer DCF model and a cash flow yield model. As there are no comparable competitors, we consider a peer-group analysis to be inadequate for the valuation of Leifheit.

16 Beta BANKHAUS LAMPE // 16 DCF model 8.5% terminal value EBIT margin DCF MODEL Our DCF model is based on detailed estimates for the period from 2014 to Leifheit AG DCF model [in mio. ] 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e EBIT EBIT Non-Operating / FD EBIT Industrial Business Taxes NOPAT Depreciation Capex /- Change in working capital /- Other cash items Net Cashflow Discounting period in years WACC 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% Terminal Value Present value Calculation of fair value per share WACC model Sum of all present values 254 Risk-free rate 0.95% thereof Terminal Value 69% Equity risk premium 5.5% + Financial Assets 0.0 Beta Minorities 0.0 Expected return on investment 6.5% - Pension provisions Cost of debt 6.00% - Net financial debt (start of year) 51.0 Tax rate 29.0% Fair equity value 248 Cost of debt after taxes 4.26% No. of shares [in mio.] 4.7 Fair value per share [in ] Sensitivity of fair value per share Model assumptions TV growth Short-term CAGR (first 3 years) 11.5% % 0.0% 0.5% 1.0% 1.5% Medium-term CAGR (next 5 years) 2.0% Terminal value growth (ad infinity) 0.5% Terminal value EBIT margin 8.5% Source: Company information, Bankhaus Lampe Research The medium-term period in our model from 2017 to 2021 is based on 2% revenue growth. We have deliberately chosen a conservative value in order to reflect potential changes in the competitive environment. When calculating the terminal value, we assume an EBIT margin of 8.5% and a growth rate of 0.5%.

17 BANKHAUS LAMPE // 17 DCF fair value of EUR The DCF model indicates a fair value per share of EUR However, this result is highly dependent on the selected parameters. A sensitivity analysis shows the dependency of the fair value on the beta and growth in the terminal value. CASH-FLOW YIELD MODEL Our cash-flow yield model assumes the following: The investment is assumed to be a debt-free company (enterprise value (EV) minus debt/cash funds and other liabilities). The EBITDA minus minorities, normalised taxes and investments that are required in order to maintain production (maintenance capex), is used as the yield amount. The investment is intended to generate a sustainable annual yield. The model implies that investors expect a company to generate a yield on the purchase price. The required yield after tax of 7% is based on a PER of about 14x (7% = 7/100 -> 100/7 = 14x), which roughly corresponds to the long-term historical average for the DAX (10-year average: 14.3x; 20-year average: 15.7x) and for the MDAX (10-year average: 13.0x; 20-year average: 15.7x). If the calculated yield is less than this, the share is too expensive. If it is higher, the share price is attractive.

18 BANKHAUS LAMPE // 18 Leifheit AG Cash-flow Yield Modell [Mio. ] 2014e 2015e 2016e Hurdle rate 7.0% 7.0% 7.0% EBIT Depreciation of fixed assets Amortisation of goodwill/ppa Amortisation of intangible assets Maintenance capex Minorities = adj. Cashflow Normalized tax rate 29% - Normalized tax expense = adj. Cashflow after tax Fair Enterprise Value [= adj. Cashflow after tax/hurdle rate] Net debt (cash) Pension provisions off-balance sheet items financial assets industrial business book value financial services dividend payments = Fair market capitalization Premium (-) / discount (+) in % -5% 14% 32% No. of shares [in mio.] Fair value per share [ ] Source: Company information, Bankhaus Lampe Research Fair value cash flow yield: EUR Due to the stable business model, we apply the fair value for 2016 for the calculation of our price target. As a result, this valuation method leads us to a fair value of EUR PEER-GROUP MODEL We have compiled a peer group for Leifheit in the following for informational purposes. Nevertheless, we believe that including a peer-group analysis in the valuation would be unsuitable as there are no peers that are directly comparable to Leifheit.

19 BANKHAUS LAMPE // 19 Leifheit AG Peer group analysis RATIONAL AG Price [in ] EV/Sales 2015e 4.9 EV/Sales 2016e EV/EBIT 2015e 17.4 EV/EBIT 2016e PER PER 2015e PER PER 2016e PBR PBR 2015e PBR PBR 2016e Villeroy & Boch AG Pref WMF AG Pref De'Longhi S.p.A Indesit Company S.p.A SEB SA Peer Group median Leifheit AG AG #NV #NV 0.7 #NV #NV #NV 14.5 #NV #NV 12.9 #NV #NV 1.7 #NV #NV 1.7 #NV Premium Prämie (+) (+) / Abschlag discount (-) in in % #NV #NV 3% #NV #NV 11% -2% -2% 7% 7% #NV -5% #NV #NV 6% #NV -17% #NV #NV -10% #NV #NV Value Wert per per pro share share Aktie [ ] [ ] #NV #NV #NV #NV #NV #NV #NV #NV Discount/Premium Discount/Premium Abschlag/Prämie 0.0% 0.0% Fair Fair Fairer value value Wert per per pro share share Aktie [ ] [ ] [ ] #NV #NV Source: FactSet, Bankhaus Lampe Research Source: Quelle: FactSet, Bankhaus Lampe Research Rational AG (WKN: , Rating: Hold, Price target: 255, Analyst: Gordon Schönell) We have therefore not included this peer group in our valuation, as the respective business models are subject to very different drivers. Their comparability is therefore very limited. Price target EUR BUY PRICE TARGET CALCULATION We have assigned our DCF and cash flow yield models an equal weighting, which leads us to a rounded fair value of EUR 50.00, which is also our price target. With an upside potential of 36%, our investment rating is BUY. Leifheit AG Price Target Value [in ] Weight Discounted-Cash-flow-Modell % Cashflow Yield % Target Price Source: Bankhaus Lampe Research

20 BANKHAUS LAMPE // 20 Company background 1. HISTORY OF LEIFHEIT AG Founded in 1959, Leifheit AG is one of the leading providers of household products in Europe. The company stands for high-quality, innovative brand products with great utility and pioneering design in the cleaning, laundry care, kitchen and wellbeing. Leifheit and Soehnle are among the most familiar brands in Germany. Alongside the brand business, Leifheit AG is also present in service-oriented volume business via its French subsidiaries Birambeau and Herby. Together with its international locations, the Leifheit group employs around 1,000 employees. History of Leifheit AG Source: Company information 2. LEIFHEIT AG S BUSINESS AREAS The Leifheit group sub-divides its operating business into the Brand Business and Volume Business areas, whereby the Brand Business is clearly the focus of the company s strategic development. In Brand Business, Leifheit markets products under two well-known brands: Leifheit and Soehnle. Brand Business products are characterised by highquality workmanship and an outstandingly high degree of utility for consumers. The pricing of these products puts them in the mid-to-high price segment. The Volume Business includes the French subsidiaries Birambeau and Herby as well as the project business. This part of the group offers its mid-priced product range as well as customer-specific product developments and their manufacture as well as contract manufacturing for third parties.

21 BANKHAUS LAMPE // 21 European competitors by segment Source: Company information, Bankhaus Lampe Research 3. LEIFHEIT AG S MANAGEMENT TEAM Thomas Radke (CEO) was born in Mainz in Since studying business administration at university, he held various executive positions in marketing, sales and general management at Carl Zeiss Vision, Procter & Gamble/Wella, Effem/Mars as well as at Henkel in Spain, China and Germany. He recently served on the Management Board at Herlitz AG and on the Board of Directors at Pelikan Holding AG. Thomas Radke was appointed as Leifheit AG s CEO on 01/01/2014. He is responsible for Sales, Marketing, Development and Human Resources. Dr. rer. pol. Claus-Otto Zacharias (CFO) was born in Worms in After studying for an undergraduate and postgraduate degree in business studies, he held various positions as Commercial Director and Chief Financial Officer with various companies, including Eismann International, Steilmann-Holding, Der tegut, the Gutberlet foundation, Lehnkering and NICI. Since , Dr Zacharias has been a member of the company s Executive Board and is responsible for the Finance, Controlling, Legal/IP, Audit, Business Processes/IT, Purchasing, Operations and Quality Management divisions. Supervisory board Helmut Zahn (Chairman), Managing Director of Home Beteiligungen GmbH Dr Robert Schuler-Voith (Deputy Chairman), Managing Director of Home Beteiligungen GmbH Baldur Groß, Energy Electronics Engineer Karsten Schmidt, Board Chairman, Ravensburger AG Thomas Standke, Toolmaker Dr Friedrich m. Thomée, Munich, Managing Partner, Thomée Vermögensverwaltung GmbH & Co.

22 BANKHAUS LAMPE // SHAREHOLDER STRUCTURE Shareholder structure 26% 5% 8% 50% 10% HOME Beteiligungen MKV Verwaltungs GmbH Joachim Loh Own shares Free float Source: Leifheit AG 5. NEW PRODUCTS Latest new products for 2014 Cleaning Laundry care Kitchen Well-being Source: Leifheit AG

23 BANKHAUS LAMPE // 23 Key figures Leifheit AG Income statement in m EUR e 2015e 2016e Sales Cost of Sales Gross profit Sales and marketing General and administration Research and development Other operating result EBITDA Depreciation EBITA Amortisation of goodwill Amortisation of intangible assets EBIT Financial result Income on ordinary activities Extraordinary income/loss EBT Taxes Net income from cont. operations Net income from discont. operations Minority interest Net income (adj.) No. of shares EPS (in EUR) Source: Company information, Bankhaus Lampe Research estimates e 2015e 2016e Gross margin 44.2% 44.9% 44.5% 44.7% 44.8% EBITDA margin 9.3% 9.8% 10.4% 11.0% 11.2% EBITA margin 6.3% 6.8% 7.3% 8.0% 8.4% EBIT margin 6.3% 6.8% 7.3% 8.0% 8.4% EBT margin 5.4% 6.0% 6.6% 7.3% 7.7% Net profit margin 4.2% 4.6% 4.7% 5.2% 5.5% Tax rate 23.1% 23.1% 29.0% 29.0% 29.0% Source: Company information, Bankhaus Lampe Research estimates Growth rates yoy e 2015e 2016e Sales 0.9% -1.5% 0.5% 5.0% 6.0% EBITDA 0.5% 4.4% 6.4% 10.6% 8.6% EBIT 1.8% 5.3% 8.8% 14.5% 11.3% EBT -0.4% 9.2% 9.9% 16.1% 12.3% Net income (adj.) -22.4% 9.4% 1.5% 16.1% 12.3% EPS -22.4% 9.4% 1.5% 16.1% 12.3% Source: Company information, Bankhaus Lampe Research estimates

24 BANKHAUS LAMPE // 24 Leifheit AG Balance sheet Assets (in m EUR) e 2015e 2016e Fixed assets Property, plant and equipment Intangible assets Financial assets Other long-term assets Current assets Inventories Accounts receivable Other current assets Securities Cash Total assets Equity and liabilities (in m EUR) Shareholders equity Shareholders equity (before minority) Minorities Non-current liabilities Pension provisions Other provisions Long-term financial debt Other long-term debt Current liabilities Short-term debt Other accruals short-term Accounts payable Other liabilities Total equity and liabilities Source: Company information, Bankhaus Lampe Research estimates Leifheit AG Balance sheet structure Assets e 2015e 2016e Fixed assets 33.8% 32.6% 30.7% 29.4% 28.1% Property, plant and equipment 19.2% 17.4% 16.4% 15.9% 15.5% Intangible assets 9.6% 9.1% 8.7% 8.4% 8.2% Current assets 66.2% 67.4% 69.3% 70.6% 71.9% Inventories 19.5% 16.5% 16.9% 17.8% 18.6% Accounts receivable 25.5% 23.4% 22.5% 22.8% 23.0% Cash 16.7% 25.0% 27.5% 27.9% 28.2% Equity and liabilities Shareholders equity 50.6% 46.5% 45.6% 45.9% 46.1% Non-current liabilities 23.5% 29.7% 29.5% 29.1% 28.7% Pension provisions 21.2% 27.7% 26.7% 26.4% 26.1% Long-term financial debt 0.0% 0.0% 0.0% 0.0% 0.0% Current liabilities 25.9% 23.8% 24.9% 25.0% 25.2% Short-term debt 0.0% 0.0% 0.5% 0.5% 0.4% Accounts payable 22.2% 19.3% 19.7% 20.0% 20.3% Source: Company information, Bankhaus Lampe Research estimates

25 BANKHAUS LAMPE // 25 Leifheit AG Cash flow statement in m EUR e 2015e 2016e Net income (adj.) Depreciation Amortisation of goodwill & intangible assets Change of provisions Other Operating Cash-flow before changes in w/c Change in inventory Change in accounts receivable Change in accounts payable Change in other working capital positions Operating Cash-flow Capex, excluding maintenance Payments for acquisitions Financial investments Income from asset disposals Income from financial investments Cash-flow from investing activities Free cash-flow Capital measures Increase/decrease in debt position Purchase of own shares Other financing Cash-flow Dividend paid Cash-flow from financing activities Increase/ decrease in liquid assets Effects of exchange rate changes Cash at beginning of period Change in total cash and cash equivalents Cash at end of period Source: Company information, Bankhaus Lampe Research estimates

26 BANKHAUS LAMPE // 26 Leifheit AG Ratios e 2015e 2016e Per Share Data EPS Book value per share Free Cash-flow per share Dividend per share Valuation ratios EV/Sales EV/EBITDA EV/EBIT Price Earnings ratio (P/E) Price to book (total equity) Dividend yield 5.2% 5.3% 4.9% 5.7% 6.5% Profitability ratios EBITDA margin 9.3% 9.8% 10.4% 11.0% 11.2% EBIT margin 6.3% 6.8% 7.3% 8.0% 8.4% Net return on sales 4.2% 4.6% 4.7% 5.2% 5.5% Return on capital employed (ROCE) 9.8% 9.9% 10.5% 11.6% 12.6% Productivity ratios Capital turnover 51.0% 49.1% 48.4% 47.0% 45.1% Operating leverage Sales per employee 220, , , , ,583 EBIT per employee 13,914 14,669 15,924 18,054 19,899 Number of employees (in thousands) Financial ratios Equity ratio 50.6% 46.5% 45.6% 45.9% 46.1% Net financial debt (in m EUR) Net debt / Equity -32.9% -53.8% -59.3% -59.7% -60.1% Interest cover >10 Net debt / EBITDA Working Capital (in m EUR) Change Working Capital (in m EUR) WC /sales 20.5% 19.0% 18.9% 19.3% 19.4% Stocks in days of sales Trade debtors in days of sales Trade creditors in days of COGS/Material cost Cash conversion cycle Invest. (property/plant/equity) / Depreciation 146.5% 52.4% 85.3% 85.7% 85.9% Others Sales CAGR (last 3 years) 2.7% 1.5% 0.0% 1.3% 3.8% EBIT CAGR (last 3 years) 65.4% 19.3% 5.3% 9.5% 11.5% Net income CAGR (last 3 years) 44.3% -14.5% -4.9% 8.8% 9.8% Pay out ratio 76.1% 76.5% 82.2% 82.7% 84.1% Free cash-flow (in m EUR) Free cash flow yield 7.7% 15.9% 7.3% 6.3% 7.2% Source: Company information, Bankhaus Lampe Research estimates

27 BANKHAUS LAMPE // 27 Disclaimer Analyst declaration The relevant research analysts, as named on the front cover of this research report, certify that (a) all of the views expressed in this research report accurately reflect their personal views about the securities and companies mentioned in this research report; and (b) that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views expressed by them in this research report. Rating system Shares are rated based upon analyst forecasts with regard to the performance of the share during a period of twelve months. The rating Buy within this general concept means that the share s forecast performance is at least 10%. Hold means a price movement in a bandwidth of 0% to 10%. Sell means that the share s forecast performance is negative. Explanation of valuation Unless shown otherwise, the stated upside targets are based upon either a discounted cash-flow pricing or upon a comparison of the performance ratios of companies that the respective analyst considers to be comparable, or upon a combination of these two analyses. Analysts modify the result of this fundamental assessment to incorporate the potential trend in market sentiment. Overview of changes in our recommendations/price targets for Leifheit AG in the previous twelve months. Date of publication Price at recommendation Rating Price target 01/04/ EUR Hold EUR Overview of changes in our recommendations/price targets for Rational AG in the previous twelve months. Date of publication Price at recommendation Rating Price target 30/07/ EUR Hold EUR 22/07/ EUR Hold EUR 30/04/ EUR Hold EUR 11/11/ EUR Hold EUR 18/10/ EUR Buy EUR The distribution of recommendations in our investments universe is currently as follows (date: 01/07/2014) Rating Basis: all analysed companies Basis: companies with investment banking relationships Buy 51.4% 60.0% Hold 35.1% 40.0% Sell 13.5% 0.0% under review 0.0% 0.0%

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30 BANKHAUS LAMPE // 30 Contacts HEAD OF FINANCIAL MARKETS Leonhard Uphues + 49 (0) [email protected] HEAD OF EQUITY Ralf Menzel + 49 (0) [email protected] EQUITY SALES Ulrich Klingmüller + 49 (0) [email protected] Brigitte Vigener + 49 (0) [email protected] EQUITY SALES IN GB Yusuf Bilgic (London) + 44 (0) [email protected] Charlotte Craigie (London) + 44 (0) [email protected] Mary Foster (London) + 44 (0) [email protected] INTERNATIONAL KBR FINANCE LLC CHAPERONE OF BANKHAUS LAMPE KG IN THE US EQUITY SALES IN US Jörg Hagenbuch (IKBR, New York) [email protected] Bill Dixon (IKBR, New York) [email protected] Quinn Raftery (IKBR, New York) [email protected] Frank Albrecht + 49 (0) [email protected] Justin Barnebeck + 49 (0) [email protected] André Gollmer + 49 (0) [email protected] Frank Habbig + 49 (0) [email protected] Peter Lohren + 49 (0) [email protected] Carla dos Santos Reichert + 49 (0) [email protected] EQUITY SALES-TRADING Nils Carstens + 49 (0) [email protected] Nils Christoph Becker + 49 (0) [email protected] Tim Deemann + 49 (0) [email protected] Matthias Rolke + 49 (0) [email protected] EQUITY SALES-TRADING IN GB John Blackley (London) + 44 (0) [email protected] EQUITY SALES-TRADING IN US Kim Last (IKBR, New York) [email protected] Per Hallgren (IKBR, New York) [email protected] Guido Rohlfing + 49 (0) [email protected]

31 BANKHAUS LAMPE // 31 RESEARCH Christoph Schlienkamp, Investmentanalyst DVFA + 49 (0) [email protected] Heiko Feber, Analyst + 49 (0) [email protected] Wolfgang Specht, Analyst + 49 (0) [email protected] EQUITY STRATEGY Dr. Ralf Zimmermann + 49 (0) [email protected] Elke Röhling-Kampmann + 49 (0) [email protected] Claudia Stein + 49 (0) [email protected] Marc Gabriel, CIIA, CEFA + 49 (0) [email protected] Michael Gorny, CFA + 49 (0) [email protected] Dr. Karsten Iltgen, Analyst + 49 (0) [email protected] Dr. Georg Kanders, Analyst + 49 (0) [email protected] ECONOMIC RESEARCH Dr. Alexander Krüger + 49 (0) [email protected] Dr. Ulrike Rondorf + 49 (0) [email protected] RESEARCH & SALES SUPPORT Claus Kampermann + 49 (0) [email protected] Christian Ludwig, CFA + 49 (0) [email protected] Stephanie Berghaeuser + 49 (0) [email protected] Andreas Schäfer, CFA + 49 (0) [email protected] Nadine Goertz Campbell + 49 (0) [email protected] Alexandra Schlegel, Analyst + 49 (0) [email protected] Nicole Juskowiak + 49 (0) [email protected] Gordon Schönell, CIIA, CEFA + 49 (0) [email protected] Neil Smith, ACA + 49 (0) [email protected] Ian Pulham + 49 (0) [email protected] Nicole Reckin + 49 (0) [email protected] Bankhaus Lampe Research Jägerhofstraße 10 D Düsseldorf [email protected] + 49 (0) (0)