Pan-European Capital Goods 2014: Re-rating is done. Must deliver on earnings growth – Stock Ideas & 7 Themes for 2014 – Sector Valuation & Outlook – End Markets & Companies Analysis Dec 2013

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suisse.com/disclosures or call +1 (877) 291-2683 US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result,

investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor

in making their investment decision.

Research team

Andre Kukhnin, CFA 44 20 7888 0350 andre.kukhnin@credit-suisse.com

Jonathan Hurn, CFA 44 20 7883 4532 jonathan.hurn@credit-suisse.com

Simon Toennessen 44 20 7883 6893 simon.toennessen@credit-suisse.com

Max Yates 44 20 7883 8501 max.yates@credit-suisse.com

Tiantian Li 44 20 7883 1552 tiantian.li@credit-suisse.com

2

What’s inside & Our key recent research

I. Summary of Key Stock Ideas and Sector Themes Slides 3-7

II. 7 Sector Themes for 2014 Slides 8-23

III. Sector Performance & Valuation Slides 24-36

IV. End-Markets Outlook Slides 37-59

V. Companies Bull & Bear case & Summaries Slides 60-196

Sector / Themes:

02/12/2013 UK Capital Goods – Spotlight on Valuation / Global peer analysis

18/11/2013 CS Industrials China Trip – Steady, higher-quality growth ahead

04/11/2013 Gas turbine demand / market share

31/10/2013 Global Mining Equipment – Q3 reality check

11/09/2013 Pan-Euro Cap Goods – Searching for through-cycle value creation

16/07/2013 Global Industrials – Automation Software Deep-Dive

03/07/2013 Global Mining Equipment – Between a rock and a hard place

01/05/2013 Industrials Insight – In search for quality growth

12/02/2013 European Cables – Initiation – Follow the leader

Stock-specific:

02/12/2013 Metso – Rock, Paper, Spin-off

06/11/2013 SKF – China becoming more of a threat than opportunity

30/10/2013 ABB – Pace of early-cycle recovery could surprise

28/10/2013 Assa Abloy – Relentless progress. TP to SEK 350

22/10/2013 IMI – We see further upside from here

21/10/2013 Sandvik – Rising risks while expectations remain full

30/09/2013 Prysmian – Under-appreciated growth & returns profile

11/09/2013 Alstom – Structural issues to persist – Downgrade to U/P

11/09/2013 Geberit – High quality deserves the premium

19/09/2013 Fenner – Time to get involved – Upgrade to O/P

05/08/2013 Siemens – Potential CEO action points

20/08/2013 Senior – Four reasons to buy - TP up to 315p

11/07/2013 Melrose – Counting the potential cash return

20/02/2013 ABB – Initiation – A transforming business

Key recent research:

3

Key Conclusions

In 2013, the sector moved up 17% on an 8% EPS downgrade resulting in a 25% re-rating to 2014E 12x

EV/EBITA and 15.5x P/E. For 2014, we expect a year of relatively slow growth with self-help themes of

cost-cutting and acquired growth continue to work. With limited scope for further re-rating, we have

a Neutral view on the sector with c8-10% expected performance for 2014.

Top line. Expect some growth acceleration in 2014-15 from near-zero in 2013 but overall slow

growth environment to continue. Expect a gradual recovery in short-cycle but later-cycle to continue to

drag, especially in 2014.

Profitability. Expect margins to expand by c50bps pa in 2014-15 driven by combination of operational

gearing, cost-cutting, benign raw materials environment and broadly flat pricing.

Quality vs Cyclical. With Quality Growth premium vs Cyclical Growth at all time high for both Europe

and UK, we believe the overall theme has played out but we continue to see selective growth

opportunities within quality.

Electricals vs Mechanicals vs UK. We continue to have a preference for Electricals vs Mechanicals

for 2014 but acknowledge that c3-5% of the relative rerating already took place in 2013. We continue

to see UK space attractive given the M&A angle.

Key stock ideas. We favour ABB and Prysmian in Electricals, Assa Abloy and Metso in Mechanicals

and Spectris and IMI in the UK. We remain cautious on Alstom, SKF and Sandvik.

Please see next 4 slides for detailed summaries of our key stock ideas and sector themes.

4

Key Stock Ideas with Cyclical, Secular & Structural framework

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2006-2008 2009 2010-2012 2013E-2015E

Cyclical Average Secular average Structural (ex Assa & Legrand) average

Organic growth performance by category

2004-2012 avg. cash conversion performance

0%

20%

40%

60%

80%

100%

120%

140%

Legr

and

Pry

smia

n

Spe

ctris

Sch

indl

er

Ass

a A

bloy

Kon

e

Geb

erit

Hal

ma

Sch

neid

er

Alfa

Lav

al

Sen

ior

IMI

AB

B

Bod

ycot

e

Rot

ork

Sie

men

s

Nex

ans

SK

F

Met

so

Laird

Atla

s C

opco

Sm

iths

Fen

ner

Wei

r

Ren

isha

w

Mel

rose

Spi

rax

Ele

ctro

lux

Ves

uviu

s

San

dvik

Als

tom

Phi

lips

Mor

gan

Adv

. Mat

s

GK

N

Sector average

Source: Company data, Credit Suisse estimates

Rating CCY TP Rating CCY TP Rating CCY TP

Prysmian OP € 21 1.2% 115% ABB OP CHF 26 7.1% 91% Assa Abloy OP SEK 360 1.9% 106%

Metso OP € 35 4.3% 69% Atlas Copco OP SEK 210 9.7% 68% Halma OP £ 6.2 4.8% 97%

GKN OP £ 4.30 3.6% 19% Fenner OP £ 4.9 8.7% 67% Schindler OP CHF 150 5.7% 106%

Bodycote OP £ 7.6 3.6% 89% Spectris OP £ 25.6 4.5% 111% Rotork OP £ 32.3 11.5% 85%

Electrolux OP SEK 190 1.3% 60% IMI OP £ 16.4 3.3% 94% Spirax Sarco N £ 30.3 6.0% 63%

Philips N € 26 1.5% 47% Siemens OP € 105 5.3% 77% Geberit N CHF 240 5.9% 102%

Nexans N € 31 0.4% 73% Senior OP £ 3.15 5.2% 94% Renishaw N £ 17.15 9.6% 66%

Sandvik UP SEK 75 7.4% 56% Smiths OP £ 14.6 1.6% 68% Kone N € 34 9.1% 104%

Morgan AM UP £ 2.70 1.6% 40% Schneider N € 58 4.6% 97% Legrand UP € 38 1.6% 126%

Laird UP £ 2.15 3.2% 69% Weir N £ 22.1 12.2% 66%

Vesuvius UP £ 4.05 2.6% 60% Alfa Laval N SEK 145 5.9% 94%

SKF UP SEK 150 3.7% 72% Melrose N £ 2.75 6.4% 64%

Alstom UP € 24 3.9% 55%

2005-12

organic

growth

2006-12

FCF

conv.

2005-12

organic

growth

2006-12

FCF

conv.

CYCLICAL SECULAR STRUCTURAL

2005-12

organic

growth

2006-12

FCF

conv.

5

Summary of Key Stock Ideas OUTPERFORM

Electricals

ABB – TP CHF 26 – Automation growth potential, Margin recovery in Power Products, Acquisitions potential, Quality returns profile.

Prysmian – TP €21 – Under-appreciated growth and returns profile. Attractive valuation.

Siemens – TP €105 – Self-help & Balance sheet use in near-term, EM Automation & US Gas longer-term themes.

Mechanicals

Assa Abloy – TP SEK 360 – Proven high quality ‘Acquire & Restructure’ model with several organic growth & margin levers.

Metso – TP €35 – >15% discount to SOTP ahead of Valmet spin off, strong €200m cost-cutting effort.

Atlas Copco – TP SEK 210 – High quality play in GI recovery, mining aftermarket exposure, further balance sheet potential.

UK

Spectris – TP 2560p – Attractive valuation vs. peers, strong cash conversion, automation play, B/S optionality, potential M&A target.

IMI – TP 1640p – Portfolio focus on better growth, margin, improving ROIC, high cash conversion, B/S optionality, potential M&A target.

GKN – TP 430p – Valuation re-rating potential, self-help (Driveline, Volvo Aero), business mix improvement (towards Aero).

Fenner – TP 490p – Attractive mining aftermarket exposure, valuation discount vs. peer group, healthy EPS growth through 2016.

Bodycote – TP 760p – Cyclical turn-around story, Margin resilience under-estimated, Un-geared balance sheet.

UNDERPERFORM

Alstom – TP €24 – Risk to Thermal Service margins, Challenging Power Gen Equipment outlook, On-going weak cash conversion

SKF – TP SEK 150 – Japanese and Chinese competition risks, full valuation, balance sheet capacity now used up.

Sandvik – TP SEK 75 – Further earnings risk in Mining and Construction from volume declines and potential pricing offsetting self-help.

NEUTRALS (that are generating client debate)

Alfa Laval – TP SEK 145 – High quality late-cyclical arriving at the bottom of its end-markets but expectations appear already full

Geberit – TP CHF 240 – Best in class growth, returns and cash conversion vs near-term end-markets

Schneider – TP €58 – High quality and Growth attractions VS M&A risk & Relatively full valuation.

6

7 themes for the sector in 2014

Theme #1: How to play a short cycle recovery

CS GDP and IP forecasts indicate a European recovery in 2014 but we remain

cautious on names where consensus expectations and valuations are already

relatively full (we forecast 6% organic growth for SKF with 35% operational gearing).

We prefer names with scope for positive surprises including GKN (OP), Bodycote

(OP) and Prysmian (OP).

Theme #2: Structural growth – Need to be selective in 2014

Structural growth as a theme has worked in 2013 and the relative valuation (32%

premium) of high quality European names (Assa Abloy, Geberit, Kone, Legrand &

Schindler) is now at its highest for ten years. Among these names we favour those

names where we see clear levers to generate best in class growth: Assa Abloy

(OP), and Schindler (OP).

Theme #3: Opportunity in mining aftermarket exposed names

There remains a consensus negative view in the market toward mining capex, but

we continue to see an opportunity in names with higher aftermarket exposure (Atlas

Copco (OP) & Fenner (OP). On new equipment we discount a cautious scenario (-

16% in 2014 and -21% in 2015) but expect aftermarket to grow in 2014/15 as mine

production continues to rise.

Theme #4: Stabilization of weaker businesses should allow Electricals to re-

rate further

In the last two quarters underperforming businesses in Electricals that have

received attention in the last 12mths have shown signs of stabilization. We believe

this can shift the market focus away from ABB Power, Siemens I&C and Prysmian

T&I and to the remainder of the businesses which ultimately drive group profitability.

In our view this can lead to further re-rating with, for example, ABB’s automation

business clearly trading at a discount to global peers.

-20%

-10%

0%

10%

20%

30%

40%

Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

EU High quality stocks EV/EBIT premium / discount vs sector Average premium / discount

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fenner Weir Atlas CAT Metso Sandvik FLS Outotec

New Equipment A/market

7.2%

6.4%

13.4%

11.4%

5.9%

-12.7%

6.4%

11.6%

3.5%

0.4%

4.0% 4.5%

10.0%

11.1%

12.2%

13.1%

11.1%

13.8%

14.6%

14.4%14.3%14.8%15.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-18.0%

-14.0%

-10.0%

-6.0%

-2.0%

2.0%

6.0%

10.0%

14.0%

18.0%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

Sector EBIT margin, % Sector organic growth, %

Sector Organic Growth vs Margin

European Quality Growth vs Sector

Mining Players OE vs Aftermarket exposure

Source: Thomson Reuters, Company data, Credit Suisse estimates

7

7 themes for the sector in 2014

Theme #5: Balance sheet re-leverage

Across the sector we believe there is opportunity for balance sheet

re-leverage. We see the greatest acquisition opportunity as being

for Assa Abloy in Entrance systems while Siemens is likely to focus

on Process Automation. In our view, buybacks are most likely at

Atlas Copco and Alfa Laval (both have a history of buybacks and

currently have low leverage)

Theme #6: Competitive risk

We continue to believe Alstom (UP) bears the greatest medium

term structural risk from competition. We also believe the risk for

SKF (UP) (from Chinese and Japanese competitors) is rising and in

Mining Equipment see risk in the crushing and grinding segment.

We remain cautious on Sandvik (UP).

Theme #7: Potential M&A

We have re-run our HOLT® CFROI® M&A Screen for the Pan

European Capital Goods universe with analysis over 6 criteria. We

would highlight the following names from the Screen:

Met 5 criteria: Alfa Laval, Fenner, Legrand, Rotork

Met 4 criteria: Smiths Group, Spectris, Weir

Met 3 criteria: IMI

0%

1%

2%

3%

4%

5%

6%

7%

8%

Prys

mia

n

Assa

Abl

oy

ABB

Alfa

Lav

al

Atla

s C

opco

Schn

eide

r

Legr

and

Met

so

Nex

ans

SKF

Sand

vik

Kone

Siem

ens

Elec

trolu

x

Philip

s

Alst

om

Schi

ndle

r

Geb

erit

Average acquisition impact on sales (2007-12)

Acquired Growth Track Record

Emerging Markets Competition Risk Assessment

Risk Rating 1 2 3 4 5

High Power Gen.(Coal)

Appliances, T&D

Bearings

Trucks

Mining Equipment - Crushers & Grinders

Medium Drive systems

Transport

O&G (Fracking)

Heat exchangers

Elevator

Low

Heat Treatment

Timeframe in years

Automation

Construction Equipment

Low Voltage equipment

Auto components

Mining Equipment

Source: Company data, Credit Suisse research

8

Sector Themes

9

Theme #1: How to play a short-cycle recovery

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

AB

B

Legr

and

Nex

ans

Pry

smia

n

Sch

neid

er

Sie

men

s

Atla

s C

opco

Met

so

San

dvik

SK

F

Q3 13 2014

Q313 organic growth and 2014 CS forecast CS economists’ EU GDP (+1.3%) and IP (4.5%) forecasts imply a

recovery for in shorter-cycle demand in 2014.

We acknowledge Sandvik and SKF have good gearing to a EU short

cycle recovery but believe this is already discounted in consensus –

CS forecasts 6% organic growth for their relevant businesses. We

also believe valuations on both of these stocks are relatively full.

In Europe we would rather gain exposure to this theme through Atlas

Copco in Europe where the CT and IT businesses give good

exposure to this theme and multiples are not at a level that we

believe is likely to absorb further earnings upgrades

In the UK we believe there is scope for positive surprises on growth

for Bodycote and Spectris in 2014.

Source: Company data, Credit Suisse estimates, IBES consensus, Thomson Reuters

% of group 2014 EV/EBIT CS EBITA vs Consensus

SKF Group 85% 5.9% 35% 11.2 0.3%

GKN Group ex Aerospace 74% 4.0% 30% 11.9 4.0%

Spectris Group 60% 3.2% 30% 14.6 1.7%

Bodycote AGI 56% 2.6% 35% 9.6 1.5%

ABB Low voltage & DAM 41% 7.0% 30% 11.0 9.3%

Nexans Distributors & Installers 51% 1.0% 15% 12.0 11.3%

Atlas Copco CT & IT 49% 5.5% 35% 12.6 2.8%

IMI Fluid Power 42% 4.0% 30% 15.2 0.0%

Sandvik Machine Solutions 30% 6.0% 35% 11.4 -0.6%

Prysmian Trade & Installers 28% 2.5% 15% 10.0 7.0%

Siemens Industry 24% 2.7% 30% 12.9 2.8%

Schneider Industry 19% 5.0% 30% 10.7 4.5%

Average 47% 4.1% 29% 11.9 3.7%

2014 organic

growth for these

divisions

Op. Leverage for these

divisions

Key short cycle

divisions

Group

10

Theme #2: Structural Growth – Need to be selective in 2014

Prefer Assa & Schindler in EU structural growth

In 2013 the high quality names (Assa, Geberit, Kone,

Legrand & Schindler) premium to the sector has

extended from 17% to 26%.

In our view this is justified by our expectation of on

average organic sales growth of 4.8% in 2013 for

structural growth names vs a sector average of 0.4%.

However, based on this re-rating we believe in 2014

there is less scope for structural growth to outperform

as a theme. We favour a more selective approach and

based on their clear growth drivers in 2014 we see

scope for outperformance at Assa & Schindler

0%

20%

40%

60%

80%

100%

120%

Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

UK High quality names PE premium / discount vs the sector Average

-20%

-10%

0%

10%

20%

30%

40%

Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

EU High quality stocks EV/EBIT premium / discount vs sector Average premium / discount

Prefer Halma among UK structural growth names

In 2013 the PE premium for high quality stocks

(Halma, Renishaw, Rotork and Spirax Sarco) has also

increased to 109% from 85%.

Among these names we favour Halma based on the

continued success of its business model focusing on

safety and legislative driven end markets with high

barriers to entry.

Relative to its structural peer group Halma trades at a

more attractive relative valuation.

Source: Thomson Reuters, Credit Suisse research

11

#2: Structural growth: More to go at Assa Abloy, Halma & Schindler

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Pedestrian doors Gate & Windowautomation

Industrial doors Assa Abloy ESsales

Europe Rest of world

60

70

80

90

100

110

120

130

Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Jun-12 Jan-13 Aug-13

KONE Schindler Thyssen OTIS

Assa Abloy (OP) remains a top pick in to 2014 as we see scope

for a positive surprise in the Entrance systems market. Assa’s

sales in this market (SEK12bn) imply a c7% global market share

but we see opportunity for Assa to execute on its acquire and

restructure strategy in this fragmented SEK c180bn market.

Halma (OP) in the medium term can benefit from increasing

safety and regulation in Industry and buildings but in the near-

term we believe its acquisition pipeline remains full which should

support strong organic growth over the next 12 months (in Q3

Halma grew organically at 6% which was 2x the UK average).

Schindler (OP) is our preferred way to play the attractive

Elevator market. Schindler is now growing broadly in-line with

best in class Kone, is well positioned to increase its share with

investment in new capacity (listed above) yet continues to trade

at an attractive 13% discount vs high quality peers.

New factories ramp up at Schindler

Source: Company data

Country City Type Start target Purpose

Europe (Slovakia) Dunajská Streda Elevators Q4 2013 Replacement - cost reduction

US Pennsylvania Elevators Q4 2013 Replacement - change of technology

China Shanghai Escalators Q1 2014 Replacement and Expansion

China Shanghai Elevators 2015 Replacement and Expansion

India Pune Elevators Q1 2014 Expansion

India Pune Escalators 2014 Expansion

Organic growth of lift manufacturers

Market size estimates & Assa ES sales (bn SEK)

12

Theme #2: Cyclical vs Secular vs Structural Framework

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2006-2008 2009 2010-2012 2013E-2015E

Cyclical Average Secular average Structural (ex Assa & Legrand) average

Cyclical Secular Structural

Alstom ABB Assa Abloy

Bodycote >>> Alfa Laval Geberit

Electrolux Atlas Copco >>> Halma

GKN >>> Fenner <<< Kone

Laird IMI Legrand

Metso Melrose Renishaw

Morgan Adv. Mats Schneider Rotork

Nexans Siemens Schindler

Philips >>> Senior Spirax Sarco

Prysmian >>> Smiths Group

Sandvik Spectris

SKF Weir

Vesuvius

European Cyclical

UK Secular

European Structural

UK Cyclical European Secular

UK Structural

7

8

9

10

11

12

13

14

15

5% 7% 9% 11% 13% 15% 17% 19%

2013-2014 Average ROIC vs 2014E EV/EBIT Here we show our cyclical vs secular vs structural

company framework and those shaded companies we

believe have potential to move between categories:

GKN (OP), Bodycote (OP), Prysmian (OP) & Atlas (OP)

being our key picks.

Between 2006-08 the secular growth companies (largely

mining capex driven) outgrew structural names but the

structural names proved more resilient in 2009.

Structural growth companies tend to trade on a EV/EBIT

multiple 2 points higher than secular and therefore we

see scope for re-rating if companies are perceived to

move between categories.

N.B. We classify secular growth companies as those companies that may be exposed to a c2 year growth theme (eg Automation)

vs structural growth which may be driven by a theme (aging populations) or a businesses model (acquire and restructure).

Organic growth performance by category

Source: Company data, Credit Suisse research

13

Theme #3: Opportunity in Mining Aftermarket names

CAT Atlas Copco Fenner Sandvik Metso Weir FLSmidth Outotec

New equipment

More decline in end-

user demand in 2014

than 2013, but less

destocking by dealers.

Overall more than 20%

decline.

Surface - remains soft;

Underground -

reasonable

N.A.

Satisfactory with

volatility expected to

continue

Some macro positive

signs but not

necessarily leading to

improved mining

business. Copprt good

but outlook for coal

deteriorated.

Continued slowness in

mining capex spending

Service Flat in 2014 Good

Customer sentiment is

gradually improving -

US coal recovering,

Australia stablizing

Good & expect

aftermarket destock to

finish by end 2013

See aftermarket growth

at around 5%+ through

cycle going forward.

Relatively good shape

except coal. Difficult to

cut opex with mines

running at full capacity.

Remain solid due to the

need to optimize

operations

Demand OutlookUPSTREAM DOWNSTREAM

First time saw

stabilisation of demand

Stable

Sentiment towards mining equipment players remains low: We believe against a backdrop of low sentiment

to mining equipment players there is opportunity among those names with greater exposure to aftermarket; Atlas

Copco (60% aftermarket) and Fenner (85% aftermarket). At Sandvik we see relatively higher volume risk due to

its greater exposure to new equipment and on pricing in the more competitive crushing and grinders market.

We have a -21% mining OE decline in our forecasts in 2015: For the mining equipment players we forecast

new equipment to decline by -16% and -21% in 2014 and 2015. We believe this is also supported by comments at

3Q13 results for Sandvik (demand in mining showed signs of stabilization at low levels in 3Q) and Atlas Copco

(sequentially orders for underground mining were stable). Taking 3Q order levels as a run rate in to 2014 would

imply order declines broadly in line with our -16% 2014 forecast.

Mine Production should grow in 2014: In mining aftermarket we forecast 2014 and 2015 to grow by 5% based

on continued increases in mine production. Despite mine production growing in 2013 we believe that aftermarket

demand in 2013 is broadly flat due to destocking that took place across the 1H13.

Retain positive view on Atlas Copco (OP) & Fenner (OP), cautious on Sandvik: We see greater risk to

consensus at Sandvik and see scope for Atlas to re-rate relatively vs Sandvik as it currently is only at a 10%

premium on 2014E EV/EBITA. We believe this under-appreciates remaining Compressors and Industrial

Technique businesses. Fenner trades at a 28% discount to the UK sector on 2014E, which we also view as

attractive.

Source: Company data, Credit Suisse research

14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fenner Weir Atlas CAT Metso Sandvik FLS Outotec

New Equipment A/market

Theme#3 Mining aftermarket: Mine production growing in 2014/15

-

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012 2013E 2014E 2015E

Large Diversified Miners Smaller Focused Players

Total- June forecast

60

80

100

120

140

160

180

2011 2012 2013E 2014E 2015E

COAL- Oct COPPER- Oct IRON ORE- Oct

PRECIOUS- Oct COPPER- June IRON ORE- June

COAL- June PRECIOUS- June

2012 2013E 2014E 2015E 2013-15

Iron Ore 1.8% 7.3% 12.9% 7.6% 9.3%

Met Coal 6.4% 6.4% 6.2% 6.7% 6.4%

Therm Coal 10.2% 5.1% 2.4% 3.9% 3.8%

Copper 3.5% 4.5% 4.4% 4.2% 4.4%

Aluminium 4.8% 5.0% 6.4% 5.4% 5.6%

Zinc 11.1% 5.7% 3.2% 3.6% 4.2%

Silver -2.5% -2.8% -0.1% 0.4% -0.8%

Platinum -7.8% 1.3% 2.3% 0.9% 1.5%

Total Average 3.4% 4.1% 4.7% 4.1% 4.3%

Our forecasts of -16% and -21% declines in NE in 2014/15 are based on the capex forecasts of 90 miners covered by CS.

According to CS mining analysts, mine production is expected to continue to rise in 2014/15 supporting aftermarket growth.

Fenner and Atlas have the largest exposure to mining aftermarket, which we view as favorable.

Coal in the US was the first commodity to see declines and it is now stabilizing at an earlier stage, which we view as positive

for Fenner.

Source: Company data, Credit Suisse estimates for aftermarket exposure

15

#3: Mining aftermarket: Equipment players valuations

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Nov-

04

Nov-

05

Nov-

06

Nov-

07

Nov-

08

Nov-

09

Nov-

10

Nov-

11

Nov-

12

Nov-

13

Atlas EV/EBIT vs Mechanicals

Through-cycle Average (2004-07)

-20%

-10%

0%

10%

20%

30%

Nov

-04

Nov

-05

Nov

-06

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Sandvik EV/EBIT vs Mechanicals

Through-cycle Average (2004-07)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Nov-

04

Nov-

05

Nov-

06

Nov-

07

Nov-

08

Nov-

09

Nov-

10

Nov-

11

Nov-

12

Nov-

13

Metso EV/EBIT vs Mechanicals

Through cycle average (2004-07)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Nov

-04

Nov

-05

Nov

-06

Nov

-07

Nov

-08

Nov

-09

Nov

-10

Nov

-11

Nov

-12

Nov

-13

Fenner EV/EBIT vs UK industrials

Through-cycle average (2004-07)

Relative Atlas Copco 2014E EV/EBITA: We view the broadly

in-line with the sector valuation as attractive

Relative Sandvik 2014E EV/EBITA: Despite de-rating we

continue to see a risk to consensus forecasts

Fenner 201E4 EV/EBITA: We are 5% ahead of consensus and

believe upgrades can drive further a further re-rating for Fenner

Relative Metso 2014E EV/EBITA: The focus currently is on

the value of the individual segments due to the group splitting

Source: Thomson Reuters

16

Theme #4: Stabilization should allow Electricals to re-rate

Prysmian T&I 10%

Rest of group90%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

ABB Power Products Siemens I&C Prysmian T&I

Siemens Infrastructure &

Cities14%

Rest of group86%

ABB Power Products + Systems

34%

Rest of group66%

ABB 2012 EBITDA split Prysmian 2012 profit split

We believe that, given the share of profits ABB Power

(particularly Systems), Siemens I&C and Prysmian’s T&I

divisions account for, they are given undue focus by the

market.

Increasingly at ABB’s, Siemens’ and Prysmian’s

underperforming businesses there are signs of stabilization and

even of improving profitability. Also at Siemens a new CEO

may result in a refreshed strategy for I&C.

We believe this stabilization can drive a re-rating for the overall

groups. In our view, the higher quality businesses of the group,

for example, ABB’s Automation business, are currently being

undervalued relative to its peers.

Siemens 2012 profit split

4Q MAV margins of underperforming Electricals divisions

Source: Company data, Credit Suisse estimates of profit split

17

#4: Electricals’ acquisitions should further improve business mix

0%

4%

8%

12%

16%

0

2000

4000

6000

8000

10000

ABB (to 1x) Siemens (1x Ind net debt) Prysmian (to 1.5x)

Acquisition firepower (€mn) Earning accretion scenario (RHS)

Date Company acquired End market

Sep-13 ELIBI Elektrik Low Voltage

Aug-13 Newron System Building Automation software

Jul-13 Alstom's Ring Motor Business Process Automation motors

May-13 Los Gatos Research Gas measurement

Apr-13 Power-One Solar Power Invertors

Feb-13 APS Technology Group Shipyard automation

Sep-12 Amarcon BV Shipping software

Aug-12 Newave Energy Holding SA Uninterruptible Power Supply

Jun-12 Tropos Networks Inc Wireless communications

May-12 Thomas & Betts Low Voltage

Date Company acquired End market

Jul-13 Service Guide Inc Metals and Mining

Jun-13 Preactor Group Industry Software

Nov-12 Invensys rail Rail signalling

Nov-12 LMS International Industry Software

Oct-12 Kineo CAM Industry Software

Sep-12 Perfect Costing Solutions GmbH Industry Software

Aug-12 Penrith Corporation Healthcare

Aug-12 Kaon Holdings Pty Ltd Power Transmission

Jul-12 Senergy Sistemas de Medição S.A Smart Metering

Apr-12 FCE Metals and Mining

Mar-12 Expro Measurements Division Subsea Oil & Gas

ABB

Siemens

Recent acquisitions by ABB and Siemens Based on re-leveraging below we show ABB, Siemens & Prysmian’s fire

power and an earnings accretion scenario based on this firepower

The recent strategy for ABB and Siemens has been to acquire in

end markets away from their underperforming divisions (excluding

Invensys rail which improved the business mix of I&C).

In our view this active acquisition strategy, particularly in Industry

automation software, improves their competitive offering and

therefore the medium term growth prospects and is supportive of

an overall re-rating for the groups.

We believe that, based on re-leveraging, acquisitions can drive

15% and 8% EPS accretion at ABB and Siemens, respectively. We

expect ABB to continue to acquire across the Automation end

market and Siemens’ focus to be on Process Automation

Source: Company data, Credit Suisse estimates

18

Theme #5: Balance sheet re-leveraging

0%

1%

2%

3%

4%

5%

6%

7%

8%

Prys

mia

n

Assa

Abl

oy

ABB

Alfa

Lav

al

Atla

s C

opco

Schn

eide

r

Legr

and

Met

so

Nex

ans

SKF

Sand

vik

Kone

Siem

ens

Elec

trolu

x

Philip

s

Alst

om

Schi

ndle

r

Geb

erit

Average acquisition impact on sales (2007-12)

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

Sch

indl

er

Geb

erit

Ren

isha

w

Kon

e

Rot

ork

Bod

ycot

e

Spi

rax

Sar

co

Alfa

Lav

al

AB

B

Sen

ior

Spe

ctris

Hal

ma

Phi

lips

IMI

GK

N

Ele

ctro

lux

Met

so

Fenn

er

Legr

and

Atla

s C

opco

Mor

gan

Adv

. Mat

s.

Sie

men

s

Ves

uviu

s

Sch

neid

er

Laird

SK

F

San

dvik

Pry

smia

n

Wei

r G

roup

Ass

a A

bloy

Sm

iths

Als

tom

Nex

ans

Mel

rose

2014 net Debt/EBITDA 2007-12 average net debt/EBITDA

Average 2007-12 acquisition impact on sales

Companies with low leverage vs history are GKN, Fenner, Legrand, Sandvik, Bodycote, GKN, Senior, Spectris & Vesuvius

Source: Company data, Credit Suisse estimates

We would expect Legrand and Assa to continue on

their bolt on strategy.

We see scope for Siemens to acquire in the Process

Automation space.

We believe ABB may focus on expanding their

offering in valves through acquisitions.

We believe share buybacks are most likely at Atlas

Copco, Alfa Laval.

UK names most likely to acquire include Spectris,

Rotork, Bodycote, Melrose and Senior.

19

#5: Balance sheet re-leveraging – where is the potential

Source: Company data, Credit Suisse estimates

2014 Net Debt /

EBITDA

5 year

averageManagement comments / Previous corporate action

ABB 0.10x -0.32xTarget 3-4% inorganic sales CAGR. Recent acquisition focus in automation including Baldor ($4.2bn, Motors) and Thomas & Betts ($3.9bn,

Low Voltage). Buybacks less of a focus

Legrand 0.66x 1.26xStrategy of bolt on acquisitions predominantly in emerging markets. Added on average 5% to sales in 2011 and 2012 but this will fall to

c2.5% in 2013.

Siemens 0.92x 1.00xAnnounced a €3bn buyback in 2012 and a €4bn buyback in 2013. Recent acquisitions included Invensys rail for €2bn and also in Automation

software. An end market targeted for further expansion is Process Automation

Alfa Laval -0.17x 0.31xThe company has a track record of returning cash to shareholders and targets c4% growth from acquisitions per annum. We see a fair

probability of a special distribution in 2014.

Assa Abloy 1.33x 1.65xOne of the best quality 'Acquire & Restructure' models in the sector with a healthy pipeline of further deals. We expect acquired growth of

8.6% for 2014 and 8.2% for 2015.

Atlas Copco 0.74x 0.78xA very consistent track record of returning excess cash to shareholders in absence of acquisitions combined with a stream of successful bolt-

on deals. We do not discount further acquisitions beyond Edwards but expect a cSEK 5bn cash return.

Electrolux 0.49x 0.51xHistorically the company has returned cash to shareholders but the more recent focus has been on investment in growth internally and on

building up an acquisitions pipeline.

Kone -0.80x -0.74xConsistently has returned excess cash to shareholders. With special dividend announced at Q3 2013 results, we see a small probability of

an extra distribution over the next 6-9 months. Continue to target small bolt on service acquisitions.

Schindler -1.34x -1.62xHas returned some excess cash to shareholders in the past. The recent fixed price buyback offer would have amounted to c7% of share

capital but was only c30% taken up.

Bodycote -0.37x 0.54xHas returned cash to shareholders in the past but the recent focus has been more on bolt-on acquisitions. In absence of sizable deals over

the next 6 months, we would expect a cash distribution.

Halma 0.17x 0.33xStrategy of bolt on acquisitions and in FY12/13 Halma made six acquisitions. We believe their focus going forward will be on Health &

Analysis and estimate an average deal multiple of 9x EV/EBIT. We estimate at 2x net debt / EBITDA Halma has c£300m of firepower.

IMI 0.48x 0.52xIMI's acquisition strategy is to expand in to Process with the last three acquisitions including in Fluid Power and Severe Service. We

estimate IMI have £600m of firepower assuming releveraging to 2x net debt / EBITDA

Melrose 2.15x 1.42xMelrose have disposed of Crosby / Acco, Truth & Marelli in 2013. Bridon likely to go in 2014 and Energy in 2015. Management have stated

they are on the look out for the next deal. We believe the target size would be £3bn EV which would result in a rights issue.

Spectris 0.00x 1.12x

We estimate Spectris has c£470m of firepower upon releveraging to 2x net debt / EBITDA. We think acquisition focus will include Industrial

controls while maintaining their current global sales exposure. In 2012 their acquired Omega (now rolled out to China) for £290m implying an

12x EBIT acquisition multiple.

20

Theme #6: Competitive Risk

We believe competitive risk will become a more prominent theme in 2014 than it has been in 2013.

Key end markets where we see the risks increasing are bearings due to Japanese competitors benefitting from a

weakening Yen and also because of Chinese bearings makers increasingly focusing on higher end bearings. SKF in 2Q

and 3Q reported negative price mix and we believe with increasing competition this is unlikely to change in 2014.

We also believe the risks are increasing in the Crushing and Grinders segment (Sandvik, Weir & Metso) in mining

equipment with large Chinese players, such as Citic Heavy, gaining prominence and also gaining their first systems

contract in Europe in 2014.

Risk Rating 1 2 3 4 5

High Power Gen.(Coal)

Appliances, T&D

Bearings

Trucks

Mining Equipment - Crushers & Grinders

Medium Drive systems

Transport

O&G (Fracking)

Heat exchangers

Elevator

Low

Heat Treatment

Timeframe in years

Automation

Construction Equipment

Low Voltage equipment

Auto components

Mining Equipment

Risk Rating 1 2 3 4 5

High Alstom

Electrolux

ABB

Medium Philips

Sandvik

Atlas Copco

Low

Volvo, Man, Scania

SKF

Metso

Timeframe in years

Alfa Laval

Kone, Schindler

Legrand

Geberit

Schneider

Source: Credit Suisse research

21

#6: Charting the competitive risk

-15%

-10%

-5%

0%

5%

10%

15%

20%

SKF Qianchao(QC)

Wafangdian(ZWZ)

Tianma(TMB)

Longxi (LS) Xiangyang(ZXY)

Zhouyan Keji(ZYS)

Xibei (NXZ) Nanfang(NF)

ZhonghangHazhou(ZHHZ)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Total Revenue (RMB m) Bearing revenue (RMB m) Total EBIT margin

COMMUNITION

Crushing Grinding Screening Pumps Cyclones Concentration Refining

Atlas Copco Y

Sandvik Y Y

Astec Y Y Y

FL Smidth Y Y Y Y Y Y Y

Metso Y Y Y Y Y

Thyssen Krupp Y Y Y

TENOVA Y Y Y Y

FAM Y Y

Weir Y Y Y Y Y

CITIC HEAVY Y Y

SLURRY PROCESSING

European

Companies

Japanese

CompetitorsArea of Business

Relevance for

European

competitor

ABB Yokogawa Process Automation Low

Fanuc Discreet Automation (Robots) Low

Alstom Mitsubishi Heavy Thermal Power Division Medium

Atlas Copco Furukawa MRET and Construction Low

Furukawa Low

Komatsu Low

Kawasaki Low

SumitomoSandvik Tooling and Material

Technology Low

Kyocera Sandvik Tooling Medium

Mitsubishi Sandvik Tooling Medium

Furukawa Mining and Construction Low

Hitachi Material Technology Low

Mitsubishi Heavy Power Transmission & Fossil Power Medium

Toshiba Healthcare, Turbines Low

Hitachi Healthcare Low

Fanuc Drive Technology Low

NSK High

NTN High

JTEKT High

THK Actuation Motion Control Low

Metso Construction

Sandvik

Siemens

SKFBearing & Units

Chinese players are taking share from SKF and focusing on high end bearings

(rectangles indicate companies focused on export and rectangles on high end bearings)

Crushing & Grinding is a competitive mining sub-segment with prominent Chinese players

We also see risk for SKF from Japanese players in a sustained weak

Japanese Yen environment

100

110

120

130

140

150

Dec-12

Dec-12

Jan-13

Jan-13

Feb-13

Feb-13

Mar-13

Mar-13

Apr-13

Apr-13

Apr-13

May-13

May-13

Jun-13

Jun-13

Jul-13

Jul-13

Aug-13

Aug-13

Sep-13

Sep-13

Sep-13

Oct-13

Oct-13

Nov-13

Nov-13

Dec-13

EUR/JPY

xCS forecasts (next 12m): 148.8

Source: Company data, Bloomberg, Credit Suisse research

22

#6: Greatest structural competition risk continues to be for Alstom

0%

20%

40%

60%

80%

100%

2008 2013

General Electric Siemens Mitsubishi Alstom Other

We continue to see the greatest medium term structural risk for Alstom. This is primarily due to its sub-scale gas turbine

business and greatly reduced market share in steam turbines. In Rail Alstom has a c15% global market share but has

two large Chinese competitors in China Southern Rail and China Northern Rail.

In Gas Turbines Alstom had 4% market share in 2013 vs 5% in 2012. However, in that time Mitsubishi has increased its

share to 22% from 12% meaning there are now three established players in this market (GE, Siemens & Mitsubishi)

with combined 85% market share.

In Steam turbines (even excluding Chinese players which dominate China – the world’s largest market) Alstom’s share

fell to 5% in 2011 having been 9% between 2002-11.

We also remain concerned that an emerging threat for Alstom on the Power services side is the risk of Utilities trying to

offset weak earnings by potentially taking part of Power Plant servicing in-house to reduce their costs. This would

primarily negatively impact Alstom due to its large European Installed base.

0%

20%

40%

60%

80%

100%

2002-11 2011

BHEL Siemens Toshiba GE MHI Alstom Other

Global Gas Turbine market shares (2013 vs 2008) Steam turbine market shares (ex China) in 2011 vs shares between 2002-11

Source: McCoys, Company data, Credit Suisse research

23

Theme #7: Sector M&A

In 2013, we have seen further M&A within the

sector with Invensys taken out by Schneider

post Siemens acquiring the Rail segment.

We have re-run our HOLT CFROI M&A Screen

for the Pan European Capital Goods universe

with analysis over 6 criteria. We would highlight

the following names from the Screen:

From companies that met 5 criteria

Alfa Laval

Fenner

Legrand

Rotork

From companies that met 4 criteria

Smiths Group

Spectris

Weir

From companies that met 3 criteria

IMI

Score Company

Mkt Implied

CFROI below

1Fail and 5

year

median

CFROI FY1

above 8%

hurdle WACC

CFROI

improvement

expected in

FY1 over

FYFail

Consensus

estimates not

greater than

the median

FY1 Net

Debt/EBITDA

less than

2.Failx

Sustainable

Growth Rate

is greater

than 5%

6 ABB LIMITED Pass Pass Pass Pass Pass Pass

5 ALFA LAVAL AB Pass Pass Pass Fail Pass Pass

5 ASSA ABLOY AB Fail Pass Pass Pass Pass Pass

5 FENNER PLC Fail Pass Pass Pass Pass Pass

5 HALMA P.L.C. Pass Pass Pass Fail Pass Pass

5 KABA HOLDINGS AG Pass Pass Pass Pass Pass Fail

5 KONINKLIJKE PHILIPS NV Fail Pass Pass Pass Pass Pass

5 LEGRAND S.A. Pass Pass Pass Fail Pass Pass

5 ROTORK P.L.C. Pass Pass Pass Fail Pass Pass

4 ALSTOM SA Pass Pass Fail Fail Pass Pass

4 GEBERIT AG Fail Pass Pass Pass Pass Fail

4 KONE OYJ Fail Pass Pass Pass Pass Fail

4 SANDVIK AB Pass Pass Pass Fail Pass Fail

4 SCHINDLER HOLDING AG Pass Pass Fail Fail Pass Pass

4 SCHNEIDER Pass Pass Fail Fail Pass Pass

4 SMITHS GROUP PLC Pass Pass Fail Fail Pass Pass

4 SPECTRIS PLC Pass Pass Fail Fail Pass Pass

4 VESUVIUS PLC Fail Pass Pass Pass Pass Fail

4 WEIR GROUP PLC (THE) Pass Pass Fail Fail Pass Pass

3 ATLAS COPCO AB Pass Pass Fail Fail Pass Fail

3 IMI PLC Fail Pass Fail Fail Pass Pass

3 LAIRD PLC Fail Pass Pass Fail Pass Fail

3 MELROSE INDUSTRIES PLC Pass Pass Fail Fail Fail Pass

3 METSO OYJ Pass Pass Fail Fail Pass Fail

3 PRYSMIAN SPA Pass Pass Fail Fail Fail Pass

3 RENISHAW PLC Fail Pass Fail Fail Pass Pass

3 SENIOR PLC Fail Pass Fail Fail Pass Pass

3 SIEMENS AG Pass Pass Fail Fail Pass Fail

3 SKF AB Fail Pass Pass Fail Pass Fail

3 SPIRAX-SARCO ENGINEERING PLC Fail Pass Fail Fail Pass Pass

2 MORGAN ADVANCED MATERIALS PLC Fail Pass Fail Fail Pass Fail

1 BODYCOTE PLC Fail Fail Fail Fail Pass Fail

1 ELECTROLUX AB Fail Fail Fail Fail Pass Fail

1 GKN PLC Fail Fail Fail Fail Pass Fail

0 NEXANS SA Fail Fail Fail Fail Fail Fail

Criteria

Source: Credit Suisse HOLT®

24

Sector Performance

25

Growth and margin expectations for 2014

2.7%

1.4%

0.7%

0.4%

5.0%

4.4%4.2%

4.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

post 1Q13 post 2Q13 post 3Q13 Current

2013 organic growth forecast 2014 organic growth forecast

7.2%

6.4%

13.4%

11.4%

5.9%

-12.7%

6.4%

11.6%

3.5%

0.4%

4.0% 4.5%

10.0%

11.1%

12.2%

13.1%

11.1%

13.8%

14.6%

14.4%14.3%14.8%15.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-18.0%

-14.0%

-10.0%

-6.0%

-2.0%

2.0%

6.0%

10.0%

14.0%

18.0%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

Sector EBIT margin, % Sector organic growth, %

Sector organic growth and margin forecast CS revisions to 2013 and 2014 organic growth forecasts YTD

We forecast 4% organic growth for the sector in 2014 and 40bps of margins expansion. The key drivers of margin expansion

in 2014 are 1) on-going cost cutting programmes across the sector (we assume c50% retention), 2) benign raw material

environment.

In 2013 organic growth disappointed with our expectations having declined by 230bps YTD. In that time expectations for

2014 have moderated by 100bps.

In our view, despite improvements in lead indicators, we find it moderately concerning that this has not filtered through to

demand in Europe for some of the shorter-cycle companies in the sector – SKF guides for sequentially flat demand in Q4.

Therefore, we believe the risk on 2014 consensus organic growth is somewhat to the downside, in particular as Q3

destocking in Europe continued to negatively impact volumes for Legrand and Schneider. In our view, this continues to be a

risk to the assumption of an strong European volume recovery in early 2014, most notably in France.

Source: Company data, Credit Suisse estimates

26

Lead indicators are supportive of a gradual 2014 recovery

Q1 Q2 Q3E Q4E Q1 Q2 Q3 Q4 12 13E 14E 15E

Global Real GDP (y/y) 2.4 2.7 2.9 3.2 3.6 3.6 3.7 3.8 3.1 2.9 3.7 3.9

US Real GDP (q/q ann) 1.1 2.5 2.8 1.9 2.5 2.7 3.0 3.0 2.8 1.7 2.6 2.8

Euro Area Real GDP (q/q ann) -0.9 1.1 0.4 1.3 1.3 1.4 1.8 1.5 -0.6 -0.4 1.3 1.7

China Real GDP (y/y) 7.7 7.5 7.8 7.7 7.7 7.7 7.8 7.7 7.7 7.6 7.7 8.2

India Real GDP (y/y) 4.8 4.4 5.2 5.9 6.2 6.7 6.8 6.7 5.0 5.4 6.6 6.9

Annual Average2013 2014E

-4%

0%

4%

8%

12%

16%

2011 2012 2013 2014

Global IP Euro area IP US IP China IP

In Europe the PMI has remained marginally above the 50 level for four months indicating growth, but at a moderate

level. The US ISM has indicated a stronger environment with its third consecutive reading >60 in Oct.

The CS Economics team forecasts global GDP growth of 3.7% in 2014 and Global IP growth of 4.4% (1.7% in EU).

20.00

30.00

40.00

50.00

60.00

70.00

Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

EU PMI new orders US ISM new orders China PMI new orders

Source: Company data, Credit Suisse research

27

Pricing: Broadly similar trends in 2014 as in 2013

Automotive3%

General industrial14%

Construction Res6%

Construction non Res16%

Oil & Gas4%

Mining6%

Power T & D10%

Power Gen 12%

Transport 7%

Medical9%

Consumer/ Appliances

10%

Other3%

Sector exposure by geography

West Europe

38%

US20%

Emerging Mkt39%

Others3%

CS estimate of pricing as a % of sales per year by end market

We believe pricing trends will remain broadly similar in 2014 to 2013 but we

believe the end markets where there is the greatest risk of pricing taking a more

negative step-down is the bearings market.

We believe the end markets seeing the greatest pricing pressure are Healthcare

equipment (due to Japanese players lowering prices) and Gas turbines (due to

low demand levels) which are running at -4% to 5% of sales per year.

Our current assumption is that bearings are not seeing negative pricing pressure.

However, we believe this is the end market where pricing is most likely to worsen

in 2014/15 with the Chinese market being most vulnerable, followed by Emerging

markets where Chinese players have greatest scope to accelerate the exporting

of locally produced bearings (EM is 40% of SKF’s revenues).

Sector exposure by end-market

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Gas Turbines Healthcare LargeTransformers

Constructioncables

Appliances Miningaftermarket

Bearings Low Voltage

Pricing pressure as a % of sales

Source: Company data, Credit Suisse estimates

28

Margin driver #1: Cost cutting

Those companies we believe have potential to surprise

positively on cost savings are Prysmian and Assa Abloy.

The Electricals cost savings in 2014E are relatively

higher than the Mechanicals but the Electricals end

markets (Healthcare, Power Gen) are also those seeing

greatest pricing pressure.

A driver of share price outperformance in 2012 and

1H13 was cost cutting (Philips & Electrolux), but we

believe programmes across the sector are now well

understood by the market.

Broadly across the sector we assume a 50% retention

rate for cost savings in our models.

For SKF we currently discount the full SEK3bn of

savings by 2015 and therefore see limited scope for

surprise.

Finally, c50% of cost savings targeting in the sector

relate to reduced sourcing cost reduction (eg using lower

cost component suppliers). We believe this trend may

pose a risk to companies such as SKF that sell higher

quality parts (bearings) in to larger products.

Source: Credit Suisse estimates

Cost savings as a % of sales 2013E 2014E 2015E

Electricals

ABB 2.6% 2.5% 2.4%

Alstom nm 2.4% 2.3%

Legrand nm

Nexans 0.5% 1.1% 1.6%

Philips 0.2% 0.2% 0.1%

Prysmian 0.5% 0.6% 0.3%

Schneider 1.3% 0.0%

Siemens 2.6% 4.7%

Electrical Average 1.3% 1.5% 1.1%

Mechanical

Alfa Laval 0.3%

Assa Abloy 0.7% 0.6%

Atlas Copco nm 0.2%

Electrolux 1.2% 0.9% 0.8%

Geberit nm

Kone 0.4%

Metso 0.8% 2.2%

Sandvik 1.2% 0.8% 0.8%

Schindler 0.0% 0.3% 0.2%

SKF 0.3% 1.4% 1.6%

Mechanical Average 0.6% 1.0% 0.9%

29

Margin Driver #2: Raw materials as a small tailwind

0

20

40

60

80

100

120

140

160

180

200

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Iron Ore Credit Suisse forecasts

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Copper Credit Suisse forecasts

1000

1500

2000

2500

3000

3500

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

Aluminium Credit Suisse forecasts

The raw material environment was benign in 2013 and our CS

commodities team remains cautious on prices going in to 2014.

Their expectations are for copper prices at the end of 2014 to

have fallen by -14% from current levels and iron ore by -32%.

Most companies in the sector are relatively well hedged but we

believe a declining raw material price environment would be most

positive for Legrand, Schneider, Electrolux and SKF.

Current Electrolux guidance is for flat raw material impact on

EBIT in 2014, but it agrees the 2014 hedging price for steel in

4Q13. Therefore, a decline in steel prices is unlikely to benefit

Electrolux until 2015 (having hedged at a lower price in 4Q14).

Source: Thomson Reuters, Credit Suisse research

30

Sector Valuations

31

Valuation: We are currently at Mid-cycle multiples

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

Nov-0

3

Ma

y-0

4

Nov-0

4

May-0

5

Nov-0

5

Ma

y-0

6

Nov-0

6

Ma

y-0

7

Nov-0

7

Ma

y-0

8

Nov-0

8

Ma

y-0

9

Nov-0

9

Ma

y-1

0

Nov-1

0

Ma

y-1

1

Nov-1

1

Ma

y-1

2

Nov-1

2

Ma

y-1

3

Nov-1

3

Sector EV/Sales Sector underlying EBIT margin

6

7

8

9

10

11

12

13

14

Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Nov-13

European Cap Goods EV/EBIT Average

On balance we have a neutral view on the sector as, with 12mth FWD EV/EBIT for the sector at 11.8x earnings,

earnings upgrades are needed to drive further share-price performance in 2014.

The sector has re-rated through 2013 and is now trading above its mid-cycle multiple. In our view, based on the

sector margin having reached a new peak, a higher through cycle average than 2004-2007 is justified. However, we

still believe there is 6% downside in the event of a return to mid-cycle multiples.

In our view earnings upgrades in the medium term will be driven by the top-line (volume and price) rather than by

margin improvements driven by cost savings. The sector is already at peak margins and with competition in areas

such as bearings and mining equipment increasing, we believe the scope for a further margin step up is limited.

We believe those companies that can surprise positively on the topline in 2014 are ABB, Assa Abloy, Prysmian,

Bodycote, Fenner, GKN & Spectris.

Source: Thomson Reuters, Credit Suisse research

32

Valuation: Preference for sub-sectors

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Nov-0

6

Ma

y-0

7

Nov-0

7

Ma

y-0

8

Nov-0

8

Ma

y-0

9

Nov-0

9

Ma

y-1

0

Nov-1

0

Ma

y-1

1

Nov-1

1

Ma

y-1

2

Nov-1

2

Ma

y-1

3

Nov-1

3

EV/EBIT (Elec vs Mech premium (discount))

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Nov-0

6

Ma

y-0

7

Nov-0

7

Ma

y-0

8

Nov-0

8

Ma

y-0

9

Nov-0

9

May-1

0

Nov-1

0

Ma

y-1

1

Nov-1

1

Ma

y-1

2

Nov-1

2

Ma

y-1

3

Nov-1

3

EV/EBIT (UK vs European premium(discount))

Looking at the performance of sub-sectors into the year end, the Electricals have rallied relative to the Mechanicals with

their share prices outperforming by 5% over the last three months. In terms of sector positioning we believe that in

Electricals, Siemens remains the best owned name, with short mining capex (and particularly Atlas Copco) being the

most common trade in Mechanicals.

Into 2014 we do not have a strong preference for Electricals vs Mechanicals but based only on valuation downside we

see greater scope for de-rating based on our valuation framework (on the next page) in Electricals (-8% potential

downside in a return to mid-cycle) vs the Mechanicals (-3%).

We believe the UK sector has 6% downside in a return to mid-cycle multiples but there has been the clear trend in 2013

of the higher quality names re-rating vs the UK industrial average. Among the high quality names, we prefer Halma and

also those names with secular growth drivers including Spectris (Automation) and Bodycote & GKN (Aerospace).

Source: Thomson Reuters

33

Valuation: 6% potential downside on mid-cycle multiples

L. Growth Mid-cycle L. Growth Mid-cycle L. Growth Mid-cycle

Electricals

ABB SFR 9.0 10.0 21.6 24.0 -7% 4%

Alstom EUR 7.5 8.5 18.7 23.0 -30% -14%

Legrand EUR 9.5 11.0 29.7 33.1 -25% -17%

Philips EUR 8.0 9.5 20.3 24.7 -22% -6%

Prysmian EUR 8.5 9.5 16.4 19.0 -14% -1%

Schneider EUR 8.5 10.0 45.5 55.2 -26% -10%

Siemens EUR 8.5 10.0 68.3 83.6 -30% -14%

Average Electricals 8.4 9.7 -22% -8%

Mechanicals

Alfa Laval SEK 9.0 11.0 114.6 139.5 -25% -9%

Assa Abloy SEK 10.0 12.0 210.2 259.7 -37% -22%

Atlas Copco SEK 9.0 11.0 128.7 160.2 -31% -14%

Electrolux SEK 7.5 9.5 154.1 200.0 -3% 26%

Geberit CHF 10.5 13.0 171.6 208.5 -36% -22%

Kone EUR 10.0 12.0 44.9 53.1 -35% -23%

Metso EUR 7.5 9.5 27.0 34.8 -10% 16%

Sandvik SEK 8.5 10.0 96.8 111.3 6% 21%

Schindler CHF 10.0 12.0 104.7 122.8 -17% -3%

SKF SEK 7.5 9.5 126.7 168.1 -29% -5%

Average Mechanicals 9.0 11.0 -22% -3%

UK

Bodycote GBP 8.0 9.5 5.3 6.2 -14% 1%

Fenner GBP 8.5 10.5 5.2 6.4 20% 46%

GKN GBP 7.0 8.5 2.8 3.5 -25% -7%

Halma GBP 9.0 11.5 3.6 4.7 -39% -21%

IMI GBP 8.0 10.0 9.5 12.1 -36% -19%

Laird GBP 7.5 9.0 1.6 2.0 -39% -24%

Melrose GBP 9.0 10.0 2.3 2.5 -23% -15%

Morgan Adv. Mats. GBP 7.0 8.0 2.7 3.1 -8% 7%

Renishaw GBP 10.0 12.0 12.0 14.2 -35% -23%

Rotork GBP 10.5 13.0 21.0 25.7 -27% -10%

Senior GBP 8.0 9.5 2.2 2.6 -22% -7%

Smiths GBP 8.0 10.5 13.7 17.3 0% 26%

Spectris GBP 8.7 10.5 16.3 19.7 -31% -17%

Spirax Sarco GBP 9.0 11.5 18.9 23.9 -35% -18%

Vesuvius GBP 7.5 9.0 3.3 4.1 -33% -17%

Weir Group GBP 9.0 11.0 16.9 21.3 -21% -1%

Average UK 8.4 10.3 -23% -6%

Pan-Euro Sector Average 8.6 10.4 -22% -6%

Target EV/EBITA (2014)Scenario Valuation using

Target EV/EBITA (2014)

Upside / (Downside) vs

current share price

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Ele

ctric

al A

v.

Mec

hani

cal A

v.

UK

Av.

Sec

tor

Av.

Cyc

lical

Av.

Str

uctu

ral A

v.

Upside/ (Downside) vs current share price

Using target mid-cycle multiples for

companies and backing out the implied

share price using our forecasts, the

sector has -6% potential downside on a

return to these target multiples.

Having re-rated the structural growth

names show -18% potential downside

using this methodology and while

companies in our cyclicals category are

showing -3% potential downside.

Source: Credit Suisse estimates

34

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Nex

ans

Pry

smia

n

Sch

indl

er

Ass

a A

bloy

Ele

ctro

lux

Sie

men

s

San

dvik

Met

so

Gkn

Ves

uviu

s

Inve

nsys

Alfa

Lav

al

AB

B

Kon

e

SK

F

Sch

neid

er

Als

tom

Mor

gan

Cru

cibl

e

Bod

ycot

e

Spe

ctris

Sen

ior

Phi

lips

Laird IM

I

Ren

isha

w

Geb

erit

Hal

ma

Rot

ork

Spi

rax

Sar

co

Atla

s C

opco

Sm

iths

Gro

up

Wei

r

Legr

and

Fen

ner

2014 EV/EBIT premium / discount vs sector

2015 EV/EBIT premium / discount vs sector

Difference between 2015 and 2014 premium / discount (stocks on LHS look relatively cheapest on 2015 multiples vs 2014)

Valuation: Too early to look at the sector on 2015 multiples? Difference between 2015 and 2014 premium / discount to the sector –

Companies on the LHS of the chart look relatively cheaper vs the sector on 2015 EV/EBITA than on 2014.

We continue to believe that it is too early to start looking at companies on 2015 multiples. Currently, companies are indicating

broadly flat sequential demand in Q4 while consensus organic growth for the sector is c4% in 2014.

In our view the market will start looking at 2015 multiples at the end of 1Q14 and in this scenario we believe Schindler (OP)

(11% premium in 2015E) and Prysmian (OP) (-24% discount in 2015E) look relatively cheaper as compared to 2014 multiples.

On the above chart the higher quality names (IMI, Halma, Atlas Copco, Rotork & Spirax Sarco) look less attractive but clearly

the valuation focus for these stocks is the sustainability of longer term growth rather than a 2015 recovery in profitability.

Source: Company data, Credit Suisse research

35

ROIC – higher asset turns should be the future driver

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Sector average Mechanicals average Electricals average UK average

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E2015E

Sector average Mechanicals average

Electricals average UK average

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E2015E

Sector average Mechanicals average

Electricals average UK average

Since 2008/09 the sector has returned to 2008 ROICs driven by the

sector NOPAT margin achieving a new peak while asset turns have

declined (led by the Electricals sub-sector as they have invested in

working capital and R&D)

Current share prices are discounting ROICs to increase for the sector

on average and we believe for this to occur, given peak margin levels,

asset turns need to improve from current levels.

We believe companies positioned to deliver on this are Siemens (OP)

under a new CEO as it continues to take out cost following three years

of investing in the business. We also believe there is an opportunity for

improving asset turns at IMI (OP) across their remaining flow control

businesses

Source: Company data, Credit Suisse estimates

36

Cash conversion – we remain cautious on companies at the low end FCF conversion from clean net income 2004-2012

Companies that look attractive based on their

cash adjusted ROIC (cash conversion

multiplied by ROIC) are Prysmian, Senior and

Bodycote.

In the sector Legrand, Prysmian, Schindler

and Assa have the highest cash conversion

ratios driven by good working capital

management and limited restructuring

charges.

We remain cautious on those companies with

relatively weak cash conversion: Sandvik (UP),

Alstom (UP) and Morgan Adv. Mats (UP).

0%

20%

40%

60%

80%

100%

120%

140%

Legr

and

Pry

smia

n

Spe

ctris

Sch

indl

er

Ass

a A

bloy

Kon

e

Geb

erit

Hal

ma

Sch

neid

er

Alfa

Lav

al

Sen

ior

IMI

AB

B

Bod

ycot

e

Rot

ork

Sie

men

s

Nex

ans

SK

F

Met

so

Laird

Atla

s C

opco

Sm

iths

Fenn

er

Wei

r

Ren

isha

w

Mel

rose

Spi

rax

Ele

ctro

lux

Ves

uviu

s

San

dvik

Als

tom

Phi

lips

Mor

gan

Adv

. Mat

s

GK

N

Sector average

Alfa Laval

Assa Abloy

Atlas Copco

Electrolux

Kone

Metso

Sandvik

Schindler

SKF ABB

Alstom

LegrandNexans

PhilipsPrysmian

Schneider

Siemens

Bodycote

Fenner

GKN

Halma

IMI

Laird

Melrose

Morgan Adv. Mats

Renishaw

Senior Smiths Group

Spectris

Spirax

VesuviusWeir

Sector average

7

8

9

10

11

12

13

14

15

16

2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28%

2014E

EV

/EB

IT

Cash Adjusted 2013-2014E ROIC

Geberit(ROIC 30.8%, EV/EBIT 16.7)

Rotork(ROIC 29.8%, EV/EBIT 14.1)

Source: Company data, Credit Suisse research

37

Key End Markets Outlook

38

End market forecasts

Source: Credit Suisse estimates

Key End Market Forecasts 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Automotive -5% 3% 4% 5% 2% 4% 7% 7% 7% 2% 4% 5%

Automotive Aftermarket 2% 3% 3% 4% 3% 3% 7% 7% 7% 4% 4% 4%

Aerospace 7% 7% 6% 7% 7% 6% 7% 7% 6% 7% 7% 6%

Construction Residential -3% 2% 5% 15% 12% 10% 7% 8% 7% 6% 7% 7%

Construction Commercial -6% 0% 3% 5% 7% 7% 6% 8% 7% 2% 5% 6%

Construction Government -6% -2% 0% -2% 1% 5% 5% 5% 5% -1% 1% 3%

Consumer/ Appliances 1% 3% 5% 7% 10% 8% 8% 8% 7% 5% 7% 7%

Gen. Ind. Production 0% 2% 4% 2% 4% 5% 8% 10% 8% 3% 5% 6%

Gen. Ind. Capex -6% 0% 3% 3% 6% 6% 5% 5% 5% 1% 4% 5%

Gen. Ind. Aftermarket 3% 3% 4% 5% 5% 5% 7% 7% 7% 5% 5% 5%

Medical -4% -1% 4% -3% 3% 5% 10% 10% 8% 1% 4% 6%

Mining OE -30% -15% -5% -30% -15% -5% -30% -15% -5% -30% -15% -5%

Mining Aftermarket -7% 5% 5% -7% 5% 5% -7% 5% 5% -7% 5% 5%

Oil & Gas 3% 2% 3% 5% 4% 5% 8% 7% 7% 5% 4% 5%

Pulp & Paper OEM -10% -5% 0% -7% -3% 0% -5% 2% 3% -7% -2% 1%

Pulp & Paper Aftermarket -3% 0% 3% -3% 0% 3% 5% 5% 5% 0% 2% 4%

Power T&D -5% 5% 4% -3% 1% 3% 6% 6% 5% -1% 4% 4%

Power Generation -10% -6% 0% -3% 2% 4% 6% 6% 5% -2% 1% 3%

Transportation 4% 2% 2% 2% 3% 3% 8% 7% 7% 5% 4% 4%

Truck -3% -1% 2% 2% 9% 5% 8% 4% 5% 2% 4% 4%

Average -3.9% 0.4% 2.8% 0.2% 3.3% 4.4% 3.8% 5.4% 5.6% 0.0% 3.0% 4.2%

Europe North America Emerging Markets GLOBAL

39

Aerospace – strong growth expected in 2014 Airbus and Boeing production forecast

12 month rolling average aircraft orders

In Aerospace, we forecast growth of 7% in 2014.

Airbus and Boeing are seeing orders recovering

from a small trough in 2012, leading to higher

production volumes next year.

Long term demand for aircraft production is driven

by increasing demand for air travel worldwide and

growing international trade volume. Air passenger

traffic growth is geared on GDP around 2-3x.

Source: Company data, Credit Suisse research, KMT

40

Appliances – Emerging markets to drive growth, US recovery

Medium term growth expectation for appliances by Electrolux

Emerging markets are an important driver of European

companies’ performance in the appliances market.

US appliance market is expected to recover following the

housing recovery, while outlook for Europe is stable.

Online presence is becoming increasingly important with

85% of consumers looking at products on-line before

purchasing.

Consumers expect higher quality products for the same

price, as cost of appliances falling greatly for the past few

years – new product will be the main driver of

profitability.

Early stage of US Housing Recovery

US Appliance unit shipment outlook by Whirlpool

Source: Electrolux, Whirlpool

41

Automation – Value chain

Major players

PLM: Autodesk, Dassault, Siemens

ERP: Oracle, SAP

MES: Aspen, CDC Software, Invensys, Siemens

SCADA: ABB, Invensys, Siemens

DCS: ABB, Honeywell, Siemens, Yokogawa

PLC: ABB, Omron, Mitsubishi, Rockwell,

Schneider, Siemens

V ^ V ^

Computerized Numerical

Control (CNC)CNC: Fanuc, Siemens

V ^ V ^ V

V ^ V ^ Human Machine Interface (HMI)

Drives Sensors

Robots

MotorsMachine

Vision

Enterprise Level

Controls

Product Lifecycle Management (PLM)

Enterprise Resource Planning (ERP)

Manufacturing Execution System (MES)

Plant Level

Controls

Supervisory Control and Data Analysis (SCADA)

Process Factory

Distributed Control

System (DCS)

Programmable Logic

Controller (PLC)

HMI: ABB, Invensys, Mitsubishi, Siemens,

Schneider

Plant

InstrumentationValves Sensors Machine Tools

Sensors: ABB, Eaton, Honeywell, Omron

Machine Vision: Cognex, Teledyne

Drives: ABB, Danaher Mitsubishi

Robots: ABB, Fanuc, Kuka

Machine Tools: Gildemeister, Mori Seiki

Motors: ABB, Emerson, GE, Regal Beloit,

Rockwell, Schneider, Siemens, Weg,

Yaskawa

Source: Credit Suisse research

42

Automation – Growth opportunities in emerging markets

We expect automation markets to grow stronger in emerging

markets, notably China, where penetration levels in most end

markets are still significantly below developed market. Developed

markets use 13x numbers of robots per manufacturing employee

than in emerging markets.

We expect shorter-cycle factory automation to grow faster than

process automation, which tends to qualify as a later cyclical

market given the exposure to end markets such as utilities.

Automotive, consumer and transport sector will drive the growth

due to limited penetration.

% of global output and robots per employee highlights the

investment opportunity in EM Robot stock (base year = 1974 for Japan, 1999 for China)

50%41%

50%

7%

35%

8%

149

88

11 7 116

Developed Developed(ex Japan)

EmergingMarkets Total

EMEAEmerging

NJAEmerging

LatAmEmerging

% of Global Manufacturing Output

Number of Robots per 10,000 Manufacturing Employees

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

T+0 T+5 T+10 T+15 T+20 T+25 T+30

Japan

China

CS Pan-Euro Capital Goods +44 207 888 0350

Automation market revenue by region

Source: Company data, Credit Suisse research

43

Automotive – Sustained recovery into 2014

Global automotive production forecast by IHS

19.4 19.3 19.1 19.4

20.2 20.220.7

22.0

20.8

16.5

19.0

20.2

19.3 19.119.7

20.5

14.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0

23.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

E

20

14

E

20

15

E

Pro

du

ctio

n (

Mil.

Un

its)

Europe

17.2

15.516.4

15.9 15.8 15.815.3 15.1

12.6

8.6

11.9

13.1

15.416.2

16.817.5

7.0

9.0

11.0

13.0

15.0

17.0

19.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

E

20

14

E

20

15

E

Pro

du

ctio

n (

Mil.

Un

its)

N. America

2.2 2.33.3

4.4 4.9 5.77.0

8.4 8.8

13.1

17.1 17.618.6

20.522.3

24.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

E

20

14

E

20

15

E

Pro

du

ctio

n (

Mil.

Un

its)

Greater China

12.612.2

12.9 12.9

13.3

14.0

14.715.1

14.7

11.1

13.3

12.5

14.0

13.4

12.6 12.4

10.0

11.0

12.0

13.0

14.0

15.0

16.02

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

E

20

14

E

20

15

E

Pro

du

ctio

n (

Mil.

Un

its)

Japan/Korea

2.0 2.1 1.9 1.9

2.52.8

3.1

3.63.8 3.7

4.2 4.3 4.34.5 4.7

5.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

E

20

14

E

20

15

E

Pro

du

ctio

n (

Mil.

Un

its)

S. America

2.3 2.4 2.63.1

3.64.2 4.3 4.6

5.1 4.8

6.6 6.9

8.3 8.28.8

9.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

E

20

14

E

20

15

E

Pro

du

ctio

n (

Mil.

Un

its)

S. Asia

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Global growth rates -3.3% 4.6% 2.7% 5.0% 4.2% 4.1% 5.6% -4.3% -11.9% 25.0% 3.3% 6.0% 2.4% 3.9% 5.8%

Source: IHS

44

Construction (Europe) – France remains the key risk in 2014

-25%

-20%

-15%

-10%

-5%

0%

Total EUconstruction

Residential Non-residential Infrastructure

2012 spend from prev. peak

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Total market UK Germany France Italy Spain

2014 growth in construction spend

0%

2%

4%

6%

8%

LegrandFrance

Legrand Italy SchneiderPartner

Geberit Italy GeberitGermany

Assa AbloyEMEA

2014 organic growth forecast

We continue to be cautious on European construction into 2014 and

with we believe the greatest risks for disappointment being in France.

In Q313, construction spend in France was still declining by -5%

while Legrand and Schneider also reported weakness in the region,

with destocking having an impact.

In our view, destocking can continue to constrain demand for our

construction related names in central European countries in 2014

(This is most relevant for Schneider (N) and Legrand (UP)).

Spain and Italy construction spend are 72% and 25% below previous

peaks and companies have reported some signs of stabilization in

these regions at Q3 results (Prysmian on Italy, Geberit and Kone on

Spain). However, we do not expect a strong rebound in 2014.

Source: Euconstruct, Credit Suisse estimates

45

Construction (US Residential) – Growth to continue at high levels

0

500

1,000

1,500

2,000

2,500

198

01

98

11982

198

31

98

41

98

51

98

61

98

71

98

81989

199

01

99

11

99

21

99

31

99

41

99

51

99

61

99

71

99

81

99

92

00

02

00

12

00

22

00

32

00

42

00

52

00

62

00

72

00

82

00

92

01

02

01

12012

201

3E

201

4E

201

5E

201

6E

To

tal A

nn

ual

Ho

us

ing

Sta

rts

(00

0's

)

In 2014 we expect positive momentum to continue in the US housing market (our US Housing analyst forecasts 19% growth

in total housing starts which still implies the market is -54% below the previous peak.)

In terms of recent datapoints, our US analyst’s monthly October Survey of Real Estate Agents was relatively soft with the

buyer traffic index weakening primarily related to rising mortgage rates over the summer months. However, the view remains

that demand will improve in Q114 in line with historic seasonal trends.

We believe the key beneficiaries of this positive trend is Electrolux but also that this positive trend is fairly discounted in our

forecasts where we have +11% organic growth for North America in 2014.

Source: US Census Data, Credit Suisse estimates

46

Construction (US Non-residential) – Recovery in sight?

0%

-13%

-4%

4%

8%

16%

24%

11%

-16%

-24%

-1%

17%

7%

10%

8%

-30%

-20%

-10%

0%

10%

20%

30%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

E

2014

E

2015

E

US non-residential construction spend

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13

ABI Billings

In US non-residential we forecast 10% growth in 2014 and 8% growth in 2015. Within non-residential the largest segment

is Lodging, Office and Commercial (29% of total), which we believe should grow at 15% in 2014. However, growth in

other non-residential segments, eg Education and Healthcare, is likely to be more subdued.

In 2013 company commentaries acknowledged some improvement in trends in US non-residential (Schneider) but not

yet a meaningful acceleration. To an extent the 10% growth we forecast in US non-residential is driven by a low base

effect – the Lodging, Office and Commercial segment in on our forecasts in 2015 would still be -28% below 2008 levels.

Further support is given by the ABI index in the US (this tends to lead demand for our companies by c18 months - it

takes 12 months between the architect’s design and breaking ground on a project and a further six months for demand to

feed through to our companies). This index has been above 50 for 14 out of 15 last months.

Source: ABI, US Census Data, Credit Suisse estimates

47

Construction (China) – Growth at a more moderate level in 2014

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013

Sales Completions Starts

Recent trends in housing starts in China have been positive with

positive sentiment also reflected in the CS China Property price index.

Our commodities team view is that sales stepped up in August due to

easing credit but this positive effect has moderated reflected in the

small decline in starts.

Into 2014 we remain confident that the trend of stable growth in

construction spend in China will continue as on our recent China trip it

was evident that private real estate markets were continuing to fare

much better than General Industrial demand.

66

65

75

73 73

75

74

77

68

7980

81

73

50

55

60

65

70

75

80

85

Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13

CS China Property price sentiment index

At Kone’s 2013 CMD the company indicated the expectation for 27bn

square meters to be added in Chinese housing stock between 2012

and 2025, implying annual new elevator demand of 460K pa vs 490K

in 2012.

Source: Thomson Reuters, Kone, Credit Suisse research

48

General Industrial – CS forecasts 4.4% Global IP growth in 2014

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Q1

1992

Q1

1994

Q1

1996

Q1

1998

Q1

2000

Q1

2002

Q1

2004

Q1

2006

Q1

2008

Q1

2010

Q1

2012

2014

CS Global IP Index (1 quarter shift)SKF Volume Growth

-4%

0%

4%

8%

12%

16%

2011 2012 2013 2014

Global IP Euro area IP US IP China IP

CS economics team forecasts 4.4% Global IP growth in 2014. Its view is that IP growth is likely to first moderate in

1Q14 (following a strong 2H13) returning to trend growth rate in spring, before a pick up over the summer. By region

US IP growth is expected to be slower in 2014 while the most significant improvement is forecast to be in Europe

moving from -1% in 2013 to +1.7% in 2014.

Above we show the correlation between Global IP and SKF and believe ours and consensus forecasts of 6% organic

growth in 2014 fully reflecting the CS forecast 2014 IP rebound

However, we would highlight that we believe the correlation with Global IP has become less relevant as SKF’s exposure

is more heavily weighted towards Europe (where IP has been weak) while Global IP has been supported by China. An

average of 2014 IP growth (assuming 7.5% in EM), weighted by SKF’s geographical exposure, implies 4.4% organic

growth for SKF in 2014.

Source: Company data, Credit Suisse estimates, KMT

49

Healthcare – Risk to growth assumptions from the US

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

2

4

6

8

10

12

14

16

18

Imaging systems Patient care Home Healthcaresolutions

Market size (€bn) Market growth rate (RHS)

0%

10%

6%

4%

5%

-3%

-5%-5%

-10%

5%

-2%

-15%

-10%

-5%

0%

5%

10%

15%

Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13

Philip Healthcare orders in North America

Globally both Siemens expect the global healthcare equipment market to grow at c4-5% per year. This is

underpinned by strong emerging markets growth with Europe being at low single digits.

However we believe there are two themes that have emerged and pose a risk to this assumption in 2014.

1) Due to regulatory uncertainty the US healthcare market has been challenging in 2012 and 2013 and despite a

2Q13 recovery in orders this again turned negative in Q313 against an easier comparator. We believe this

weakness in the US can run into 2014 which may result in global growth in the Healthcare market of below 4-5%.

2) Comments from Siemens imply that the large Healthcare equipment market is currently seeing pricing pressure of

3-4% of sales due to Japanese players using the weak Yen to their advantage. In our view, based on

commentaries from the Japanese government, the weak Yen is unlikely to reverse in the near term and therefore

we expect pricing pressure of this magnitude to continue into 2014.

Source: Company data, Credit Suisse estimates

50

-

20,000

40,000

60,000

80,000

100,000

120,000

0

50

100

150

200

250

2008 2009 2010 2011 2012 2013 2014 2015

Mine Production Metal Price Index (LHS) Mining capex (€bn, RHS)

Capex Forecast

Commodities Forecast

Mining OE – We forecast 16% & 21% Capex decline in 2014/15

-

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012 2013E 2014E 2015E

DIVERSIFIED MINERS ALUMINIUM COAL COPPER / MOLY INDUSTRIAL MINERALS

IRON ORE NICKEL / ZINC URANIUM PRECIOUS METALS

Commodity prices support the expected capex reductions Mining capex outlook – further reductions in 2014 & 2015

On mining, we expect further slowdown in 2014 and 2015 for the new equipment business. Our aggregation of capex

forecast on 90 mining companies covered by Credit Suisse suggests 16% decline in 2014 and 21% in 2015. This is less

optimistic than the forecasts presented by Sandvik and Metso, where a pick-up in 2015 is expected. There are some positive

signs for brownfield projects and orders from mid-tier customers, while large, greenfield orders are still lagging.

By commodity, the sharpest decline in 2014 is expected in Iron ore due to capex peaking in 2013 as projects are completed.

We expect the overall pricing environment for mining new equipment not to deteriorate significantly in 2014, but see

comminution as an area of risk.

CAT Atlas Copco Fenner Metso FLSmidth Outotec

New equipment

More decline in end-user

demand in 2014 than

2013, but less

destocking by dealers.

Overall more than 20%

decline.

Surface - remains soft;

Underground -

reasonable

N.A.Satisfactory with volatility

expected to continue

Some macro positive

signs but not necessarily

lead to improved mining

business. Copper is good

but outlook for coal

deteriorated.

Continued slowness in

mining capex spending

Demand OutlookUPSTREAM DOWNSTREAM

First time saw stabilisation

of demand

Sandvik

Source: Company data, Credit Suisse estimates

51

Mining Aftermarket – We expect recovery in 2014

Demand for aftermarket services in mining is driven by mineral production levels. The outlook by Credit Suisse

commodities team suggests increasing production levels in 2014 and 2015 for all minerals except precious metals.

This is supportive of a stable demand outlook for mining aftermarket services next year. We also believe that while

investment in new equipment is being delayed, miners need to invest in improving efficiency of the existing assets

to keep up with the increasing production level.

We expect pricing to remain stable for mining aftermarket services, but see pressure on consumables and spare

parts to remain.

CAT Atlas Copco Fenner Sandvik Metso Weir FLSmidth Outotec

Service Flat in 2014 Good

Customer sentiment is

gradually improving -

US coal recovering,

Australia stablizing

Good & expect

aftermarket destock to

finish by end 2013

See aftermarket growth

at around 5%+ through

cycle going forward.

Relatively good shape

except coal. Difficult to

cut opex with mines

running at full capacity.

Remain solid due to the

need to optimize

operations

Demand OutlookUPSTREAM DOWNSTREAM

Stable

2012 2013E 2014E 2015E 2013-15

Iron Ore 1.8% 7.3% 12.9% 7.6% 9.3%

Met Coal 6.4% 6.4% 6.2% 6.7% 6.4%

Therm Coal 10.2% 5.1% 2.4% 3.9% 3.8%

Copper 3.5% 4.5% 4.4% 4.2% 4.4%

Aluminium 4.8% 5.0% 6.4% 5.4% 5.6%

Zinc 11.1% 5.7% 3.2% 3.6% 4.2%

Silver -2.5% -2.8% -0.1% 0.4% -0.8%

Platinum -7.8% 1.3% 2.3% 0.9% 1.5%

Total Average 3.4% 4.1% 4.7% 4.1% 4.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fenner Weir Atlas CAT Metso Sandvik FLS Outotec

New Equipment A/market

Mineral production outlook – increasing production level

supports opex spending by customers

Aftermarket exposure by mining equipment providers

Source: Company data, Credit Suisse estimates

52

Mining - Equipment supplier mapping COMMINUTION

Exploration

Blast hole -

O/P

Blast hole -

U/G Tools

Shovel -

Electric

Shovel -

Hydraulic Dragline

Longwall /

Continuous

Loaders -

O/P

Loaders -

U/G

Mine Trucks

- O/P

Mine

Trucks -

U/G

Conveyor

belts &

Systems Crushing Grinding Screening Pumps Cyclones Concentration Refining

SCHRAMM Y Y

Super Rock Drills Y Y

Atlas Copco Y Y Y Y Y Y Y

Sandvik Y Y Y Y Y Y Y Y Y Y

Boart Longyear Y Y Y

Furukawa Y Y Y Y

CAT (inc Bucyrus) Y Y Y Y Y Y Y Y Y

Joy Global Y Y Y Y

Komatsu Y Y

Liebherr Y Y

GHH Fahrzeuge Y

LiuGong Y

Terex Y Y

Astec Y Y Y Y

FL Smidth Y Y Y Y Y Y Y Y

Fenner Y

Metso Y Y Y Y Y Y

Thyssen Krupp Y Y Y Y

TENOVA Y Y Y Y Y

FAM Y Y Y

Weir Y Y Y Y Y

CITIC HEAVY Y Y

Outotec Y Y

DRILLING EXTRACTION HANDLING SLURRY PROCESSING

Source: Credit Suisse research

53

Mining - Equipment supplier profiling

ATLAS COPCO CAT FENNER METSO SANDVIK WEIR

Mining equipment vs Other

New equipment vs Aftermarket

Metal Exposure

Coal 22%

Copper15%Iron Ore

17%

Gold 27%

Platinum6%

Other base11%

Other2%

Coal 11%

Copper16%

Iron Ore14%

Gold 31%

Platinum5%

Other base12%

Other11%

Copper20%

Iron Ore29%

Gold 15%

Other base23%

Other13%

Coal 53%

Iron Ore23%

Other24%

Coal 12% Copper

27%

Iron Ore12%

Gold 17%

Other32%

Coal 38%

Copper20%

Iron Ore20%

Other22%

Mining Equipment

40%

Other60%

Mining Equipment

30%

Other70%

Mining Equipment

37%

Other63%

Mining Equipment

71%

Other29%

Mining Equipment

40%

Other60%

Mining Equipment

30%

Other70%

New Equipment

60%

A/market40%

New Equipment

46%

A/market54%

New Equipment

55%

A/market45%

New Equipment

15%

A/market85%

New Equipment

40%

A/market60%

New Equipment

47%

A/market53%

Source: Company data

54

Companies Comments at Q313 results

ABBProject tendering activity in oil and gas sector continues to increase

but the award of large orders remained slow.

Alfa laval

The U.S. reported continued growth, especially good development

within the oil and gas sector, despite lack of resources at

customers. Also, see a very good activity level offshore to the North

Sea.

BodycoteContinued lower demand from the Oil & Gas sector, particularly for

onshore requirements in the USA.

Prysmian

The Oil & Gas sector has confirmed the positive trend for offshore,

with major projects in the North Sea, Asia Pacific and South

America, while onshore demand is still weak.

Weir

Upstream markets expanded more gradually than anticipated, with

US rig count actually declining over the third quarter. The oil price

remains supportive of high activity levels.

Oil & Gas - Current softness in onshore should reverse in 2014

For Oil & Gas Capex we forecast 4% growth in 2014. The key driver

of this growth should continue to be offshore O&G where industry

forecasts are for 15% growth in 2014.

For 25 O&G companies covered at Credit Suisse we have also

aggregated capex forecasts and these imply that combined

onshore and offshore capex will increase by 2% in 2014.

Above we have also collated commentaries on the Oil & Gas market

at Q3 results. The common theme is softness in on-shore O&G in

the US while offshore demand, across all regions, remains strong.

We believe that the increasing project tendering at ABB is a positive

indication that 2014 should be another year of overall growth.

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Exp

en

dit

ure

($ b

illi

on

s)

Europe North America Latin America

Deepwater Global O&G capex forecasts

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2010 2011 2012 2013 2014 2015

YOY % change in O&G capex (from 27 covered CS Companies)

Source: Company data and estimates, Credit Suisse estimates, KMT

55

Power Generation – GT acceleration not expected until 2015

11 12 13 137 8

7 8 8 10 22 22

179

16 14

1517

37

6 7

109

22 27

2228

30

35

6062

65

72

84

90

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2020 2030

China USA Middle East Europe RoW0

100

200

300

400

500

600

700

800

900

1000

Alstom GE Siemens Mitsubishi

Steam Plant Gas Turbine Plant (incl. ST for CC)

Installed base of Steam and Gas turbines at the end of 2007 (GW)

Siemens Long term forecasts for the Gas Turbine market by region (GW).

Long term forecasts for the Gas Turbine market are positive with

China and the US expected to be the fastest growing markets.

Siemens expectation set at their 2012 Energy CMD was for the

market to grow by 3% in 2013 but YTD the market has declined

by -11%. (Siemens, Alstom and Mitsubishi’s market shares are

broadly flat with GE having lost c5% share to ‘Others’).

We expect 2014 to be broadly flat with a return to growth in 2015.

For Power Plant, Alstom’s servicing mix is more heavily weighted

to steam than competitors. In the medium term we believe this

poses a structural threat as steam plants are increasingly retired

and replaced with GT’s in developed economies.

GT market declined by -11% YTD

0

10

20

30

40

50

9mths 12 9mths 13

General Electric Siemens Mitsubishi Alstom Other

Reported Gas Turbine demand declined by -11% in 9mths 13 (GW)

which was below Siemens expectation set at a 2012 CMD

Source: Company data and estimates, McCoys, Credit Suisse estimates

56

Power Generation – Renewable energy is attractive in long term

Global energy demand outlook by BP

Global energy demand is to grow at 1.6% p.a. in the long term according to forecast by BP, with non-OECD countries being

the main driver.

Growth in demand for renewable energy is expected to be the highest at 7.6% p.a. However, in the short term, government

incentive scheme is lacking as a growth driver, especially in developed markets such as Europe and North America.

In the US, we also expect shale gas to be a focus of investment in energy for the next 2-3 years.

Outlook for US Chemical Capex

related to share gas

Source: Company data and estimates, Credit Suisse estimates

57

Pulp & Paper – Continues to decline in 2014E

Global pulp & paper Capex forecast Paper consumption growth rate

CAGR 2001-2013 2013-2025E

Containerboard 3.6% 2.5%

Painting & Writing 1.2% 0.2%

Cartonboard 3.2% 2.2%

Tissue 3.3% 2.9%

Newsprint -1.4% -1.4%

For 25 pulp & paper companies covered at Credit Suisse we have aggregated

capex forecasts and these imply capex spending reducing by 18% in 2014.

Long term trend for paper consumption remains positive except for newsprint.

However, growth rate in the next decade is likely be lower.

End market Growth rate

+ Customers outsource non-core operations

+ Capacity increases in China, South America and Asia Pacific

+ Machine closures in EMEA region and North America

Moderate for EMEA and

North America

+ Customer cost pressure and efficiency requirements increase demand

for process improvements and maintenance services

+ Growth in paper, board and tissue consumption in Asia

+ Need for virgin wood

+ Increased size of pulp lines and mills

+ Growth in pulping in Asia and South America

+ World trade, e-commerce and emerging market demand for packaging

+ Shift from plastic to renewable materials

+ Growth in emerging markets

+ Rise in purchasing power and living standards in emerging markets

– Increasing role of digital media

+ Some growth in emerging markets

Demand drivers

Board 3% p.a.

Tissue 3% p.a.

Printing & Writing

Paper-1% p.a.

Service

5% p.a. between 2012-

2016 for China, South

America and Asia Pac

Pulp 1-2% p.a.

Source: Company data and estimates, Credit Suisse estimates

58

T&D– Currently strong EU tender activity should support 2014 growth

Transmission spending in Europe has also been subdued in 2013, in part due to uncertainty from the German election.

However, there are still significant grid upgrades planned and we believe against a more stable European economic

backdrop these will accelerate in 2014 – at a recent management meeting ABB commented that in Power in Europe it

was currently seeing the strongest tender activity in its history (mainly driven by renewable spending in Europe).

In the US there is a significant replacement opportunity in transmission due to the age of the grid. This is also because

over the last five years the approach from utilities has been for minimum required spend rather than proactively

upgrading for the future.

In the US we expect stable growth in grid spend in the medium term but we also believe this is being anticipated by

T&D players and has resulted in capacity being brought online to meet this demand. This should continue to drive

pricing pressure in this segment and in Transformers we assume an ongoing -2% per year in pricing pressure

We forecast Transmission and Distribution spend to

increase by 4% globally in 2014.

Trends in 2013 have been for c-5% declines in

European distribution spend as utilities have cut capex.

Going in to 2014 we would expect low single digit

growth in this market as we believe utilities have been

holding back on maintenance spend which should

provide a small positive catch up effect in 2014.

Within Transmission it is the HVDC market that is

outgrowing traditional AC products (28% CAGR to

2016 vs 1%). We believe ABB is best positioned to

take advantage of this trend.

Global Transmission market split by product type and growth rates

Source: Company data, Credit Suisse estimates

Conventional AC

HVDC

Service

10

20

30

40

FY11/12 FY12/13E FY13/14E FY14/15E FY15/16E

in €

b

CAGR12/13 - 15/16

4%

28%

1%

59

Alstom33%

Siemens 41%

Bombardier26%

0.00%

1.00%

2.00%

3.00%

4.00%

Infrastructure Rolling Stock Rail Control Services

2015-17 CAGR vs 2009-11

Transport – Flat 2014E following strong 2012/13 EU order flow

Rail control 15%

Infrastructure24%

Services 27%

Rolling stock34%

Western European market per year was €32bn

between 2009-11

Based on announced EU orders we believe Siemens

has a leading 40% market share in Europe

Western Europe

38%

Other Ems21%

Asia Pacific26%

N. America15%

The Global Rail Control market is expected to be

£11.5bn globally in 2015 and is split as follows

2015-17E CAGR vs 2009-11 by segment globally

The global rail market is forecast by UNIFE to be €124bn in 2015 and

to grow on average 2.7% pa 2015-17 vs 2009-12. Siemens and

Alstom’s order momentum over the last two years has been strong but

we expect limited growth in this market in 2014.

On the competition side, there are large Chinese players with

combined c25% global market share (China Southern and China

Northern). We expect this end market to become increasingly

competitive in the medium term.

On the rail controls and software side, this a market that is 26% Asia

Pacific and on our recent China trip we noticed this was an increasing

area of focus for automation players such as Hollysis. They compete

with Invensys Rail which was bought by Siemens in 2013.

Source: Company data and estimates, Credit Suisse estimates, Unife Worldwide Rail Market study 2012

Blank Page

61

Companies

62

ABB – Outperform, TP CHF 26

Bull Case Strong operational leverage potential if improvement short-cycle momentum

seen in Q3 accelerates into next year.

Attractive balanced business with exposure to short, mid and late cycle end

markets (Low Voltage, Automation, Power)

Margin recovery from better portfolio mix towards faster growing Automation

business + restructuring in PS + better pricing flow through in PP

Ungeared balance sheet allowing sizable M&A activity to enhance portfolio

Bear Case Risk of slower than expected short-cycle recovery in addition to negative

momentum in China

Pricing worsening in Power orders

Expensive M&A activity in Power

Strong markets share gains from EM competitors

Investment summary: Combination of strong balance sheet optionality and attractive margin improvement story

via strong operational leverage from potential short-cycle recovery in Low Voltage & Discrete Automation

supported by restructuring in Power Systems and better pricing flow through in Power Products.

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

8%

10%

12%

14%

16%

Margins % (LHS) Organic Growth (RHS)

0

5

10

15

20

25

30

35

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

0%

20%

40%

60%

80%

100%

6%

11%

16%

21%

26%

31%

36%

ABB ROIC (LHS) Sector ROIC (LHS)ABB Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

63

ABB – Valuation Multiple analysis 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E

Share Price (USD):

Average 23.1 17.3 20.5 22.3 18.8 25.8 25.8 25.8

High 32.7 22.2 23.2 27.5 21.9

Low 9.7 10.9 18.0 16.3 15.4

Year End 15.6 19.7 20.8 18.9 20.5

PE:

Average 14.8 15.2 17.6 14.8 14.4 17.5 14.6 13.1

High 21.0 19.6 20.0 18.3 16.8

Low 6.2 9.6 15.4 10.9 11.8

Year End 10.0 17.4 17.9 12.6 15.7

EV/Sales:

Average 1.5 1.1 1.4 1.4 1.2 1.5 1.4 1.3

High 2.1 1.5 1.6 1.7 1.4

Low 0.6 0.7 1.2 1.0 1.0

Year End 1.0 1.3 1.4 1.2 1.3

EV/EBIT:

Average 11.5 8.9 11.6 11.2 11.8 13.0 10.9 9.5

High 16.3 11.6 13.2 13.8 13.5

Low 4.7 5.3 10.1 8.3 9.9

Year End 7.7 10.2 11.8 9.6 12.7

Recurring EV/EBIT:

Average 10.1 9.3 11.1 10.38 10.62 12.33 10.33 9.07

High 14.4 12.2 12.7 12.8 12.2

Low 4.2 5.6 9.7 7.7 8.9

Year End 6.8 10.8 11.3 8.9 11.5

Recurring EBIT margin 14.8% 12.3% 12.6% 13.3% 11.4% 12.4% 13.6% 14.1%

EV/EBITDA:

Average 10.0 7.6 9.8 9.26 9.12 8.10 7.00 6.30

High 14.2 10.0 11.2 11.4 10.5

Low 4.1 4.6 8.5 6.8 7.6

Year End 6.7 8.8 10.0 7.9 9.9

Dividend Yield

Average 1.8% 2.9% 3.1% 3.1% 3.9% 3.1% 3.3% 3.5%

High 1.3% 2.3% 2.7% 2.5% 3.3%

Low 4.2% 4.6% 3.5% 4.3% 4.7%

Year End 2.6% 2.6% 3.0% 3.7% 3.5%

FCF Yield (based on EV)

Average 5.4% 8.4% 7.8% 5.2% 5.7% 4.0% 7.5% 7.5%

High 3.8% 6.4% 6.8% 4.2% 4.9%

Low 13.1% 13.9% 8.9% 7.0% 6.8%

Year End 8.1% 7.3% 7.6% 6.1% 5.2%

Source: Company data, Credit Suisse estimates

64

ABB – Financials P&L 2010A 2011A 2012A 2013E 2014E 2015E

Sales 31,589 37,990 39,336 42,102 43,844 46,158

Sales Growth -0.6% 20.3% 3.5% 7.0% 4.1% 5.3%

Cost of Sales -22,060 -26,556 -27,958 -29,676 -30,427 -31,778

Gross Profit 9,529 11,434 11,378 12,426 13,418 14,380

Gross Margin 30.2% 30.1% 28.9% 29.5% 30.6% 31.2%

S,G&A -4,615 -5,373 -5,756 -5,891 -6,051 -6,324

% of sales 14.6% 14.1% 14.6% 14.0% 13.8% 13.7%

R&D -1,082 -1,371 -1,464 -1,600 -1,710 -1,846

% of sales 3.4% 3.6% 3.7% 3.8% 3.9% 4.0%

Other Income (Expense) -14 -23 -100 -7 0 0

Reported EBIT 3,818 4,667 4,058 4,928 5,657 6,210

Underlying EBITA 4,145 5,230 4,677 5,390 6,134 6,710

Margin 13.1% 13.8% 11.9% 12.8% 14.0% 14.5%

Net Financial Income -78 -117 -220 -310 -233 -171

CS EBIT 3,965 5,050 4,497 5,210 5,954 6,530

Clean PBT 3,887 4,933 4,277 4,900 5,721 6,359

PBT 3,740 4,550 3,838 4,618 5,425 6,039

Provision for taxes -1,018 -1,244 -1,030 -1,291 -1,465 -1,631

CS tax adjustment 40 113 153 91 80 86

Underlying tax -1,058 -1,357 -1,183 -1,382 -1,545 -1,717

Underlying tax rate 27% 28% 27% 27% 27% 27%

Extraordinary Items (post tax) 10 9 4 -15 0 0

Minority -171 -147 -108 -97 -92 -88

Net Income from continuing ops 2,722 3,306 2,808 3,326 3,960 4,408

Net Income (Loss) 2,561 3,168 2,704 3,214 3,868 4,321

CS Net Income 2,668 3,438 2,990 3,405 4,084 4,554

Basic EPS (continuing, USD per share) 1.19 1.45 1.22 1.45 1.73 1.92

Diluted EPS (continuing, USD per share) 1.19 1.44 1.22 1.44 1.72 1.91

CS EPS (diluted, USD per share) 1.16 1.50 1.30 1.48 1.77 1.98

Dividend per share (CHF per share) 0.60 0.65 0.68 0.75 0.80 0.86

Weighted Average Shares (m) 2,291 2,291 2,295 2,304 2,302 2,302

Cash flow 2010A 2011A 2012A 2013E 2014E 2015E

Net income 2,561 3,168 2,704 3,214 3,868 4,321

Minority Interest 171 147 108 97 92 88

Depreciation + amortisation 702 995 1,182 1,333 1,381 1,461

Pension & Post retirement benefits -51 -49 -13 0 0 0

Deferred taxes 151 -34 64 0 0 0

Net gain from sale of plant property & equipment -39 -47 -26 0 0 0

Income from equity accounted companies -3 -4 -1 0 0 0

Others 106 111 172 0 0 0

Trade receivables -407 -731 -310 -214 -576 -329

Inventories -264 -600 61 -554 160 -116

Trade Payables 678 213 -57 60 998 412

Billings in excess of sales 89 150 152 143 90 120

Provisions -69 -391 -109 -50 -50 -50

Advances from customers -25 47 181 -382 -197 -126

Other assets & liabilities 597 637 -329 0 0 0

Net cash provided by operating activities 4,197 3,612 3,779 3,648 5,766 5,780

Change in Financing receivables -7 -55 85 0 0 0

Purchases of Marketable securities -5,621 -2,951 -2,355 0 0 0

Purchases of plant, property & equipment -840 -1,021 -1,293 -1,358 -1,410 -1,491

Acquisition of business -2,269 -4,020 -3,694 0 0 0

Proceeds from sale of marketable securities 4,904 4,729 1,682 0 0 0

Sale of Plant, property & equipment 47 57 0 0 0 0

Proceeds of sale of business & equity accounted companies83 8 0 0 0 0

Net cash used by investing activities -3,703 -3,253 -5,575 -1,358 -1,410 -1,491

Net changes in debt with maturities of 90 days or less 52 450 570 0 0 0

Increase in debt 277 2,580 5,986 0 0 0

Repayment of debt -497 -2,576 -1,104 0 0 0

Issue of shares 16 105 90 0 0 0

Purchase of treasury shares -166 5 0 0 0 0

Dividends paid -1,112 -1,569 -1,626 -1,823 -1,949 -2,085

Dividend paid to minority share holders -193 -157 -121 -109 -103 -98

Others 49 -46 -33 0 0 0

Net cash provided (used) by financing activities -1,574 -1,208 3,762 -1,931 -2,052 -2,183

Effect of exchange rates and others -142 -229 90 0 0 0

Net increase (decrease) in cash -1,222 -1,078 2,056 359 2,304 2,105

Source: Company data, Credit Suisse estimates

65

ABB – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman Hubertus Von Grunberg

CEO Joseph Hogan

CFO Eric Etzvik

IR Allana Abrahamson

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Power Products

FY 2012 Sales $ 10.71 Bn

2% YoY organic growth

FY 2012 EBIT $ 1.33 Bn

12.3% Margin

Products and services for power transmission

and distribution. High voltage products,

medium voltage products and transformers.

Industry 33%, Utility Transimission 28%,

Utility Distribution 26% and Power Generation

13%,

Alstom, Hyundai, Siemens, Schneider, Europe 32%, Asia 32%, Americas 27%,

Middle East/Africa 9%.

Grade upgrades; Utitlity sector Capex;

Demand for power transmission in EM

Power Systems

FY 2012 Sales $ 7.85 Bn

2% YoY organic growth

FY 2012 EBIT $ 0.01 Bn

0.1% Margin

Generation, transmission & distribution of

electricity. Grid system, network

management, power generation and

substations

Utility Transmission 45%, Utility Distribution

20%, Power Generation 20% and Industry

15%

Alstom, Nexans, Prymian, Siemens, General

Electric, Emersons

Europe 40%, Middle East/Africa 22%, Asia

20%, Americas 18%.

Grade upgrades; Utitlity sector Capex;

Demand for power transmission in EM

Discrete Automation & Motion

FY 2012 Sales $ 9.41 Bn

10% YoY organic growth

FY 2012 EBIT $ 1.47 Bn

15.6% Margin

Low Voltage drives, Power electronics & MV

drives, Motors & Generators and Robotics.

Minerals & Metals 25%, Discrete

Manufacturing 20%, Transport 10%, Oil, Gas

& Petroleum 10%, Water 5%, Buildings 5%

and Others 10%

Fanuc, Kuka, Mitsubishi, Siemens, Rockwell,

Yasukawa, General Electric, Hyundai,

Schenider, Weg, Enercon,powerone, Vestas,

Alstom, Bombardier, Areva, Eaton, Emerson

Europe 37%, Americas 33%, Asia 27% and

Middle East/Africa 3%

Emerging market wage inflation; Increasing

automation of production processes; General

industrial capex

Low Voltage Products

FY 2012 Sales $ 6.64 Bn

0% YoY organic growth

FY 2012 EBIT $ 0.86 Bn

12.9% Margin

LV systems, LV breakers & switches,

Enclosures & DIN-Rail products, Control

products & Wiring Accessories.

Industrial 40%, Construction 30%, Residential

25% and Utility 5%

Legrand, Leviton, Schneider, Eaton, General

Electric, Siemens, Hager, Rittal, Phoenix

Contact, Mitsubishi

Europe 43%, Americas 26%, Asia 24%,

Middle East /Africa 7%

Residential & commercial building

construction; Increasing emphasis on power-

saving in buildings

Process Automation

FY 2012 Sales $ 8.16 Bn

3% YoY organic growth

FY 2012 EBIT $ 0.91 Bn

11.2% Margin

Fully engineered solutions and standalone

products for process automation, safety,

energy management and plant electrification

Chemical, Oil & Gas 35%, Metals & Mining

25%, marine 15%, Pulp & Paper 10%, Power

Generation 5% and others.

Emerson, Honeywell, invensys, Rockwell ,

Yokogawa, FLS, Siemens, SMS, TMEIC,

Converteam, Siemens, Wartsilla, Andritz,

Metso, MAN, Mitsubishi

Europe 37%, Asia 30%, Americas 23%,

Middle East/Africa 10%

Oil, gas & mining capex; Increasing emphasis

on health & safety in manufacturing in EM

ABB (ABBN.VX) - SIMON TOENNESSEN +44 20 7883 6893/ simon.toennessen@credit-suisse.comGeographic Mix Shareholding Structure

Free Float: 71%

Top 5 shareholders

Investor AB 7%, Blackrock 4%, Vanguard 1%,

Credit Suisse Asset 2%, UBS Fund

Management 1%

Ownership by country

Sweden 40%, USA 32%, Switzerland 15%,

Luxembourg 6% and others

Pow er Products

29%

Pow er Systems

0%Discrete Automation &

Motion32%

LV Products

19%

Process Automation

20%

Pow er Products

24%

Pow erSystems

19%Discrete Automation &

Motion22%

LV Products

16%

Process Automation

19%

Europe36%

Americas27%

Middle East/Africa10%

Asia27%

Pow er Transmission

20%

Other15%

Oil & Gas10%

Pow er Generation10%

Pow er Distribution10%

Minerals15%

Building 5%

Automotive5%

Pulp & Paper5%

Marine5%

Source: Company data

66

Alfa Laval – Neutral, TP SEK 145 Investment summary: We see a broadly balanced risk / reward in Alfa Laval as its attractions of a high quality

late-cyclical industrial arriving at the bottom of the cycle with some growth options are offset by concerns over

margin sustainability and full valuation.

Bull Case Troughing Marine end-market – historically the highest margin;

Attractive exposure to Oil & Gas and especially LNG (c10-15% of sales)

High quality franchise with very high market shares across Heat Exchange

and Separation;

Attractive exposure to growth Food & Beverage capex market (c10%)

Environmental / energy efficient products offering in Marine – Ballast Water

Cleaning, SOx & NOx scrubbing, PureDry;

Late cyclical exposure within Mechanicals with sales >10% below previous

peak on like for like basis offering scope for a potential recovery;

Historically a company with pricing power.

Bear Case Margins came under significant pressure in 2012-2013 (down c200bps

from 2011) on flat volumes suggesting pricing deterioration or excessive

internal inflation;

Emerging markets competition making progress in the lower end Heat

Exchange applications (some of the recent acquisitions appear defensive);

Valuation suggests the market already discount margin improvement to

well-above the historic mid-cycle level of c18.5%.

0

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40

60

80

100

120

140

160

180

0

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4

6

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-40%

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-20%

-10%

0%

10%

20%

30%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

6%

11%

16%

21%

26%

31%

ALF ROIC (LHS) Sector ROIC (LHS)

ALF Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

67

Alfa Laval – Valuation

DCF

EBITA NOPAT

margin margin 3.0% 3.5% 4.0% 4.5% 5.0%

16.0% 11.4% 127 129 131 133 135

16.5% 11.7% 130 132 134 136 138

17.0% 12.1% 134 136 138 140 142

17.5% 12.4% 137 139 141 144 146

18.0% 12.8% 140 143 145 147 150

18.5% 13.1% 144 146 149 151 153

19.0% 13.5% 147 150 152 155 157

19.5% 13.8% 151 153 156 158 161

20.0% 14.2% 154 157 159 162 165

20.5% 14.6% 157 160 163 166 168

Grow th (years 4 to 10) 4.0%

EBIT margin (years 4+) 18.0%

Tax rate 29.0%

NOPAT margin 12.8%

Invested capital 20,930

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

WACC 9.0%

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 100.3 82.3 76.8 111.8 127.7 126.5 149.0 149.0 149.0

High 130.8 107.5 99.0 142.0 146.3 146.4

Low 72.9 46.4 57.5 96.0 102.9 110.5

P/E average 12.9 8.4 9.9 14.0 14.0 14.2 17.5 16.0 14.8

P/E high 16.8 10.9 12.8 17.7 16.1 16.4

P/E low 9.4 4.7 7.4 12.0 11.3 12.4

EV:sales average 1.91 1.37 1.30 1.91 2.01 1.98 2.25 2.10 1.92

EV:sales high 2.45 1.76 1.66 2.43 2.29 2.26

EV:sales low 1.43 0.82 0.99 1.65 1.65 1.75

Operating margin 20.0% 22.1% 17.6% 18.9% 18.5% 16.5% 16.6% 17.5% 18.2%

EV:EBITDA average 9.1 5.9 6.8 9.3 10.1 11.0 12.4 11.1 9.8

EV:EBITDA high 11.6 7.6 8.7 11.8 11.4 12.5

EV:EBITDA low 6.8 3.6 5.2 8.0 8.2 9.7

EV:EBITA average 9.5 6.2 7.4 10.1 10.9 12.0 13.6 12.0 10.5

EV:EBITA high 12.2 8.0 9.4 12.8 12.4 13.6

EV:EBITA low 7.1 3.7 5.6 8.7 9.0 10.6

FCF yield average 5.8% 9.0% 14.3% 7.7% 5.1% 5.6% 6.4% 6.7% 6.8%

FCF yield high 4.4% 6.9% 11.1% 6.1% 4.4% 4.8%

FCF yield low 7.9% 15.9% 19.1% 9.0% 6.3% 6.4%

Dividend yield average 2.2% 2.7% 3.3% 2.7% 2.5% 2.8% 2.5% 2.7% 3.0%

Dividend yield high 1.7% 2.1% 2.5% 2.1% 2.2% 2.4%

Dividend yield low 3.1% 4.8% 4.3% 3.1% 3.2% 3.2%

EV/IC average 3.8 2.44 2.21 3.05 2.66 2.62 3.03 3.03 2.98

EV/IC high 4.8 3.13 2.82 3.87 3.02 2.99

EV/IC low 2.8 1.46 1.68 2.63 2.18 2.32

P/BV average 5.63 3.39 2.67 3.50 3.57 3.69 3.90 3.51 3.15

P/BV high 7.34 4.43 3.45 4.45 4.10 4.27

P/BV low 4.09 1.91 2.00 3.01 2.88 3.23

ROIC 27.6% 28.0% 21.8% 21.6% 16.9% 15.6% 16.2% 18.2% 20.3%

ROE 43.7% 40.5% 27.0% 25.1% 25.5% 26.1% 22.3% 21.9% 21.3%

ROCE 34.0% 35.4% 26.7% 26.2% 20.3% 18.9% 20.0% 22.6% 25.4%

Source: Company data, Credit Suisse estimates

68

Alfa Laval – Financials PROFIT & LOSS 2010 2011 2012E 2013E 2014E 2015E

REVENUE

Group Revenue 24,720 28,652 29,813 29,282 30,215 31,725

Change yoy, % -5.1% 15.9% 4.1% -1.8% 3.2% 5.0%

Organic growth, % -5.2% 12.7% 0.9% -0.5% 3.9% 5.0%

COGS (15,029) (17,829) (19,169) (19,419) (19,772) (20,272)

Gross Profit 9,691 10,823 10,644 9,863 10,443 11,453

Gross margin, % 39.2% 37.8% 35.7% 33.7% 34.6% 36.1%

SG&A (5,005) (5,659) (5,708) (5,614) (5,749) (5,938)

Amortisation of Goodw ill - - - - - -

Other operating income/expenses (285) (473) (540) (540) (540) (540)

Reported EBIT 4,401 4,691 4,396 3,709 4,153 4,975

Reported EBIT margin, % 17.8% 16.4% 14.7% 12.7% 13.7% 15.7%

Operating profit 4,682 5,287 4,934 4,852 5,288 5,766

Operating margin, % 18.9% 18.5% 16.5% 16.6% 17.5% 18.2%

Depreciation & Amortisation 796 875 934 1,030 973 927

EBITDA 5,107 5,736 5,381 5,332 5,712 6,193

Net interest income / (expense) (39) (15) 125 (100) (50) (48)

Profit Before Tax 4,364 4,676 4,529 4,209 4,695 5,225

Underlying PBT 4,645 5,272 5,067 4,759 5,245 5,725

Tax (1,248) (1,425) (1,306) (1,149) (1,315) (1,463)

Effective rate, % 28.6% 30.5% 28.8% 27.3% 28.0% 28.0%

Reported profit after tax 3,116 3,251 3,223 3,060 3,380 3,762

Minority interest 28 28 17 30 30 30

Reported Net Income 3,088 3,223 3,206 3,030 3,350 3,732

Operating Net Income 3,369 3,819 3,744 3,580 3,900 4,232

Net income margin, % 13.6% 13.3% 12.6% 12.2% 12.9% 13.3%

CS operating EPS 8.0 9.1 8.9 8.5 9.3 10.1

EPS growth, % 3.6% 13.6% -2.0% -4.4% 8.9% 8.5%

DPS, SEK 3.0 3.3 3.5 3.8 4.1 4.4

DPS growth, % 20.0% 8.3% 7.7% 7.1% 8.9% 8.5%

Dividend Cover (X) 2.7 2.8 2.6 2.3 2.3 2.3

Ordinary shares in issue 420.5 419.5 419.5 419.5 419.5 419.5

ANALYSIS 2010 2011 2012E 2013E 2014E 2015E

NOPAT 3,343 3,676 3,511 3,528 3,808 4,151

Invested Capital 15,495 21,716 22,553 21,725 20,930 20,422

ROIC 21.6% 16.9% 15.6% 16.2% 18.2% 20.3%

ROIC (average) 21.7% 19.8% 15.9% 15.9% 17.9% 20.1%

Operating Net Income 3,369 3,819 3,744 3,580 3,900 4,232

Equity 13,582 15,144 14,432 16,124 17,932 19,980

ROE 24.8% 25.2% 25.9% 22.2% 21.8% 21.2%

ROE (average) 26.1% 26.6% 25.3% 23.4% 22.9% 22.3%

EBITDA 5,107 5,736 5,381 5,332 5,712 6,193

Total debt 1,214 5,192 6,003 6,003 6,003 6,003

Net debt (689) 3,145 4,163 1,643 (959) (3,516)

Total debt / EBITDA 0.2 0.9 1.1 1.1 1.1 1.0

Net debt / EBITDA (0.1) 0.5 0.8 0.3 (0.2) (0.6)

BALANCE SHEET 2010 2011 2012E 2013E 2014E 2015E

PPE and Intangibles 12,045 16,981 17,422 16,428 15,509 14,716

Other f ixed assets 1,568 1,664 1,500 1,607 1,614 1,621

Fixed assets 13,613 18,645 18,922 18,035 17,123 16,337

Inventories 4,769 6,148 6,176 6,177 6,374 6,780

Trade and other receivables 6,240 7,360 7,716 7,621 7,864 8,257

Trade and other payables (9,127) (10,437) (10,261) (10,108) (10,430) (10,952)

Working capital 1,882 3,071 3,631 3,690 3,808 4,085

Working capital days 28 39 44 46 46 47

WC as % of sales 7.6% 10.7% 12.2% 12.6% 12.6% 12.9%

Short-term debt 173 132 395 600 600 600

Long-term debt 1,041 5,060 5,608 5,403 5,403 5,403

Net debt / (cash) (689) 3,145 4,163 1,643 (959) (3,516)

Pension deficit 847 852 1,691 1,691 1,691 1,691

Other liabilities 2,399 2,878 2,592 2,592 2,592 2,592

Other assets 644 303 325 325 325 325

Net assets 13,582 15,144 14,432 16,124 17,932 19,980

CASH FLOW 2010 2011 2012E 2013E 2014E 2015E

Operating profit 4,401 4,691 4,396 4,852 5,288 5,766

Depreciation & amortisation 796 875 934 1,030 973 927

Other non cash items 145 167 241 - - -

Tax paid (1,215) (1,446) (1,569) (1,149) (1,315) (1,463)

Net interest (87) (180) (155) (100) (50) (48)

Gross cash flow 4,040 4,107 3,847 4,633 4,897 5,182

Working capital change (29) (858) (416) (59) (118) (277)

Operating cash flow 4,011 3,249 3,431 4,574 4,779 4,905

Operating cash / Operating profit 0.9 0.6 0.7 0.9 0.9 0.9

Net Capex (398) (541) (482) (586) (604) (635)

Free cash flow 3,613 2,708 2,949 3,988 4,175 4,270

FCF / Net income 1.1 0.7 0.8 1.1 1.1 1.0

Acquisitions (1,019) (4,956) (2,778) - - -

Disposals - - - - - -

Borrow ings raised / (repaid) (641) 3,480 1,009 - - -

Change in other f inancial assets (389) - 5 - - -

Shares issue / (purchase) (253) - - - - -

Dividends paid (1,064) (1,268) (1,370) (1,468) (1,573) (1,714)

Others 3 285 104 - - -

Net cash flow 250 249 (81) 2,520 2,602 2,557

Source: Company data, Credit Suisse estimates

69

Alfa Laval – Company Summary

Operating Profit split Sales Mix End Market Order Mix

Management

Chairman Anders Narvinger

CEO Lars Renstrom

CFO Thomas Thuresson

IR Gabriella Grotte

Division Products End Markets / Channels Main Competitors Orders Received by Geography Key Drivers/ Themes

Equipment

FY 2012 Sales SEK 9.48 Bn

-0.1% YoY organic growth

FY 2012 EBIT SEK 1.39 Bn

14.7% Margin

Serving customers in the comfort and

refrigeration, marine and diesel, OEM, fluids

and utility, sanitary, and parts and service

industries

Industrial Equipment 40%, Sanitary 32%,

Parts & Services 17% and OEMs 11%

Asia 23%, North America 21%, Sweden 8%,

Latin America 4%, Other Europe 42%,Others

2%.

A sustained R&D effort (e.g. energy-efficient

solutions); Increasing footprint in EM

(changing consumption habit, improving

standard of living)

Process Technology

FY 2012 Sales SEK 12.81 Bn

4.2% YoY organic growth

FY 2012 EBIT SEK 2.19 Bn

17.1% Margin

Petrochemical products, plastics, polymers,

metals, minerals, biofuels, starch, paper and

sugar. Extraction of oil & gas; production of

energy in power plants; waste treatment

products. Solutions for the beverage and food

industries; production of beer, wine, juice etc,

Process Industry 29%, Parts & Services 28%,

Energy & Environment 27% and Food

Technology 16%

Asia 32%, North America 23%, Latin America

9%, Sweden 1%, Other Europe 31%, Others

4%

A sustained R&D effort; Increasing footprint in

EM (urbanization, changing demographic mix,

demand for energy);Rising aftermarket orders

due to mature installed base

Marine & Diesel

FY 2012 Sales SEK 7.52 Bn

-5.1% YoY organic growth

FY 2012 EBIT SEK 1.46 Bn

19.4% Margin

Modules and adapted systems, such as

boilers, separators, heat exchangers, inert

gas systems, freshwater generators, exhaust

gas cleaning systems, heat recycling

systems and ballast water treatment systems

Parts & Services 41%, Marine & Diesel

Equipment 37%, Marine & Offshore Systems

22%

Asia 47%, Europe 38%, North America 7%,

Latin America 6%, Others 2%

A sustained R&D effort in new technology;

Growth in Asia (50% of division's orders)

ALFA LAVAL (ALFA.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic MixShareholding Structure

Free Float: 73%

Top 5 shareholders

Tetra Laval BV 26.1%, Alecta 6.7%,

Foundation Asset Management 6.0%,

Swedbank Robur Fund 4.0%, AMF Insurance

Funds 3.4%

Separation: GEA, Mitsubishi Kakoki Kaisha,

Pieralisii, Guinard / Andritz, Flottweg

Heat Transfer: GEA, Hisaka, SPX/APV,

SWEP, Kangrim, SAACKE, Muira,

Heatmaster, Osaka

Fluid Handling: Gea, SPX / APV / Waukesha,

Cherry Burrell, Fristam

Equipment28%

Process Technology

43%

Marine&Diesel

29%

Equipment32%

Process Technology

43%

Marine&Diesel

25%

USA 15%

China11%

Sw eden3%

OtherEurope

35%

Latin America

7%Other Asia23%

Others6%

OEM3%

Food Technology

7%

Energy & Environment

12%

Sanitary11%

Industrial Equipment

13%

Marine & Diesel

8%

Process Industry

14%

Parts &Service

27%

Marine & Offsore systems

5%

Source: Company data

70

Alstom – Underperform, TP €24

Bear Case Ongoing power price weakness putting pressure on utility investments and

therefore equipment spend

Cost consciousness by utilities leading to margin pressure in high margin

Services business as utilities switch to third-party players/in-house operations

Capacity player even in a recovery scenario due to low market shares

Increasing emerging markets competition + Japanese players using FX

Weak free cash flow generation due to worsening payment conditions

Bull Case Improving power markets with power price acceleration

Power Services pricing not decelerating as utilities continue to sweat steam

power equipment

Improved payment condition positively impacting working capital

Well executed cost savings measures positively impacting profitability

Investment summary: Structurally challenged business due to c.80% profit exposure to weak Power markets

(particularly Europe) and low market shares (e.g. in gas fired power generation) supplemented by potentially

rising pricing pressure in high margin Power Services and weak balance sheet as well as cash flow conversion.

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4

6

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0%

2%

4%

6%

8%

10%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

0%

5%

10%

15%

20%

25%

30%

ALSO ROIC (LHS) Sector ROIC (LHS)ALSO Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

71

Alstom – Valuation 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Share Price:

Average 63.2 39.0 41.2 39.2 32.4 28.5 25.6 25.6 25.6

High 83.6 44.6 54.1 48.0 45.1 35.5

Low 30.7 34.3 30.9 30.9 22.0 23.0

Year End 68.7 40.7 35.8 43.2 29.3 31.8

PE:

Average 20.6 9.6 9.6 12.4 10.2 10.2 8.9 8.3 7.6

High 27.2 11.0 12.5 15.2 14.2 12.8

Low 10.0 8.4 7.2 9.8 6.9 8.3

Year End 22.4 10.0 8.3 13.6 9.2 11.4

EV/Sales:

Average 1.09 0.56 0.55 0.70 0.70 0.64 0.61 0.58 0.54

High 1.43 0.65 0.73 0.82 0.88 0.75

Low 0.55 0.49 0.40 0.58 0.54 0.56

Year End 1.18 0.58 0.47 0.76 0.65 0.69

EBITA margin 8.3% 8.8% 9.2% 6.1% 7.6% 7.1% 7.5% 7.4% 7.6%

EV/EBITA:

Average 13.2 6.4 6.0 11.5 9.2 9.1 8.1 7.8 7.0

High 17.3 7.4 8.0 13.6 11.6 10.5

Low 6.7 5.5 4.4 9.6 7.2 7.9

Year End 14.2 6.5 5.1 12.4 8.6 9.7

EV/EBITDA:

Average 11.5 5.6 5.3 10.2 8.2 7.5 6.7 6.5 5.9

High 15.1 6.5 7.0 12.0 10.4 8.7

Low 5.8 4.8 3.9 8.5 6.4 6.6

Year End 12.4 5.7 4.5 11.0 7.7 8.1

EV/IC:

Average 6.6 4.7 3.3 2.0 1.6 1.4 1.2 1.1 1.1

High 8.6 5.4 4.3 2.4 2.0 1.6

Low 3.3 4.1 2.4 1.7 1.2 1.2

Year End 7.1 4.8 2.8 2.2 1.5 1.5

Dividend Yield

Average 1.3% 2.9% 3.0% 1.6% 2.5% 2.9% 3.3% 3.5% 3.9%

High 1.0% 2.5% 2.3% 1.3% 1.8% 2.4%

Low 2.6% 3.3% 4.0% 2.0% 3.6% 3.6%

Year End 1.2% 2.8% 3.5% 1.4% 2.7% 2.6%

FCF Yield (based on EV)

Average 6.9% 13.8% 2.0% -18.5% -3.7% 1.8% 1.9% 6.6% 8.9%

High 5.2% 12.0% 1.5% -15.7% -2.9% 1.6%

Low 13.6% 16.0% 2.7% -22.2% -4.8% 2.1%

Year End 6.3% 13.5% 2.3% -17.2% -4.0% 1.7%

Source: Company data, Credit Suisse estimates

72

Alstom – Financials Cash Flow Statement 2011A 2012A 2013A 2014E 2015E 2016E

Net income (loss) 462 732 768 836 891 978

Minority interests 28 12 16 15 15 15

Depreciation and amortisation 671 621 543 563 570 577

Depreciation 324 307 340 360 367 374

Acquisition related Amortization 249 201 121 121 121 121

Amortization of Capitalised Intangibles 98 113 82 82 82 82

Total Amortisation 347 314 203 203 203 203

Change in pension provisions (150) (61) (24) (24) (24) (24)

Net (gain) loss on disposals 70 1 34 0 0 0

Deferred tax (107) (94) (80) (31) (38) (36)

Other 0 (27) (18) 0 0 0

Net income (loss) after non cash items 974 1,184 1,239 1,359 1,414 1,510

Change in working capital (743) (968) (150) (657) (108) 53

Net cash flow from operations 231 216 1,089 702 1,306 1,563

Proceeds from disposals of assets 44 24 57 57 57 57

Capex (791) (813) (738) (773) (773) (773)

FA Investment (505) (520) (445) (480) (480) (480)

Capitalised Costs (286) (293) (293) (293) (293) (293)

Decrease (increase) in other fixed assets (1) 15 37 0 0 0

Acquisitions (2,265) (65) (474) 0 0 0

Investments (68) (73) 0 0 0 0

Net cash flow from investing (3,081) (912) (1,118) (716) (716) (716)

Capital increase 9 (1) 351 0 0 0

Issuance (repayment) of CBs 0 560 350 0 0 0

Dividends to Ord (378) (206) (243) (253) (271) (301)

Issuance/(repayment of borrowings 1,500 13 (174) 570 0 0

Issuance/(repayment of finance lease (41) (42) (45) 0 0 0

Dividend paid to minorities 0 0 0 0 0 0

Net cash flow from financing 1,180 87 180 317 (271) (301)

Net FX effect 24 0 (49) 0 0 0

Discontinued operations 0 0 0 0 0 0

Assets held for sale 0 0 0 0 0 0

Net effect of accounting change 0 0 0 0 0 0

Other changes (4) (1) 2 0 0 0

Increase (decrease) in cash (1,650) (610) 104 303 318 546

Cash tax 248 264 240 258 273 303

Cash interest (107) (170) (186) 0 0 0

Free Cash flow (516) (573) 408 (14) 590 847

Free Cash flow PS (1.8) (1.9) 1.4 (0.0) 1.9 2.7

P&L 2011A 2012A 2013A 2014E 2015E 2016E

Total Sales 20,923 19,934 20,269 20,375 20,999 21,515

Cost of sales (16,938) (16,144) (16,324) (16,404) (16,929) (17,293)

Gross Profit 3,985 3,790 3,945 3,971 4,070 4,223

Gross Margin 19.0% 19.0% 19.5% 19.5% 19.4% 19.6%

Selling expenses (902) (900) (952) (957) (986) (1,011)

% of Sales 4.3% 4.5% 4.7% 4.7% 4.7% 4.7%

Research & Development (703) (682) (737) (741) (764) (782)

% of Sales 3.4% 3.4% 3.6% 3.6% 3.6% 3.6%

Administrative expenses (810) (802) (793) (797) (822) (842)

% of Sales 3.9% 4.0% 3.9% 3.9% 3.9% 3.9%

Operating Income 1,570 1,406 1,463 1,476 1,499 1,588

EBITDA 1,435 1,693 1,732 1,844 1,874 1,970

Net Other Income (Expense) (806) (334) (274) (195) (195) (195)

EBIT 764 1,072 1,189 1,281 1,304 1,393

Margin % 3.7% 5.4% 5.9% 6.3% 6.2% 6.5%

EBIT pre Goodwill/Exceptionals 1,370 1,323 1,278 1,326 1,349 1,438

Financial income (Expense) (136) (177) (266) (250) (210) (180)

PBT 628 895 923 1,031 1,094 1,213

PBT pre Goodwill/Exceptionals 1,234 1,146 1,012 1,076 1,139 1,258

Income tax (141) (179) (186) (227) (235) (267)

Tax rate % 25% 25% 25% 25% 25% 25%

Share in net income of equity invst. 3 28 47 47 47 47

Minority interests (28) (12) (16) (15) (15) (15)

Goodwill amortisation 0 0 1 2 3 4

Net Income (Loss) Continuing 462 732 768 836 891 978

Net inc. pre Goodwill/Exceptionals 932 933 839 871 926 1,013

Discontinued 0 0 0 0 0 0

Net income (loss) 462 732 768 836 891 978

Basic EPS 1.57 2.49 2.55 2.71 2.89 3.17

Continuing EPS 1.57 2.49 2.55 2.71 2.89 3.17

Clean continuing EPS 3.17 3.17 2.78 2.89 3.07 3.36

Diluted EPS 1.56 2.46 2.52 2.69 2.86 3.14

DPS 0.62 0.80 0.84 0.84 0.90 1.00

Weighted average shares in issue (m) 294 294 301 308 308 308

Diluted shares in issue (m) 297 297 304 311 311 311

Share in issue (m) 294 294 301 301 301 301

Source: Company data, Credit Suisse estimates

73

Alstom – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman and MD Patrick Kron

Chairman & CEO Philippe Cochet

CFO Nicolas Tissot

Vice President IR Emmanuelle Chatelain

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Thermal Power

FY 2012 Sales EUR 9.18 Bn

5% YoY organic growth

FY 2012 EBIT EUR 0.96 Bn

10.4% Margin

Designs, manufactures, and supplies a broad

range of products and systems in the power

generation industry for coal, gas, oil, nuclear

and biomass power plants.

Thermal Service 50%, Steam 35%, Gas 10%

and Nuclear 5%

General Electric, Siemens and Mitsubishi

Heavy

Asia Pacific 27%, Western Europe 23%,

Middle East/Africa 19%, North America 16%,

Eastern Europe 13%

Global electricity demand; Power plant

utilitzation

Renewable

FY 2012 Sales EUR 1.80 Bn

-11.0% YoY organic growth

FY 2012 EBIT EUR 0.09 Bn

4.9% Margin

Supplies wind and hydro equipment as well as

energy management solutions.Hydro 78%, Wind 20% and New Energies 2%

General Electric, Siemens, Vestas, Gamesa

and Harbin.

South % Central America 32%, Asia Oacific

20%, North America 16%, Western Europe

15%, Middle East/Africa 10%, Eastern

Europe 7%

Regulations on lower emission requirement;

Development of renewable energy

Transport

FY 2012 Sales EUR 5.46 Bn

4.0% YoY organic growth

FY 2012 EBIT EUR 0.30 Bn

5.4% Margin

High performance product rolling stock,

infrastructures, information systems, services,

turnkey solutions. It also designs and

manages railway lines and offers maintenance

and renovation programs.

Rolling Stock 60%, Services 15%, Signalling

10% and Systems 10%Siemens, General Electric and Bombardier

Western Europe 65%, Asia Pacific 10%,

Middle East/Africa 7%, South & Central

America 7%, North America 6%, Eastern

Europe 5%

Emission reduction from cars; Urbanization;

Increasing penetration in EM

Grid

FY 2012 Sales EUR 3.83 Bn

-3.0% YoY organic growth

FY 2012 EBIT EUR 0.24 Bn

6.3% Margin

Advanced technologies and expertise in areas

such as power, ultra high voltage, direct

current interconnections, integration of

renewables into the grid and network

management solutions

Product Systems & Services 80%, Power

Electronics & Automation 20%Siemens, Schneider and ABB.

Asia pacific 30%, Middle East/Africa 20%,

Western Europe 17%, North America 12%,

South & Central America 11%, Eastern

Europe 10%

Grade upgrades; Utitlity capex; Demand for

transmission in EM

ALSTOM (ALSO.PA) - SIMON TOENNESSEN +44 20 7883 6893/ simon.toennessen@credit-suisse.comGeographic Mix Shareholding Structure

Free Float: 70%

Ownership by country

France 57%, Americas 24%, Rest of Europe

16%, Middle East/Africa 3%

Thermal Pow er

56%

Renew able5%

Transport19%

Grid15%

Thermal Pow er

44%

Renew able9%

Transport27%

Grid19%

WesternEurope

35% Middle East/Africa

3%

Asia Pacif ic

24%

NorthAmerica

22%

Latin America

8%

EasternEurope

5%

Transportation27%

Pow er Generation

56%

Pow er T&D17%

Source: Company data, Credit Suisse research

74

Assa Abloy – Outperform, TP SEK 360

Bull Case

Ongoing scope for further 7-8% pa acquired growth driven by Entrance

Systems (market still does not discount SEK 20bn sales run rate for 2015)

and traditional locks and doors markets;

Sustainable 100% clean Net Income to FCF conversion with restructuring

costs paid for by WC releases and lower Capex;

Organic growth acceleration potential driven by 1) end-markets recovery

(US Non-Res following Res, Europe troughing), 2) rising penetration of

electro-mechanical locks (2x units price vs traditional), penetration of seos

(key on mobile devices), payback from investment in presence;

Scope for positive margin surprise from combination of above organic

growth and ongoing substantial cost-cutting (MFP5 – SEK 1bn over 3 years),

Seamless Flow (SG&A reduction), VA/VE, Sourcing (‘should cost’).

Sustainable pricing power.

Bear Case Risk of acquisitions pipeline drying up or competitors bidding up prices;

Risk of a drop off in China construction market or a further protracted

downturn in Europe or US (government spent-related exposure);

Technology evolution in the locks market resulting in new competitors

entering the market (eg. Samsung in el-mech);

Expensive valuation.

Investment summary: High quality cash-generative Acquire & Restructure model with meaningful additional

organic growth options (el-mech, presence, seos) and margin improvement potential (MFP5, Seamless Flow).

0

50

100

150

200

250

300

350

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-15%

-10%

-5%

0%

5%

10%

15%

12%

13%

14%

15%

16%

17%

18%

Margins % (LHS) Organic Growth (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

0%

20%

40%

60%

80%

100%

120%

6%

8%

10%

12%

14%

16%

18%

AASB ROIC (LHS) Sector ROIC (LHS)

AASB Cash conversion (RHS) Sector Cash conversion (RHS)

75

Assa Abloy – Valuation

Multiples

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 146.0 95.6 105.4 159.6 164.8 204.9 322.0 322.0 322.0

High 164.0 129.8 142.5 199.2 194.9 244.8

Low 124.5 69.8 71.5 126.6 133.5 171.7

P/E average 16.4 9.9 11.0 14.6 11.7 14.8 21.7 18.7 16.1

P/E high 18.5 13.5 14.9 18.2 13.8 17.7

P/E low 14.0 7.2 7.5 11.6 9.5 12.4

EV:sales average 2.04 1.46 1.46 1.91 1.82 1.95 2.81 2.47 2.15

EV:sales high 2.25 1.83 1.86 2.31 2.08 2.26

EV:sales low 1.80 1.17 1.10 1.57 1.54 1.68

Operating margin 16.3% 15.8% 15.5% 16.5% 15.9% 16.1% 16.4% 16.8% 17.0%

EV:EBITDA average 10.8 7.9 8.0 9.9 9.9 10.6 15.2 13.0 11.4

EV:EBITDA high 11.8 9.9 10.1 12.0 11.4 12.4

EV:EBITDA low 9.5 6.4 6.0 8.2 8.4 9.2

EV:EBIT average 12.6 9.2 9.4 11.6 11.5 12.1 17.1 14.7 12.7

EV:EBIT high 13.8 11.6 12.0 14.0 13.1 14.1

EV:EBIT low 11.1 7.4 7.1 9.5 9.7 10.5

FCF yield average 6.4% 9.9% 13.3% 8.5% 7.3% 7.2% 4.2% 4.9% 5.8%

FCF yield high 5.7% 7.3% 9.8% 6.8% 6.2% 6.0%

FCF yield low 7.5% 13.6% 19.5% 10.7% 9.1% 8.6%

Dividend yield average 2.5% 3.8% 3.4% 2.5% 2.7% 2.5% 1.7% 1.9% 2.0%

Dividend yield high 2.2% 2.8% 2.5% 2.0% 2.3% 2.1%

Dividend yield low 2.9% 5.2% 5.0% 3.2% 3.4% 3.0%

EV/IC average 2.20 1.39 1.48 1.85 1.63 1.78 2.45 2.32 2.18

EV/IC high 2.42 1.74 1.88 2.23 1.87 2.07

EV/IC low 1.94 1.12 1.11 1.52 1.38 1.54

P/BV average 3.53 1.93 2.05 2.86 2.59 2.83 4.08 3.57 3.10

P/BV high 3.96 2.62 2.78 3.57 3.06 3.39

P/BV low 3.01 1.41 1.39 2.27 2.10 2.37

ROIC 12.6% 10.9% 11.3% 12.1% 10.8% 11.2% 10.7% 11.9% 12.9%

ROE 21.4% 19.5% 18.6% 19.6% 22.2% 19.1% 18.8% 19.1% 19.2%

ROCE 14.3% 12.5% 13.2% 15.2% 13.7% 14.2% 13.4% 14.6% 15.6%

5.0% 5.5% 6.0% 6.5% 7.0%

15.0% 11.3% 308 312 318 323 328

15.5% 11.6% 318 323 328 334 339

16.0% 12.0% 328 333 339 345 351

16.5% 12.4% 338 344 350 356 362

17.0% 12.8% 348 354 360 367 373

17.5% 13.1% 358 365 371 378 385

18.0% 13.5% 368 375 382 389 396

18.5% 13.9% 378 385 392 400 407

19.0% 14.3% 389 396 403 411 419

19.5% 14.6% 399 406 414 422 430

EBITA

margin

NOPAT

margin

DCF

Growth (years 4 to 10) 6.0%

EBIT margin (years 4+) 17.0%

NOPAT margin 12.8%

Invested capital 50,921

Invested capital growth (years 4+) 2.0%

Terminal growth rate 2.0%

10-year average FCF yield 12.3%

WACC 9.0%

Source: Company data, Credit Suisse estimates

76

Assa Abloy – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

EMEA 13,036 13,030 13,382 13,208 14,045 15,288

Change yoy, % -4.2% 0.0% 2.7% -1.3% 6.3% 8.9%

Americas 9,536 8,906 9,670 9,979 11,556 12,943

Change yoy, % -3.5% -6.6% 8.6% 3.2% 15.8% 12.0%

Asia Pacific 6,081 6,633 7,224 7,499 8,255 9,184

Change yoy, % 60.5% 9.1% 8.9% 3.8% 10.1% 11.3%

Global Technologies 5,015 5,756 6,262 6,356 6,610 7,271

Change yoy, % 5.2% 14.8% 8.8% 1.5% 4.0% 10.0%

Entrance System 4,072 8,278 10,979 12,022 14,723 17,812

Change yoy, % 9.1% 103.3% 32.6% 9.5% 22.5% 21.0%

Intersegment Sales (916) (817) (898) (900) (900) (900)

Group Revenue 36,824 41,786 46,619 48,164 54,290 61,599

Change yoy, % 5.3% 13.5% 11.6% 3.3% 12.7% 13.5%

COGS (21,987) (26,831) (28,190) (28,417) (32,031) (36,343)

Gross Profit 14,837 14,955 18,429 19,747 22,259 25,255

Gross margin, % 40.3% 35.8% 39.5% 41.0% 41.0% 41.0%

SG&A (8,720) (9,719) (10,998) (10,641) (11,135) (11,654)

Exceptionals / one-offs (32) (1,420) - (1,000) - -

OPERATING PROFIT

EMEA 2,174 2,203 2,279 2,206 2,430 2,752

Margin, % 16.7% 16.9% 17.0% 16.7% 17.3% 18.0%

Americas 1,886 1,812 2,007 2,126 2,485 2,783

Margin, % 19.8% 20.3% 20.8% 21.3% 21.5% 21.5%

Asia Pacific 843 933 978 1,065 1,238 1,396

Margin, % 13.9% 14.1% 13.5% 14.2% 15.0% 15.2%

Global Technologies 862 896 1,074 1,169 1,210 1,345

Margin, % 17.2% 15.6% 17.2% 18.4% 18.3% 18.5%

Entrance System 659 1,196 1,546 1,707 2,208 2,672

Margin, % 16.2% 14.4% 14.1% 14.2% 15.0% 15.0%

Intersegment Sales (346) (416) (382) (385) (434) (493)

Operating profit 6,078 6,624 7,502 7,887 9,137 10,455

Operating margin, % 16.5% 15.9% 16.1% 16.4% 16.8% 17.0%

Depreciation & Amortisation (995) (1,022) (1,034) (1,035) (1,142) (1,193)

EBITDA 7,073 7,646 8,536 8,922 10,279 11,648

EBITDA margin, % 19.2% 18.3% 18.3% 18.5% 18.9% 18.9%

Net interest income / (expense) (680) (645) (770) (541) (641) (591)

Profit Before Tax 5,367 4,557 6,731 8,578 10,495 13,023

Underlying PBT 5,398 5,979 6,732 7,346 8,496 9,864

Tax (1,286) (1,095) (1,617) (1,837) (2,124) (2,466)

Effective rate, % 24.0% 24.0% 24.0% 25.0% 25.0% 25.0%

Minority interest (30) (26) (14) (15) (15) (15)

Operating Net Income 4,082 5,262 5,112 5,495 6,357 7,383

Net income margin, % 11.1% 12.6% 11.0% 11.4% 11.7% 12.0%

Dividend 1,491 1,677 1,885 2,033 2,218 2,402

CS operating EPS 10.9 14.1 13.8 14.9 17.2 20.0

EPS growth, % 14.5% 29.0% -2.1% 7.5% 15.7% 16.1%

DPS, SEK 4.0 4.5 5.1 5.5 6.0 6.5

DPS growth, % 11.1% 12.5% 13.3% 7.8% 9.1% 8.3%

Dividend Cover (X) 2.7 3.1 2.7 2.7 2.9 3.1

Ordinary shares in issue 373 373 370 370 370 370

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 30,615 37,139 40,025 44,354 46,370 48,642

Other fixed assets 1,595 2,161 2,978 2,978 2,978 2,978

Fixed assets 32,210 39,300 43,003 47,332 49,348 51,620

Inventories 4,825 5,704 5,905 5,995 6,669 7,468

Trade and other receivables 6,904 8,418 9,293 9,633 10,709 11,982

Trade and other payables (5,881) (6,957) (7,280) (7,785) (8,951) (10,455)

Other Current Liabilities (2,375) (4,000) (6,243) (6,243) (6,243) (6,243)

Working capital 5,848 7,165 7,918 7,842 8,428 8,995

Working capital days 58 63 62 59 57 53

WC as % of sales 15.9% 17.1% 17.0% 16.3% 15.5% 14.6%

Cash 1,450 1,949 1,045 269 1,421 3,178

Short-term debt (2,864) (7,606) (3,388) (3,016) (3,016) (3,016)

Long-term debt (8,134) (7,422) (11,194) (12,066) (12,066) (12,066)

Net debt / (cash) 9,548 13,079 13,537 14,813 13,661 11,904

Pension deficit 1,078 1,173 1,224 1,224 1,224 1,224

Other investments 170 284 138 138 138 138

Other liabilities (4,236) (4,480) (3,801) (4,301) (3,901) (3,501)

Net assets 23,366 28,017 32,497 34,974 39,128 44,124

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Operating profit 6,046 5,204 7,502 6,887 9,137 10,455

Restructuring Cost - 1,420 - 1,000 - -

Op. profit (Ex restructuring) 6,078 6,624 7,502 7,887 9,137 10,455

Depreciation & amortisation 995 1,022 1,034 1,035 1,142 1,193

Tax paid (799) (1,206) (1,113) (1,837) (2,124) (2,466)

Net interest (455) (482) (546) (541) (641) (591)

Restructuring Payments (465) (373) (498) (500) (400) (400)

Other 45 - (312) - - -

Gross cash flow 5,399 5,585 6,067 6,045 7,114 8,191

Working capital change 362 (238) (77) 76 (585) (568)

Operating cash flow 5,761 5,347 5,990 6,121 6,528 7,623

Operating cash / Operating profit 94.8% 80.7% 79.8% 77.6% 71.5% 72.9%

Net Capex (708) (845) (557) (1,100) (750) (750)

Free cash flow 5,053 4,502 5,433 5,021 5,778 6,873

FCF / Net income 124% 86% 106% 91% 91% 93%

Disposals - - - - - -

Acquisitions (3,319) (6,511) (4,181) (4,264) (2,408) (2,714)

Sales / (Purchase) of investments - - - - - -

Borrowings raised / (repaid) (1,328) 5,500 (446) 500 - -

Shares issue / (purchase) 48 - 38 - - -

Dividends paid (1,317) (1,472) (1,683) (2,033) (2,218) (2,402)

Net cash flow (863) 316 (312) (776) 1,153 1,756

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 4,621 5,033 5,700 5,916 6,852 7,841

Invested Capital 38,058 46,465 50,921 55,174 57,776 60,615

ROIC 12.1% 10.8% 11.2% 10.7% 11.9% 12.9%ROIC (average) 12.7% 11.9% 11.7% 11.2% 12.1% 13.2%

Operating Net Income 4,082 5,262 5,112 5,495 6,357 7,383

Equity 20,821 23,735 26,726 29,203 33,357 38,353

ROE 19.6% 22.2% 19.1% 18.8% 19.1% 19.2%ROE (average) 20.3% 23.6% 20.3% 19.6% 20.3% 20.6%

EBITDA 7,073 7,646 8,536 8,922 10,279 11,648

Total debt 10,998 15,028 14,582 15,082 15,082 15,082

Net debt 9,548 13,079 13,537 14,813 13,661 11,904

Total debt / EBITDA 1.6 2.0 1.7 1.7 1.5 1.3

Net debt / EBITDA 1.3 1.7 1.6 1.7 1.3 1.0

Source: Company data, Credit Suisse estimates

77

Assa Abloy – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman Lars Renstrom

CEO Johan Molin

CFO Carolina Happe

IR Niklas Ribbing

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

EMEA

FY 2012 Sales SEK 13.3 Bn

1.0% YoY organic growth

FY 2012 EBIT SEK 2.3 Bn

17.0% Margin

Locks, cylinders, electro- mechanical

products, security doors and fittings. Leading

brands: Abloy, Assa, Ikon, Tesa, Yale, Mul-T-

lock and Vachette

Mechanical Locks, lock systems and fittings

62%, Electromechanical & electronic locks

24% and Security doors & hardware 14%

Kaba and Dorma

Most sales take place in Western Europe,

but emerging markets in Eastern Europe and

the Middle East are gaining in importance.

Americas

FY 2012 Sales SEK 9.67 Bn

4.0% YoY organic growth

FY 2012 EBIT SEK 2.0 Bn

20.8% Margin

Locks, cylinders, electro- mechanical

products, security doors and fittings. Leading

brands: Ceco, Corbin Russwin, Curries,

Emtek, Medeco, Philipsm Sargent and La

Fonte

Mechanical Locks, lock systems and fittings

49%, Electromechanical & electronic locks

39% and Security doors & hardware 12%

Ingersoll Rand and Stanley Works

88% of the sales take place in the USA and

Canada. South America is growing in

significance, with Brazil as the most

important.

Asia Pacific

FY 2012 Sales SEK 7.2 Bn

3.0% YoY organic growth

FY 2012 EBIT SEK 0.98 Bn

13.5% Margin

Locks, cylinders, electro- mechanical

products, security doors and fittings. Leading

brands: Baodean, Beijing Tianming, Guli,

Interlock, iRevo, Lockwood, Shenfei and

Wangli

Mechanical Locks, lock systems and fittings

54%, Security doors & hardware 38% and

Electromechanical & electronic locks 8%

Tri-CircleChina 50%, Rest of Asia 20%, Australia &

New Zealand 20%, export 10%.

Global Technologies

FY 2012 Sales SEK 6.3 Bn

6.0% YoY organic growth

FY 2012 EBIT SEK 1.1 Bn

17.2% Margin

Electronic access management, secure card

issuance, identification technology and

electronic lock products for hotels. Leading

brands: HID, Fargo, Elsafe and VingCard

Access Control 52%, Identification technology

26% and Hotel locks 22%N.A.

Investment in R&D; Expansion in Emerging

markets; Growth in the electronic product

Entrance Systems

FY 2012 Sales SEK 10.98 Bn

-2.0% YoY organic growth

FY 2012 EBIT SEK 1.5 Bn

14.1% Margin

Automatic entrance solutions and service.

Leading brands: Besam, Ditec, FlexiForce,

Albany, Crawford,

Normstahl, Henderson and EM

Products 63% and Services 37% N.A.Investment in R&D; Expansion in Emerging

markets; Growth in the electronic product

ASSA ABLOY (ASSAb.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic MixShareholding Structure

Free Float: 90%

Top 5 shareholders

Investment AB Latour 9.5%, Capital Group

fonder 8.8%, Blackrock fonder 5.1%, Melker

Schorling AB 3.9%, Swedbank Robur Fonder

2.6%

Ownership by country

USA 50%, Sweden 31%, Norway 7%, UK 4%

and others

ADT Corporation, Napco Securities, Bosch

Security Systems, Filehold Systems and KL

security enterprises

Expansion in Emerging markets; Growth

through acquisitions. Increasing Emerging

market security concerns. Urbanisation.

EMEA29%

Americas25%

Asia Pacif ic

12%

Global Technologies

14%

Entrance Systems

20%EMEA28%

Americas20%

AsiaPacif ic

15%

Global Technologies

13%

EntranceSystems

23%

NorthAmerica

29%

South America

2%

Europe47%

Asia16%

Africa1%

Australia/New Zealand

5%

Mechanical Locks, lock systems and

f ittings36%

Electromechanical & electronic locks

22%

Entrance Automation

24%

Security doors & hardw are

18%

Source: Company data

78

Atlas Copco – Outperform, TP SEK 210 Investment summary: Attractive high-quality exposure to general industrial recovery, structural aftermarket

growth characteristics, mining exposure 80% weighted to aftermarket, further balance sheet potential.

Bull Case High quality General Industrial exposure – optimal play on a slow economic

recovery as historically outgrew Sandvik and SKF in such conditions;

Compressors and Industrial Tools aftermarket offers an attractive installed-base

driven growth characteristic similar to aero engines or elevators;

In Mining, Atlas’ exposure is 80% in aftermarket, which we expect to grow in

2014 after 12+ months of de-stock creating +ve mix effect while we already

discount 40-50% peak to trough declines in new equipment;

Further balance sheet flexibility even after Edwards acquisitions – Net Debt /

EBITDA of 0.7x for 2014 (our est) vs up to 1.4x historically.

Bear Case Scope for further deterioration in mining new equipment (miners capex cuts

beyond 40-50% with no reallocation to brownfield) or longer than expected de-

stocking in aftermarket (we currently discount c15 months);

Pricing deterioration in mining given the magnitude of the capex cuts (we see

underground equipment, 80% of Atlas, as relatively well protected);

Edwards acquisition integration and future performance with high exposure to

semiconductors manufacturing capex as the main risk of volatility;

Next cycle could see structurally slower growth in the General Industrial space

vs last as relocation of manufacturing capacity to China is completed (we see CT

and IT as adjacency to Automation which remains attractive);

Valuation appears full if taking only A-shares.

0

20

40

60

80

100

120

140

160

180

200

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

0%

20%

40%

60%

80%

100%

6%

11%

16%

21%

26%

31%

ATCO ROIC (LHS) Sector ROIC (LHS)

ATCO Cash conversion (RHS) Sector Cash conversion (RHS)

-30%

-20%

-10%

0%

10%

20%

30%

12%

14%

16%

18%

20%

22%

24%

Margins % (LHS) Organic Growth (RHS)

79

Atlas Copco – Valuation

Grow th (years 4 to 10) 7.0%

EBIT margin (years 4+) 21.0%

NOPAT margin 15.8%

Invested capital 57,453

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 13.4%

WACC 9.0%

Growth rate

6.0% 6.5% 7.0% 7.5% 8.0%

19.0% 14.3% 184 188 191 195 198

19.5% 14.6% 189 193 196 200 204

20.0% 15.0% 194 198 201 205 209

20.5% 15.4% 199 203 207 211 215

21.0% 15.8% 204 208 210 216 220

21.5% 16.1% 209 213 217 221 225

22.0% 16.5% 214 218 222 227 231

22.5% 16.9% 219 223 227 232 236

23.0% 17.3% 223 228 233 237 242

23.5% 17.6% 228 233 238 243 247

EBIT

Margin

NOPAT

margin

DCF December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

A shares: Ave/Curr 106.0 86.0 80.5 122.7 149.1 158.6 175.1 175.1 175.1

A shares: High 121.5 112.5 107.2 172.7 172.7 179.4

A shares: Low 89.6 48.6 54.5 96.0 115.5 138.3

B shares: Ave/Curr 95.9 75.7 69.5 107.5 133.3 141.1 159.1 159.1 159.1

B shares: High 109.3 100.2 92.3 150.2 154.9 159.0

B shares: Low 80.6 42.2 47.0 83.9 102.0 122.8

P/E average 16.1 11.3 14.4 14.9 14.3 13.8 17.1 15.9 14.4

P/E high 18.5 14.8 19.1 21.0 16.5 15.6

P/E low 13.6 6.4 9.7 11.7 11.1 12.0

EV/Sales average 2.38 1.75 1.75 2.25 2.44 2.17 2.66 2.44 2.27

EV/Sales high 2.68 2.19 2.26 3.12 2.79 2.53

EV/Sales low 2.06 1.14 1.25 1.78 1.93 1.98

Operating profit margin 18.9% 19.0% 15.1% 20.1% 21.8% 21.3% 20.7% 20.8% 21.2%

EV/EBITDA average 10.9 8.1 9.2 9.5 9.8 9.0 11.2 10.6 9.6

EV/EBITDA high 12.3 10.1 11.9 13.2 11.2 10.4

EV/EBITDA low 9.5 5.2 6.6 7.5 7.8 8.1

EV/EBIT average 12.6 9.2 11.6 11.2 11.2 10.2 12.9 11.7 10.7

EV/EBIT high 14.1 11.5 14.9 15.5 12.8 11.9

EV/EBIT low 10.9 6.0 8.3 8.9 8.9 9.3

FCF yield average 4.2% 5.6% 13.3% 6.4% 3.4% 5.9% 5.9% 5.6% 6.1%

FCF yield high 5.0% 9.9% 19.7% 8.2% 4.4% 6.7%

FCF yield low 3.7% 4.3% 10.0% 4.6% 2.9% 5.2%

Dividend yield average 2.8% 3.5% 3.7% 3.3% 3.4% 3.5% 3.4% 3.7% 4.0%

Dividend yield high 2.5% 2.7% 2.8% 2.3% 2.9% 3.1%

Dividend yield low 3.3% 6.2% 5.5% 4.2% 4.3% 4.0%

EV/IC average 4.6 3.2 3.3 4.6 4.6 4.5 4.0 3.8 3.6

EV/IC high 5.2 3.9 4.3 6.4 5.3 5.2

EV/IC low 4.0 2.0 2.4 3.6 3.7 4.1

P/BV average 8.9 4.4 3.8 5.1 6.3 5.6 5.4 5.1 4.8

P/BV high 10.2 5.8 5.1 7.2 7.3 6.4

P/BV low 7.5 2.5 2.6 4.0 4.9 4.9

ROIC 26.0% 26.0% 21.8% 30.1% 31.0% 32.8% 23.3% 24.1% 24.8%

ROE 55.3% 39.2% 26.7% 34.4% 44.2% 40.9% 31.3% 32.2% 33.6%

ROCE 25.0% 23.0% 19.6% 29.5% 30.5% 33.9% 23.9% 24.8% 25.6%

Source: Company data, Credit Suisse estimates

80

Atlas Copco – Financials

ANALYSIS 2010 2011 2012E 2013E 2014E 2015E

NOPAT 10,327 13,280 14,483 13,028 13,841 14,792

Invested Capital 34,297 42,886 44,151 55,830 57,453 59,590

ROIC 30.1% 31.0% 32.8% 23.3% 24.1% 24.8%

ROIC (average) 30.4% 34.4% 33.3% 26.1% 24.4% 25.3%

Operating Net Income 10,021 12,717 13,968 12,449 13,112 14,160

Equity 29,321 28,839 34,185 39,840 40,722 42,255

ROE 34.2% 44.1% 40.9% 31.2% 32.2% 33.5%

ROE (average) 36.4% 43.7% 44.3% 33.6% 32.6% 34.1%

EBITDA 16,513 20,187 21,959 20,000 20,686 22,357

Total debt 20,114 20,435 21,052 21,052 21,052 21,052

Net debt 5,850 14,719 8,636 14,660 15,224 15,538

Total debt / EBITDA 1.2 1.0 1.0 1.1 1.0 0.9

Net debt / EBITDA 0.4 0.7 0.4 0.7 0.7 0.7

PROFIT & LOSS 2010 2011 2012E 2013E 2014E 2015E

Revenue 69,875 81,203 90,533 83,929 89,955 95,041

Growth, % 9.6% 16.2% 11.5% -7.3% 7.2% 5.7%

COGS (43,468) (50,051) (55,779) (50,357) (53,973) (57,025)

Gross Profit 26,407 31,152 34,754 33,572 35,982 38,016

Gross margin, % 37.8% 38.4% 38.4% 40.0% 40.0% 40.0%

SG&A (11,087) (11,959) (13,641) (14,431) (15,382) (15,888)

R & D expenses (1,517) (1,805) (2,042) (2,098) (2,249) (2,376)

Other operating income/exp 99 166 156 329 352 372

Reported EBIT 13,915 17,560 19,230 17,371 18,704 20,125

Reported EBIT margin, % 19.9% 21.6% 21.2% 20.7% 20.8% 21.2%

Exceptionals / one-offs (100) (105) (65) 0 0 0

Operating profit 14,015 17,665 19,295 17,371 18,704 20,125

Operating profit margin, % 20.1% 21.8% 21.3% 20.7% 20.8% 21.2%

Depreciation & Amortisation 2,498 2,522 2,664 2,628 1,982 2,232

EBITDA 16,513 20,187 21,959 20,000 20,686 22,357

EBITDA margin, % 23.6% 24.9% 24.3% 23.8% 23.0% 23.5%

Net interest income / (expense) (420) (284) (690) (753) (958) (833)

Rate, % -7.2% -1.9% -8.0% -5.1% -6.3% -5.4%

Profit Before Tax 13,495 17,276 18,540 16,619 17,746 19,292

Underlying PBT 13,595 17,030 18,605 16,619 17,746 19,292

Tax (3,551) (4,288) (4,624) (4,155) (4,614) (5,112)

Effective rate, % 26.3% 24.8% 24.9% 25.0% 26.0% 26.5%

Reported profit after tax 9,944 12,988 13,916 12,464 13,132 14,180

Minority interest (23) (25) (13) (15) (20) (20)

Reported Net Income 9,921 12,963 13,903 12,449 13,112 14,160

Operating Net Income 10,021 12,717 13,968 12,449 13,112 14,160

Net income margin, % 14.3% 15.7% 15.4% 14.8% 14.6% 14.9%

CS operating EPS 8.2 10.4 11.5 10.2 11.0 12.2

EPS growth, % 47.0% 26.9% 10.0% -10.9% 7.7% 10.4%

DPS, SEK 4.0 5.0 5.5 6.0 6.5 7.0

DPS growth, % 33.3% 25.0% 10.0% 9.1% 8.3% 7.7%

Dividend Cover (X) 2.1 2.1 2.1 1.7 1.7 1.7

Ordinary shares in issue 1,216 1,214 1,214 1,214 1,187 1,159

BALANCE SHEET 2010 2011 2012E 2013E 2014E 2015E

PPE and Intangibles 21,009 24,007 24,755 36,946 38,113 39,157

Other f ixed assets 4,123 3,983 3,481 3,481 3,481 3,481

Fixed assets 25,132 27,990 28,236 40,427 41,594 42,638

Inventories 12,939 17,579 17,653 17,205 18,441 19,959

Trade and other receivables 17,474 21,996 21,155 19,723 21,589 23,285

Trade and other payables (17,125) (20,696) (19,412) (18,045) (20,690) (22,810)

Working capital 13,288 18,879 19,396 18,884 19,340 20,434

Working capital days 69 85 78 82 78 78

WC as % of sales 19.0% 23.2% 21.4% 22.5% 21.5% 21.5%

Cash 14,264 5,716 12,416 6,392 5,828 5,514

Short-term debt (499) (3,422) (902) (2,105) (2,105) (2,105)

Long-term debt (19,615) (17,013) (20,150) (18,947) (18,947) (18,947)

(Net debt) / cash (5,850) (14,719) (8,636) (14,660) (15,224) (15,538)

Pension deficit (1,578) (1,504) (2,149) (2,149) (2,149) (2,149)

Other assets 1,813 1,828 1,334 1,334 1,157 867

Other liabilities (3,484) (3,635) (3,996) (3,996) (3,996) (3,997)

Net assets 29,321 28,839 34,185 39,840 40,722 42,255

CASH FLOW

Operating profit 14,015 17,560 19,295 17,371 18,704 20,125

Depreciation & amortisation 2,498 2,522 2,664 2,628 1,982 2,232

Net interest (960) (1,275) (592) (753) (958) (833)

Tax paid (2,813) (3,307) (5,053) (4,155) (4,436) (4,823)

Other 260 (176) (309) 0 0 1

Gross cash flow 13,000 15,324 15,940 15,092 15,291 16,702

Working capital change (1,730) (6,115) (1,366) 512 (456) (1,093)

Operating cash flow 10,925 8,421 13,825 14,597 13,935 14,658

Operating cash / Operating profit 0.8 0.5 0.7 0.8 0.7 0.7

Net Capex (1,322) (2,283) (2,518) (2,075) (2,249) (2,326)

Free cash flow 9,603 6,138 11,307 12,522 11,686 12,333

FCF / Net income 1.0 0.5 0.8 1.0 0.9 0.9

Acquisitions (1,691) (2,206) (1,195) (11,737) 0 0

Disposals 0 0 0 0 0 0

Sales / (Purchase) of investments 195 154 928 0 0 0

Borrow ings raised / (repaid) (1,474) 181 1,636 0 0 0

Shares issue / (purchase) 384 (8,063) 164 0 (5,000) (5,000)

Dividends paid (3,650) (4,853) (6,070) (6,809) (7,250) (7,646)

Net cash flow 3,367 (8,649) 6,770 (6,024) (564) (314)

Source: Company data, Credit Suisse estimates

81

Atlas Copco – Company Summary

Operating Profit split Sales Mix End Market Mix

Management

Chairman Sune Carlsson

CEO Ronnie Leten

CFO Hans Ola Meyer

IR Mattias Olsson

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Compressor Technique

FY 2012 Sales SEK 34.71 Bn

7.0% YoY organic growth

FY 2012 EBIT SEK 8.01 Bn

23.1% margin.

Oil-free and oil-injected stationary air

compressors, portable air compressors, oil

and gas boosters, gas and process

compressors, turbo expanders, generators, air

treatment equipment, and air management

systems.

Industrial Air Compressors 85%, Gas &

Process Compressots 10% and Speciality

Rental 5%

Ingersoll-Rand, Kaeser, Hitachi, Gardner-

Denver, Cameron, Sullair, and Parker Hannifin.

Europe 33%, Asia/Australia 31%, North

America 19%, Middle East/Africa 10%, South

America 7%

Investments in Machinery, Industrial

production and Energy cost

Mining Rock Excavation Technique

FY 2012 Sales SEK 34.05 Bn

14% YoY organic growth

FY 2012 EBIT SEK 8.31 Bn

24.4% margin

Equipment for drilling and rock excavation.

Surface and underground mining,

infrastructure, civil works, well drilling and

geotechnical applications.

Mining 69%, Construction 28%, Service 1%

and Other 2%

Sandvik,Furukawa, Boart Longyear, Joy

Global and Caterpillar

Asia/Australia 27%, North America 22%,

Europe 20%, Middle East/Africa 17%, South

America 14%

Mining Capex on equipment and Ore

Production (aftermarket).

Construction Technique

FY 2012 Sales SEK 12.89 Bn

-0.7% YoY organic growth

FY 2012 EBIT SEK 1.39 Bn

10.8% margin

Construction and demolition tools, portable

compressors, pumps and generators, lighting

towers, and compaction and paving equipment

Construction 62%, Manufacturing 11%, Mining

8%, Service 5%, Process Industry 2% and

Others 12%

Doosan Infracore, Kaeser, SullairVolvo,

Caterpillar, Wirtgen,Sandvik,Furukawa and

Wacker Neuson

Europe 35%, Asia/Australia 24%, North

America 16%, South America 13%, Middle

East/ Africa 12%

Infrastructure and public investments & non

building construction activity

Industrial Technique

FY 2012 Sales SEK 9.57 Bn

11.9% YoY organic growth

FY 2012 EBIT SEK 2.16 Bn

22.5% margin

Industrial power tools, assembly systems,

and aftermarket products and services.

Manufacturing 87%, Process Industry 2%,

Construction Industry 1%, Service 1% and

Others 9%.

Apex Tool Group, Ingersoll-Rand, Stanley

Black &Decker, Uryu and Bosch

Europe 47%, North America 25%,

Asia/Australia 22%, South America 5%,

Middle East 1%.

Demolition and recycling, Flexible/Potable

Equipment

ATLAS COPCO (ATCOa.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic Mix Shareholding Structure

Free Float: 83%

Top 5 shareholders

Investor AB 16.8%, Swedbank 4.4%, Alecta

2.8%, AP 4 1.1%, AMF 2.7% and others

Ownership by country

Sweden 51%, USA 21%,UK 18% and Other

11%

Compressor Technique

38%

Mining Rock Excavation

Technique37%

Construction Technique

14%

Industrial Technique

11%

Compressor Technique

40%

Mining Rock Excavation

Technique42%

Construction Technique

7%

Industrial Technique

11%North America

20%

South America

10%

Europe30%

Asia/Australia28%

Middle East/Africa

12% Manufacturing25%

Mining 30%

Construction22%

ProcessIndustry

10%

Service 6%

Others7%

Source: Company data

82

Bodycote – Outperform, TP 760p Investment summary: We see Bodycote as an attractive way to play the short-cycle recovery in Europe and US

with additional gearing from underlying margin improvement to above 18% and scope for value-creating deals.

Bull Case Margin resilience during the current soft top-line environment and scope for

an improvement to above 18% with some organic growth – driven by mix and

efficiency improvements as well as by pricing discipline;

Interesting geared play on a short-cycle recovery. We discount 6% and 5%

organic growth for 2014/15, in-line with other short-cycle peers, but with

limited operational gearing (c30% vs historic 40-45%);

Attractive exposure to Aerospace (23% of sales, higher of EBIT);

Scope for further value-creating acquisitions with company expected to turn

to net cash again at the end of 2013.

Attractive valuation relative to is UK and other short-cycle peers – trading

at a c10-20% discount on 2014E EV/EBIT of c10x.

Bear Case Margin improvement potential is fully understood and discounted in

consensus estimates. We are c5% ahead for 2014 and Bodycote’s 2014E

EV/Sales multiple of 1.8x suggest the market is not expecting above 18%

margin, especially when other short-cycle plays trade at premium to it margin

on EV/Sales.

US onshore oil & gas and industrial gas turbines exposures within Energy

likely to continue to drag down sales growth. We see this as discounted in

our estimates.

0

100

200

300

400

500

600

700

0

5

10

15

20

25

30

35

40

45

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-30%

-15%

0%

15%

30%

0%

5%

10%

15%

20%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

BOY ROIC (LHS) Sector ROIC (LHS)

BOY Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

83

Bodycote – Valuation December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 2.91 1.93 1.45 2.24 3.10 3.70 6.20 6.20 6.20

High 3.48 2.61 1.98 3.01 3.98 4.53

Low 1.88 0.99 1.04 1.59 2.26 2.63

Year end 2.00 1.23 1.59 2.81 2.63 4.53

P/E average 14.2 7.2 33.3 12.1 9.7 9.7 15.1 13.7 13.0

P/E high 16.9 9.7 45.5 16.3 12.4 11.9

P/E low 9.2 3.7 23.8 8.6 7.0 6.9

P/E year-end 9.7 4.6 36.4 15.2 8.2 11.9

EV:sales average 1.80 1.24 0.85 0.96 1.06 1.27 1.89 1.75 1.60

EV:sales high 2.08 1.63 1.08 1.25 1.35 1.53

EV:sales low 1.29 0.71 0.68 0.72 0.78 0.93

EV:sales year-end 1.35 0.85 0.91 1.17 0.90 1.53

Underlying operating margin, % 14.3% 12.9% 1.8% 10.4% 15.0% 16.7% 17.0% 18.0% 18.2%

EV:EBITDA average 8.1 5.2 6.3 4.8 4.4 4.9 7.4 6.6 6.1

EV:EBITDA high 9.3 6.8 8.0 6.2 5.6 5.9

EV:EBITDA low 5.8 3.0 5.0 3.6 3.2 3.6

EV:EBITDA year-end 6.0 3.5 6.8 5.8 3.8 5.9

EV:EBIT average 12.6 9.6 46.5 9.2 7.0 7.6 11.1 9.7 8.8

EV:EBIT high 14.6 12.6 58.9 12.0 9.0 9.2

EV:EBIT low 9.1 5.5 37.0 6.9 5.2 5.6

EV:EBIT year-end 9.5 6.6 49.8 11.2 6.0 9.2

FCF yield average 2.7% -0.8% 8.8% 12.7% 12.6% 11.4% 6.3% 6.6% 6.6%

FCF yield high 2.3% -0.6% 6.4% 9.5% 9.8% 9.3%

FCF yield low 4.2% -1.6% 12.3% 17.9% 17.3% 16.0%

FCF yield year-end 4.0% -1.3% 8.0% 10.2% 14.8% 9.3%

Dividend yield average 2.7% 4.3% 5.7% 3.9% 3.5% 3.3% 2.2% 2.4% 2.6%

Dividend yield high 2.3% 3.2% 4.2% 2.9% 2.7% 2.7%

Dividend yield low 4.3% 8.3% 8.0% 5.5% 4.8% 4.7%

Dividend yield year-end 4.0% 6.7% 5.2% 3.1% 4.1% 2.7%

EV/IC average 2.0 1.2 0.8 1.1 1.4 1.7 2.6 2.5 2.4

EV/IC high 2.4 1.6 1.0 1.4 1.7 2.0

EV/IC low 1.5 0.7 0.6 0.8 1.0 1.2

EV/IC year-end 1.5 0.8 0.8 1.3 1.2 2.0

P/BV average 1.9 1.2 0.6 0.9 1.2 1.4 2.1 1.9 1.8

P/BV high 2.3 1.7 0.9 1.2 1.6 1.7

P/BV low 1.2 0.6 0.5 0.7 0.9 1.0

P/BV year-end 1.3 0.8 0.7 1.2 1.0 1.7

ROIC 13.1% 8.7% 1.6% 8.6% 14.4% 16.6% 17.8% 19.2% 19.8%

ROE 15.1% 9.9% 1.8% 8.6% 13.2% 14.6% 14.3% 14.2% 13.7%

ROCE 10.8% 8.7% 1.5% 7.7% 13.2% 13.7% 14.6% 15.8% 16.3%

EBITA NOPAT

margin margin 4.0% 4.5% 5.0% 5.5% 6.0%

14.0% 10.2% 5.80 5.93 6.08 6.22 6.37

15.0% 10.9% 6.14 6.29 6.44 6.59 6.75

16.0% 11.6% 6.48 6.64 6.80 6.97 7.14

17.0% 12.3% 6.83 6.99 7.16 7.34 7.52

18.0% 13.1% 7.17 7.35 7.60 7.71 7.90

19.0% 13.8% 7.51 7.70 7.89 8.09 8.29

20.0% 14.5% 7.86 8.05 8.25 8.46 8.67

21.0% 15.2% 8.20 8.41 8.62 8.83 9.06

22.0% 16.0% 8.54 8.76 8.98 9.21 9.44

23.0% 16.7% 8.89 9.11 9.34 9.58 9.82

Grow th (years 4 to 10) 5.0%

EBIT margin (years 4+) 18.0%

NOPAT margin 13.1%

Invested capital 444,300

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 12.8%

WACC 9.00%

DCF

Source: Company data, Credit Suisse estimates

84

Bodycote – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Total Group Revenue 499,800 570,700 587,800 618,329 641,364 672,981

Growth, % 14.8% 14.2% 3.0% 5.2% 3.7% 4.9%

Organic growth, % 15.8% 13.7% 2.5% -1.4% 5.7% 4.9%

Overheads (10,200) (15,500) (18,600) (18,500) (19,000) (20,000)

Group Operating Profit 52,100 85,500 97,900 105,206 115,762 122,736

Operating profit margin, % 10.4% 15.0% 16.7% 17.0% 18.0% 18.2%

Exceptionals / one-offs (900) (5,100) (4,500) (2,000) (2,000) (2,000)

Depreciation & Impairment (48,300) (51,000) (53,600) (53,555) (53,381) (53,430)

EBITDA 100,400 136,500 151,500 158,761 169,143 176,166

EBITDA margin, % 20.1% 23.9% 25.8% 25.7% 26.4% 26.2%

Net interest income / (expense) (6,000) (4,600) (3,600) (2,300) (1,200) (1,000)

Rate, % 11.7% 25.6% 8.1% 5.2% 2.7% 2.3%

Underlying PBT 46,100 80,900 94,300 102,906 114,562 121,736

Tax (11,700) (19,800) (22,800) (25,726) (29,213) (31,651)

Effective rate, % 26% 26% 25% 25% 26% 26%

Discontinued operations (5,800) - - - - -

Minority interest (100) (200) (100) (100) (100) (100)

Operating Net Income 34,300 60,900 71,400 77,079 85,249 89,985

Net income margin, % 6.9% 10.7% 12.1% 12.5% 13.3% 13.4%

Dividend (16,158) (20,669) (23,001) (25,693) (28,416) (29,995)

CS operating EPS 18.5 32.1 38.2 41.1 45.3 47.7

EPS growth, % 323.1% 73.9% 18.9% 7.7% 10.3% 5.3%

DPS 8.7 10.9 12.3 13.7 15.1 15.9

Dividend cover 2.1 2.9 3.1 3.0 3.0 3.0

Average number of shares 185.7 189.6 187.0 187.5 188.0 188.5

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 38,614 63,428 73,585 78,904 86,243 90,825

Invested capital 451,600 441,900 444,300 444,315 448,838 458,143

ROIC 9% 14% 17% 18% 19% 20%

ROIC (average) 8% 13% 33% 36% 19% 40%

Operating Net Income 34,300 60,900 71,400 77,079 85,249 89,985

Equity 449,100 481,300 503,000 552,386 607,219 665,208

ROE 8% 13% 14% 14% 14% 14%

ROE (average) 7% 13% 28% 28% 17% 27%

EBITDA 100,400 136,500 151,500 158,761 169,143 176,166

Total debt (74,800) (18,000) (44,200) (44,200) (44,200) (44,200)

Net debt (51,300) 100 (34,200) 13,571 62,280 109,365

Total debt / EBITDA (0.7) (0.1) (0.3) (0.3) (0.3) (0.3)

Net debt / EBITDA (0.5) 0.0 (0.2) 0.1 0.4 0.6

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and intangibles 458,000 443,900 448,700 447,703 448,838 452,612

Goodw ill/Intangibles 118,100 111,500 166,800 164,800 162,800 160,800

Investments 500 800 1,600 1,600 1,600 1,600

Trade And Other Receivables 50,900 54,200 34,900 34,900 34,900 34,900

Fixed assets 627,500 610,400 652,000 649,003 648,138 649,912

Inventory 14,400 16,700 18,400 18,635 21,086 23,969

Trade and other receivables 99,600 108,200 110,100 115,196 121,244 129,065

Trade and other payables 120,400 126,900 132,900 137,218 142,330 147,503

Working capital (6,400) (2,000) (4,400) (3,388) - 5,531

Working capital days (5) (1) (3) (2) - 3

WC as % of sales -1.3% -0.4% -0.7% -0.5% 0.0% 0.8%

Cash 23,500 18,100 10,000 57,771 106,480 153,565

Short term investments - - - - - -

Short-term debt 9,300 11,000 43,600 26,220 26,220 26,220

Long-term debt 64,800 6,500 300 17,680 17,680 17,680

Preferred shares / convertibles / leases 700 500 300 300 300 300

Net (debt) / cash (51,300) 100 (34,200) 13,571 62,280 109,365

Other assets 6,200 5,300 2,100 2,100 2,100 2,100

Other liabilities 125,200 131,200 111,100 107,400 103,700 100,000

Net assets 450,800 482,600 504,400 553,886 608,819 666,908

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Earnings before interest and Tax51,200 80,400 93,400 103,206 113,762 120,736

Depreciation & Impairment 48,300 51,000 53,600 53,555 53,381 53,430

Provisions - (5,000) (3,700) (3,700) (3,700) (3,700)

Other 400 19,500 1,400 2,000 2,000 2,000

Net interest paid (5,500) (4,500) 3,600 (2,300) (1,200) (1,000)

Tax paid (5,400) (15,300) (19,300) (25,726) (29,213) (31,651)

Gross cash flow 89,000 126,100 129,000 127,034 135,029 139,815

Working capital 1,100 (6,300) 2,100 (1,012) (3,388) (5,531)

Operating cash flow 90,100 119,800 131,100 126,022 131,641 134,283

Purchase of f ixed assets (37,200) (46,000) (52,400) (52,558) (54,516) (57,203)

Free cash flow (FCF) 52,900 73,800 78,700 73,464 77,125 77,080

Net cash flow 500 (7,700) (1,600) 47,771 48,709 47,085

Source: Company data, Credit Suisse estimates

85

Bodycote – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Aerospace, Defence & Energy

FY2012 Sales - £261m,

8.4% org. growth

FY2012 EBITA - £64m,

24.6% margin

Provides thermal processing services

mainly to aerospace, defence and

energy end markets. Typically long supply

chain business, low to medium

volumes for later cycle industries.

46% Aerospace & defence, 26% energy,

28% general industrial

Western Europe - £112m (48%)

North America - £120.5m (52%)

Emerging markets - £1.5m (0.6%)

Commercial Aerospace build

rates. Increased outsourcing of

heat treatment. Penetration of

HIP

Automotive & General Industrial

FY2012 Sales - £339m,

-1.6% org. growth

FY2012 EBITA - £46m,

13.7% margin

Provides thermal processing services to

auto and

general industrials markets. Typically short

supply chains with a variety of batch sizes,

but lower parts in early/mid cycle industries

36% Automotive, 7% truck, 51% general

industrial, 6% energy

Western Europe - £240m (71%)

North America - £47m (14%)

Emerging markets - £50m (15%)

Automotive production build

rates. Expansion of heat

treatment network into Asia.

BODYCOTE (BOY.L / BOY LN) - ANDRE KUKHNIN, CFA +44 20 7883 0352 / andre.kukhnin@credit-suisse.com

Nihon Parkerizing (Jap), Aalberts (Neth),

Dowa (Jap), Bluewater (US), Gibraltar (US),

Paulo Products (US), Al-Fe Heat Treating

(US), Atmosphere Annealing (US), Hitech

Metal (US), Curtis Wright, Metal

Improvement, In-house facilities

Western Europe,

62%

North America,

29%

Emerging

markets, 9% General Industrial

42%

Automative

26%

Aerospace and

Defence20%

Energy

12%Aerospace,

Defence and Energy

46%

Automotive &

General Industrial54%

Aerospace,

Defence and Energy

60%

Automotive &

General Industrial40%

Shareholding structure

Free float: 100%

Top 5 shareholders: Standard Life

Investments - 14%, Dimensional Fund

Adv. - 8%, Old Mutual - 8%, Schroder -

7%, Mondrian Investment Partners-

6%

Ownership by Country: UK - 62%,

USA - 19%, Norway - 4%,

Luxembourg - 3%

Management

Chairman -Alan Thomson

CEO - Stephen Harris

CFO - David Landless

Source: Company data

86

Electrolux – Outperform, TP SEK 190 Investment summary: Self-help and US housing recovery exposure with attractive valuation should outweigh the

Brazil, Europe and FX headwinds.

Bull Case Self-help – one of the largest cost reduction programmes in the sector –

cSEK 1bn per annum, 20% of 2012/13E EBIT base.

Growth opportunity in the US with market recovery (housing and improving

consumer confidence with rising house prices) and market share gains

through Home Depot ramp up;

Balance sheet use potential – acquisition pipeline should start filling up

after nearly 2 years of focus from new CFO;

Attractive valuation.

Bear Case

Europe remains sluggish with potential further pricing & mix pressures;

Brazil cooling down (c14% of Electrolux sales, relatively high margin);

FX headwinds – transaction (BRL/USD) and translation;

Risk of an unsuccessful China ramp up;

Ever-increasing marketing spend consuming cost savings and operational

gearing benefits;

Ongoing risk of Korean and other EM competition disrupting pricing in

developed world markets.

0

50

100

150

200

250

0

2

4

6

8

10

12

14

16

18

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-6%

-4%

-2%

0%

2%

4%

6%

8%

0%

1%

2%

3%

4%

5%

6%

7%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

6%

8%

10%

12%

14%

16%

18%

ELUX ROIC (LHS) Sector ROIC (LHS)

ELUX Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

87

Electrolux – Valuation

EBITA NOPAT

margin margin 2.0% 2.5% 3.0% 3.5% 4.0%

4.0% 3.0% 108 109 109 110 110

4.5% 3.4% 127 128 129 130 131

5.0% 3.8% 146 147 149 151 152

5.5% 4.1% 164 167 169 171 173

6.0% 4.5% 183 186 190 192 194

6.5% 4.9% 202 205 209 212 216

7.0% 5.3% 221 225 228 232 237

7.5% 5.6% 240 244 248 253 258

8.0% 6.0% 258 263 268 273 279

8.5% 6.4% 277 283 288 294 300

Grow th (years 4 to 10) 3.0%

EBIT margin (years 4+) 6.0%

Tax rate 25.0%

NOPAT margin 4.5%

Invested capital, SEK m 34,415

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 3.2%

WACC 9.0%

DCF December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 149.2 83.5 117.8 169.3 138.2 149.3 156.0 156.0 156.0

High 190.0 108.5 184.1 194.7 195.6 179.0

Low 102.0 53.5 57.5 142.5 95.3 109.7

P/E average 12.9 8.9 7.7 9.5 13.5 12.6 13.6 10.0 8.7

P/E high 16.4 11.5 12.0 10.9 19.1 15.1

P/E low 8.8 5.7 3.7 8.0 9.3 9.3

EV:sales average 0.51 0.34 0.34 0.47 0.48 0.49 0.51 0.47 0.43

EV:sales high 0.62 0.41 0.51 0.54 0.64 0.56

EV:sales low 0.38 0.26 0.18 0.40 0.35 0.38

Operating margin 4.6% 3.3% 5.1% 6.2% 3.8% 4.6% 4.5% 5.7% 6.1%

EV:EBITDA average 7.1 5.5 4.1 5.1 6.8 6.5 6.6 5.2 4.6

EV:EBITDA high 8.6 6.6 6.2 5.8 9.2 7.5

EV:EBITDA low 5.3 4.2 2.2 4.3 5.1 5.1

EV:EBIT average 11.0 10.3 6.7 7.7 12.4 10.6 11.3 8.3 7.1

EV:EBIT high 13.4 12.4 10.1 8.8 16.6 12.3

EV:EBIT low 8.3 7.9 3.5 6.5 9.3 8.4

FCF yield average 4.1% 7.6% 29.9% 9.2% 2.8% 4.5% 2.7% 7.4% 9.2%

FCF yield high 3.2% 5.8% 19.1% 8.0% 2.0% 3.8%

FCF yield low 6.0% 11.8% 61.2% 10.9% 4.1% 6.2%

Dividend yield average 2.8% 0.0% 3.4% 3.8% 4.7% 4.4% 4.3% 4.5% 4.6%

Dividend yield high 2.2% 0.0% 2.2% 3.3% 3.3% 3.6%

Dividend yield low 4.2% 0.0% 7.0% 4.6% 6.8% 5.9%

EV/IC average 1.7 1.1 1.3 1.8 1.3 1.7 1.6 1.5 1.4

EV/IC high 2.0 1.3 2.0 2.0 1.8 1.9

EV/IC low 1.3 0.8 0.7 1.5 1.0 1.3

P/BV average 2.64 1.44 1.78 2.35 1.92 2.72 2.64 2.29 1.98

P/BV high 3.36 1.88 2.78 2.70 2.71 3.26

P/BV low 1.80 0.92 0.87 1.98 1.32 2.00

ROIC 11.4% 9.5% 16.3% 18.1% 8.7% 12.0% 10.8% 13.7% 15.0%

ROE 20.5% 16.3% 23.2% 24.8% 14.2% 21.6% 19.4% 23.0% 22.6%

ROCE 17.3% 14.4% 23.1% 26.0% 11.5% 17.8% 15.8% 19.7% 21.4%

Source: Company data, Credit Suisse estimates

88

Electrolux – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 106,326 101,598 109,994 110,188 115,219 121,836

COGS (82,647) (82,840) (87,807) (88,150) (92,175) (97,469)

Gross Profit 23,679 18,758 22,187 22,038 23,044 24,367

Gross Profit Margin, % 22.3% 18.5% 20.2% 20.0% 20.0% 20.0%

Selling Expenses (11,698) (10,821) (11,673) (12,121) (12,674) (13,402)

Administrative Expenses (5,428) (4,237) (5,541) (5,096) (3,951) (3,707)

S G & A (17,126) (15,058) (17,214) (17,217) (16,625) (17,109)

Items affecting comparability (1,114) (873) (1,032) - - -

Reported EBIT 5,430 3,017 4,000 4,976 6,574 7,413

Reported EBIT margin, % 5.1% 3.0% 3.6% 4.5% 5.7% 6.1%

Exceptionals / one-offs (1,114) (873) (1,032) - - -

Operating profit 6,544 3,890 5,032 4,976 6,574 7,413

Operating profit margin, % 6.2% 3.8% 4.6% 4.5% 5.7% 6.1%

Depreciation & Amortisation 3,328 3,173 3,251 3,552 3,847 4,043

EBITDA 9,872 7,063 8,283 8,528 10,422 11,456

EBITDA margin, % 9.3% 7.0% 7.5% 7.7% 9.0% 9.4%

Net interest income / (expense) (124) (237) (846) (555) (526) (496)

Profit Before Tax 5,306 2,780 3,154 4,421 6,048 6,917

Underlying PBT 6,420 3,653 4,186 4,421 6,048 6,917

Tax (1,309) (716) (789) (1,127) (1,572) (1,798)

Effective rate, % 24.7% 25.8% 25.0% 25.5% 26.0% 26.0%

Reported profit after tax 3,997 2,064 2,365 3,294 4,476 5,118

Operating Net Income 5,111 2,937 3,394 3,294 4,476 5,118

Net income margin, % 4.8% 2.9% 3.1% 3.0% 3.9% 4.2%

CS operating EPS 17.9 10.3 11.8 11.5 15.6 17.9

EPS growth, % 16.4% -42.6% 15.4% -3.0% 35.9% 14.4%

DPS, SEK 6.5 6.5 6.5 6.8 7.0 7.3

DPS growth, % 62.5% 0.0% 0.0% 3.8% 3.7% 3.6%

Dividend Cover (X) 2.7 1.6 1.8 1.7 2.2 2.5

Ordinary shares in issue 286 286 287 287 287 287

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 5,210 3,128 3,849 3,707 4,865 5,486

Invested capital 28,749 35,760 32,058 34,415 35,580 36,598

ROIC 18.1% 8.7% 12.0% 10.8% 13.7% 15.0%

ROIC (average) 18.3% 9.7% 11.4% 11.2% 13.9% 15.2%

Operating Net Income 5,111 2,937 3,394 3,294 4,476 5,118

Equity 20,613 20,644 15,726 16,957 19,498 22,610

ROE 24.8% 14.2% 21.6% 19.4% 23.0% 22.6%

ROE (average) 25.9% 14.2% 18.7% 20.2% 24.6% 24.3%

EBITDA 9,872 7,063 8,283 8,528 10,422 11,456

Total debt 11,552 13,809 12,800 12,800 12,800 12,800

Net debt (559) 6,506 5,842 6,520 5,143 3,049

Total debt / EBITDA 1.2 2.0 1.5 1.5 1.2 1.1

Net debt / EBITDA (0.1) 0.9 0.7 0.8 0.5 0.3

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 20,201 26,767 27,313 28,916 29,723 30,335

Other f ixed assets 3,575 3,515 4,505 4,505 4,505 4,505

Fixed assets 26,612 33,318 32,585 34,188 34,995 35,607

Inventories (Net of advances from customers) 11,130 11,957 12,963 12,981 13,574 14,353

Trade and other receivables 22,915 22,888 21,895 22,339 23,360 24,701

Other Current Assets 367 666 609 609 609 609

Trade and other payables 28,190 28,987 32,561 32,000 33,145 34,715

Other Current Liabilities 4,085 4,082 3,433 3,702 3,812 3,957

Working capital 2,137 2,442 (527) 228 585 991

Working capital days 7 9 nm 1 2 3

WC as % of sales 2.0% 2.4% nm 0.2% 0.5% 0.8%

Liquid funds 12,111 7,303 6,958 6,280 7,657 9,751

Short-term debt 3,139 4,170 2,795 3,200 3,200 3,200

Long-term debt 8,413 9,639 10,005 9,600 9,600 9,600

Net debt / (cash) (559) 6,506 5,842 6,520 5,143 3,049

Long term provisions 5,306 5,300 4,551 5,000 5,000 5,000

Pension deficit 2,486 2,111 4,765 4,765 4,765 4,765

Other liabilities 1,289 1,451 1,358 1,358 1,358 1,358

Net assets 20,613 20,644 15,726 16,957 19,498 22,610

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Operating Income 5,430 3,017 4,000 4,976 6,574 7,413

Depreciation 3,328 3,173 3,251 3,552 3,847 4,043

Capital gains/losses 4 (207) - (155) (155) (155)

Provision for restructuring and pension litigation 294 110 457 449 - -

Interest paid and received (72) (214) (673) (555) (526) (496)

Taxes paid (1,316) (1,625) (1,564) (1,327) (1,572) (1,798)

Others 73 29 81 - - -

Gross Cash Flow 7,741 4,283 5,552 6,940 8,168 9,007

Change in inventories (1,755) 269 (1,710) - - -

Change in accounts receivable (216) 244 (119) - - -

Change in other current assets (977) 200 271 - - -

Change in current liabilities and provisions 2,887 403 3,086 - - -

Working capital change (61) 1,116 1,528 (755) (357) (406)

Operating Cash flow 7,680 5,399 7,080 6,185 7,811 8,600

Operating cash / Operating profit 1.2 1.4 1.4 1.2 1.2 1.2

Net Capex (3,221) (4,281) (5,141) (5,000) (4,500) (4,500)

as % of Sales 3.0% 4.2% 4.7% 4.5% 3.9% 3.7%

Free Cash flow 4,459 1,118 1,939 1,185 3,311 4,100

FCF / Net income 0.9 0.4 0.6 0.4 0.7 0.8

Acquisition of operations - (6,377) (164) - - -

Divestment of operations 7 821 - - - -

Changes in borrow ings (2,427) 1,723 (819) - - -

Shares Repurchase/sales 18 - 212 - - -

Dividend payment (1,138) (1,850) (1,868) (1,863) (1,935) (2,006)

Change in other liquid funds 1,306 1,444 206 - - -

Other (1,260) (212) 603 - - -

Total Cash flow 965 (3,333) 109 (678) 1,376 2,094

Source: Company data, Credit Suisse estimates

89

Electrolux – Company Summary

Operating Profit split Sales Mix End Market Mix

Management

Chairman Marcus Wallenberg

CEO Keith McLoughlin

CFO Tomas Eliasson

IR Peter Nyquist

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

EMEA

FY 2012 Sales SEK 34.28 Bn

-2.1% % YoY organic growth

FY 2012 EBIT SEK 1.1 Bn

3.3% Margin

Electrolux market share: 17% Core appliances.

Kitchen specialists currently account for

approximately 25% of the total value of the

market for appliances in Western Europe, in

Germany and Italy the corresponding share is

approximately 40%.

Small, local and independent retailers; Growing

share of sales through kitchen specialist

Bosch-Siemens, Indesit, Whirlpool, Samsung,

LG Electronics

Germany 14%, Switzerland 11%, France 9%, Italy

9%, UK 7%, Others 50%

Replacement; New housing and renovations;

Design; Improved purchasing power in Eastern

Europe, Middle East and Africa

North America

FY 2012 Sales SEK 30.68 Bn

6.9% YoY organic growth

FY 2012 EBIT SEK 1.45 Bn

5.1% Margin

Electrolux market share: 22% Major appliances.

63% Mass market; 22% Premium segment; 8%

Low-price segment and 7% Super-premium

segment

Four largest retailers (Lowe’s, Sears, Home

Depot, Best Buy & Wal- Mart) account for 70%

of the market; Marketing focused on construction

companies

General Electric, Whirlpool, LG, TTI Group Not ApplicableReplacement; New housing and renovations;

Design; Energy- and water-efficient products

Latin America

FY 2012 Sales SEK 22.04 Bn

16.6% YoY organic growth

FY 2012 EBIT SEK 1.59 Bn

7.2% Margin

It is the second largest producer of core

appliances and is market leaders in vacuum

cleaners in Brazil. Growth is primarily in the low-

price segment.

High level of consolidation among retailers,

especially in Brazil

Whirlpool, Mabe, LG Electronics, Samsung,

Daewoo

Chile 27%, Argentina 26%, Mexico 10%,

Venezeula 9% and Others 28%

Improved household purchasing power; Growing

middle class

Asia Pacific

FY 2012 Sales SEK 8.40 Bn

3.0% YoY organic growth

FY 2012 EBIT SEK 0.75 Bn

8.9% Margin

In Australia, Electrolux is the

market leader with a market share 41% in core

appliances and 22% in floor care products. Asia

Pacific market is generally highly fragmented.

Asia: majority of sales through small, local

stores; Australia: five largest retail chains

account for c90% of the market

Fischer&Paykel, Samsung, LG Electronics,

Panasonic, Haier Group, Sanyo, MideaChina 68%, India 12% and South East Asia 20%

Asia: Improved household purchasing power;

Growing middle class; Australia: Replacement,

New housing and renovations, Design

Small Appliances

FY 2012 Sales SEK 9.01 Bn

8.4% YoY organic growth

FY 2012 EBIT SEK 0.47 Bn

5.2% Margin

Floor-care products and small domestic

appliances.

Majority of sales at department stores,

superstores or through retail chains

Dyson, Miele, Bosch-Siemens, Samsung, LG,

SEB Group, Whirlpool, Black &

Decker, Philips, TTI Group, Bissel

South East Asia & China 17%, Americas 18%,

EMEA 17%, Australia 11% and Others 37%

Growth markets:Rising income levels, Increased

demand on hygiene; Mature markets:

Replacement, Design, Innovations

Professional Products

FY 2012 Sales SEK 5.57 Bn

-3.9% YoY organic growth

FY 2012 EBIT SEK 0.60 Bn

10.7% Margin

Food Service and laundry Solutions

Laundry- Great proportion of direct sales

although trend is towards a growing share of

sales through dealers

Rational, Manitowoc, Middleby, Ali group,

Alliance, Primus, Girbau, Miele, Image, Sailstar,

ITW

65% in Western Europe, 35% others

Energy- and water-efficient products, US

restraurant chain expanding, Replacement,

Growing populaiton

ELECTROLUX (ELUXb.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic Mix Shareholding Structure

Free Float: 86%

Top 5 shareholders

Investor AB 15.5%, Alecta Pension Insurance

5.5%,Swedbank Robur Funds 4.6% Norges

Bank Investment Management 2.3%, SEB

Funds 1.8%

Ownership by country

Sweden 59%, USA 18%, UK 8% and others

EMEA20%

North America27%

Latin America30%

Asia Pacific14%

Small Appliances9%

EMEA31%

North America

28%

Latin America

20%

Asia Pacific

8%

Small Appliances

8%

Professional Products

5%

North America

31%

Latin America

21%

EMEA38%

Asia/Australia

10%

Kitchen60%

Laundry17%

Small Appliances

8%

Professional Food Equipment

3%

Others10%

Professional Laundry Equipment

2%

Source: Company data

90

Fenner – Outperform, TP 490p

Bull Case

While pressures in the mining cycle are not over we forecast 8% EPS

CAGR through 2016. CS forecasts are 4% ahead of consensus for 2014.

Conveyor belt demand remains commodity volume driven not price. We

expect further improvement in demand in key geographies including NAM

and Aus.

Within mining, service/consumables will remain as the favourable exposure.

We see potential for consolidation in the space with Fenner an attractive

M&A candidate.

Undemanding valuation – continues to trade at a discount to its weighted

peer group. Our peer group SOTP is 494p.

Bear Case

Conveyor belt pricing takes another step down in key geographies including

Australia.

Improving sentiment amongst mining customers is short lived and

resumption of deferred expenditures is only temporary.

UK£ continues to strengthen against key currencies including US$ and

Aus$.

Improvement in momentum at AEP reverses.

Investment summary: Key mining end market pick for 2014 with c85% of mining revenue opex derived. AEP still

an undervalued division. Trading at a discount to peer group. Remains a potential sector M&A candidate.

0

100

200

300

400

500

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

8%

10%

12%

14%

16%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

4%

6%

8%

10%

12%

14%

16%

18%

FENR ROIC (LHS) Sector ROIC (LHS)

FENR Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

91

Fenner – Valuation Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

67%

- 20%

1%

- 39%

2%

14%8%

20%

40%

60%

80%

100%

120%

Cle

an n

et in

com

e

Rep

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d ne

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ome

Wor

king

cap

ital

Del

ta b

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apex

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tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (

Def

erre

d ta

x, P

ensi

on,

Min

ority

etc

)

Fre

e C

ash

Flo

w

2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

Share price - year high 252.0 283.8 240.8 234.6 422.5 370.6 435.2 460.0 460.0 460.0

Share price - year low 191.0 215.0 33.8 115.8 206.8 280.0 305.9 460.0 460.0 460.0

Share price - year average 220.4 244.5 93.6 190.5 334.2 340.7 372.5 460.0 460.0 460.0

Enterprise value - high 445.5 565.4 629.0 567.0 914.3 875.1 1003.7 1013.1 1075.9 1041.1

Enterprise value - low 349.9 456.8 267.4 359.5 524.8 700.8 753.9 1013.1 1075.9 1041.1

Enterprise value - average 396.0 503.4 371.9 490.1 754.9 817.5 882.6 1013.1 1075.9 1041.1

EBITA 39.0 49.3 41.3 57.0 91.4 118.8 101.5 110.0 116.0 122.5

EV/EBITA - High 11.4 11.5 15.2 9.9 10.0 7.4 9.9 9.2 9.3 8.5

EV/EBITA - Low 9.0 9.3 6.5 6.3 5.7 5.9 7.4 9.2 9.3 8.5

EV/EBITA - Average 10.2 10.2 9.0 8.6 8.3 6.9 8.7 9.2 9.3 8.5

EBITDA 47.6 59.0 55.9 74.7 109.8 139.0 124.6 134.0 141.0 147.5

EV/EBITDA - high 9.4 9.6 11.3 7.6 8.3 6.3 8.1 7.6 7.6 7.1

EV/EBITDA - low 7.4 7.7 4.8 4.8 4.8 5.0 6.1 7.6 7.6 7.1

EV/EBITDA - average 8.3 8.5 6.7 6.6 6.9 5.9 7.1 7.6 7.6 7.1

Sales 380.8 437.8 499.4 552.5 718.3 830.6 820.6 840.0 874.5 908.0

EV/Sales - high 1.17 1.29 1.26 1.03 1.27 1.05 1.22 1.21 1.23 1.15

EV/Sales - low 0.92 1.04 0.54 0.65 0.73 0.84 0.92 1.21 1.23 1.15

EV/Sales - average 1.04 1.15 0.74 0.89 1.05 0.98 1.08 1.21 1.23 1.15

CS EPS Adjusted (p) 15.8 17.4 12.8 17.8 27.9 35.9 30.1 33.2 35.6 37.7

PER - high 16.0 16.3 18.9 13.2 15.1 10.3 14.5 13.8 12.9 12.2

PER - low 12.1 12.3 2.6 6.5 7.4 7.8 10.2 13.8 12.9 12.2

PER - average 14.0 14.0 7.3 10.7 12.0 9.5 12.4 13.8 12.9 12.2

NAV 90.4 123.8 111.9 142.2 156.8 170.3 186.9 198.1 209.8 227.3

PBV - high 2.8 2.3 2.2 1.6 2.7 2.2 2.3 2.3 2.2 2.0

PBV - low 2.1 1.7 0.3 0.8 1.3 1.6 1.6 2.3 2.2 2.0

PBV - average 2.4 2.0 0.8 1.3 2.1 2.0 2.0 2.3 2.2 2.0

Dividend Yield 6.2 6.6 6.6 7.2 8.0 10.5 11.3 12.4 13.6 15.0

Dividend Yield - high 2% 2% 3% 3% 2% 3% 3% 3% 3% 3%

Dividend Yield - low 3% 3% 20% 6% 4% 4% 4% 3% 3% 3%

Dividend Yield - average 3% 3% 7% 4% 2% 3% 3% 3% 3% 3%

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

92

Fenner – Financials PROFIT & LOSS 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 379.0 380.8 437.8 499.4 552.5 718.3 830.6 820.6 840.0 874.5 908.0

Change yoy, % 24.8% 0.5% 15.0% 14.1% 10.6% 30.0% 15.6% -1.2% 2.4% 4.1% 3.8%

EBITDA 42.1 47.6 59.0 55.9 74.7 109.8 139.0 124.6 134.0 141.0 147.5

Margin, % 11.1% 12.5% 13.5% 11.2% 13.5% 15.3% 16.7% 15.2% 16.0% 16.1% 16.2%

EBITA 34.1 39.0 49.3 41.3 57.0 91.4 118.8 101.5 110.0 116.0 122.5

Margin, % 9.0% 10.2% 11.3% 8.3% 10.3% 12.7% 14.3% 12.4% 13.1% 13.3% 13.5%

CS PBT 29.7 34.4 41.8 31.1 46.3 80.2 103.9 86.9 95.0 102.0 108.5

Income Tax (8.9) (10.3) (12.5) (8.7) (13.8) (23.9) (30.4) (25.0) (25.6) (28.0) (30.4)

Exceptional - Tax 0.2 0.6 2.1 7.7 3.1 3.7 4.2 6.3 2.9 2.9 2.9

CS EPS (Diluted) 13.2 15.8 17.4 12.8 17.8 27.9 35.9 30.1 33.2 35.6 37.7

Reported EPS (Diluted) 12.8 14.9 15.4 2.6 14.5 24.3 30.2 23.5 24.9 26.8 28.9

DPS, p 6.0 6.2 6.6 6.6 7.2 8.0 10.5 11.3 12.4 13.6 15.0

DPS growth yoy, % 3% 6% 0% 9% 11% 31% 7% 10% 10% 10%

CASH FLOW 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

EBITDA 42.1 47.6 59 55.9 74.7 109.8 139 124.6 134 141 147.5

Working Capital Change (2.4) 10.8 (8.2) 16.5 12.6 (11.2) (8.3) 6.4 19.4 (92.2) (5.8)

Operating Cash Flow 38.2 53.3 45.7 53.5 82.5 94.6 127.1 126.6 153.4 48.8 141.7

Net Financing Cost (4.4) (4.3) (6.3) (10.7) (10.7) (11.2) (12.3) (14.9) (16.0) (15.0) (15.0)

Tax Paid (7.5) (10.2) (6.3) (6.4) (5.0) (14.8) (23.5) (24.5) (22.7) (25.1) (27.5)

Net Operating Cash Flow 26.3 38.8 33.1 36.4 66.8 68.6 91.3 87.2 114.7 8.7 99.3

Net Capex (18.5) (31.3) (62.9) (32.9) (10.0) (14.0) (26.0) (25.2) (39.9) (34.9) (34.9)

Free Cash Flow 7.8 7.5 (29.8) 3.5 56.8 54.6 65.3 62.0 74.8 (26.2) 64.4

Acquisitions (0.5) (8.8) (45.9) (37.6) (16.9) (29.9) (34.3) (58.9) (8.2) (8.2) (8.2)

Disposals 0.0 5.2 4.8 0.1 0.1 0.1 0.0 4.5 0.0 0.0 0.0

Pre Financing Cash Flow 6.8 3.4 (71.1) (35.0) 39.8 24.0 28.7 5.8 66.7 (34.4) 56.2

Dividend Paid (8.2) (9.5) (9.9) (11.5) (11.5) (13.8) (15.4) (20.3) (22.4) (24.7) (17.7)

Net Cash / (Debt) Year End (33.1) (36.3) (97.6) (165.4) (110.4) (101.8) (97.7) (121.1) (80.5) (143.3) (108.5)

BALANCE SHEET 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

PPE 69 90 159 198 203 208 215 220 236 246 256

Goodwill 57 56 75 90 95 115 122 122 122 122 122

Inangible Assets 9 10 42 74 75 87 100 141 126 110 94

Working capital 72 66 92 92 97 122 134 79 59 151 157

Total assets 184 193 323 403 413 435 475 510 491 576 576

Shareholders' funds 121 142 205 194 255 284 313 347 369 391 425

Minorities 1 1 1 1 2 18 16 15 15 15 15

Total Borrowings 75 102 141 200 155 206 206 220 180 243 208

Cash and equivalents (41) (66) (44) (35) (45) (104) (109) (99) (99) (99) (99)

Net Debt / (Cash) 33 36 98 165 110 102 98 121 81 143 108

Pension Deficit 29 14 19 42 46 32 48 27 27 27 27

Total liabilities 184 193 323 403 413 435 475 510 491 576 576

Source: Company data, Credit Suisse estimates

93

Fenner – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Engineered Conveyor Solutions

FY2012 Sales - £593m,

10.3% org. growth

FY2012 EBITA - £84m,

14.2% margin

The suite of products and services which

serve the conveying needs of mining, power

generation and bulk handling markets. The

suite of products and services includes

heavyweight ply, solid woven and steel cord

conveyor belting and the design, installation,

monitoring and maintenance of conveyor

systems and components. Commercial

arrangements vary from a purely

transactional relationship to a full strategic

partnership to reduce both conveyor

downtime and total cost of ownership.

Product split 42% Thermal Coal, 12% Met

Coal, 28% Iron Ore, 18% Bulk Materials

Replacement 64%, Service 21%, OEM 15%

Continental (17%), Veyance (formerly

Goodyear, Private Equity owned (16%),

Semperit (6%), Bridgestone (5%), Svedala

(4%), Bando (4%)

Europe - £96m (16%)

Americas - £250m (42%)

Asia Pacific - £224m (38%)

Africa - £24mn (4%)

Volume of coal, iron ore,

copper and aggregate

mined. Increasing

outsourcing by majors of

mining service needs

Advanced Engineered Products

FY2012 Sales - £237m,

8.6% org. growth

FY2012 EBITA - £44m,

18.4% margin

Performance critical hydraulic seals for the

global fluid power industry, bespoke sealing,

products for process applications including

oil and gas, electronics, pumps, valves,

compressors and aerospace applications,

custom-engineered biomedcal textile

structures for implantable medical devices,

single use disposable devices (usually

silicone based), a wide range of

sophisticated industrial fabrics, critical

polymer components to the office

automation industry; extensive range of

bespoke solutions for mechanical power

transmission and motion transfer

applications, silicone and EPDM speciality

hoses for the diesel engine, truck, bus and

off-road equipment OEM market.

Oil & Gas 28%, Mining (seals) 3%, General

Industrial 20%, Fluid Power 5%,

Transportation 7%, Agriculture 5%,

Construction 13%, Automation 7%, Medical

12%

Varies according to product but includes

Parker Hannifin, John Crane and Trelleborg

(seals), Continental (hose). Medical remains

very specialised

Europe - £56m (23.6%)

Americas - £161m (67.8%)

Asia Pacific - £20m (8.6%)

Levels of global IP remains a

key driver for this division as

well as specific end markets

including truck and off road

vehicles.

FENNER (FENR.L / FENR LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

ECS

67%

AEP

33%

ECS

57%

AEP

43%

Europe, 18%

Americas, 50%

Asia Pacific, 29%

Africa, 3%Coal mining &

handling36%

Bulk Materials

19%

Other Mining

16%

General Industrial

7%

Oil&Gas

6%

Construction

4%

Medical

4%

Others

8%

Shareholding structure

Free float: 95%

Top 5 shareholders: Standard Life

Investments - 11%, Scottish Widows -

8%, Lloyds Banking Group Plc - 5%,

Legal & General - 5%, BNP Paribas - 5%

Ownership by Country: UK - 71%,

USA - 12%, Norway - 3%, France - 3%,

Luxembourg - 3%

Management

Chairman -Mark Abrahams

CEO - Nicholas Hobson

CFO - Richard Perry

CS - Debra Bradbury

Source: Company data

94

Geberit – Neutral, TP CHF 240

0

50

100

150

200

250

300

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-10%

-5%

0%

5%

10%

15%

20%

15%

17%

19%

21%

23%

25%

Margins % (LHS) Organic Growth (RHS)

Investment summary: High quality growth attractions with best in class returns and cash conversion profile but

fully reflected in the stock valuation.

Bull Case Best in class Returns and Cash conversion profile across the sector;

Scope for organic growth acceleration driven by ongoing conversion of the

sanitary product market to concealed cisterns and with European

construction end-markets eventually troughing;

Potential for some margin improvement in a better growth scenario;

Scope for excess cash return to shareholders over the next 12 months;

Untapped Asia and possibly US markets potential;

Pricing power with annual price increases and ad hoc ones for raw

materials prices spikes.

Bear Case Construction markets in southern Europe and France may prove softer than

market anticipates for 2014 (company management is particularly downbeat

on any scope for a recovery);

Limited scope for cash redeployment within the company given firm

commitment to single-brand strategy and to ‘behind the wall’ only systems;

Exposure to CHF vs EUR volatility has historically impacted profitability

because of cross-country competition within Geberit;

Expensive valuation with stock trading on 16.7x 2014EV/EBITA. 0%

20%

40%

60%

80%

100%

120%

6%

11%

16%

21%

26%

31%

36%

GEBN ROIC (LHS) Sector ROIC (LHS)

GEBN Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

95

Geberit – Valuation

4.5% 5.0% 5.5% 6.0% 6.5%

20.0% 16.6% 214 218 222 227 231

20.5% 17.0% 219 223 227 231 236

21.0% 17.4% 223 227 231 236 241

21.5% 17.8% 227 232 236 241 245

22.0% 18.3% 231 236 240 245 250

22.5% 18.7% 236 240 245 250 255

23.0% 19.1% 240 245 250 254 260

23.5% 19.5% 244 249 254 259 264

24.0% 19.9% 248 253 259 264 269

24.5% 20.3% 253 258 263 268 274

EBIT

Margin

NOPAT

margin

Grow th (years 4 to 10) 5.5%

EBIT margin (years 4+) 22.0%

NOPAT margin 18.3%

Invested capital 1,228

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 18.4%

WACC 9.0%

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 187.2 142.3 138.9 184.4 188.5 193.3 259.1 259.1 259.1

High 221.4 178.4 184.0 219.9 219.1 209.8

Low 144.1 98.7 92.8 160.4 150.0 176.4

P/E average 18.7 12.1 13.7 17.9 19.2 18.8 22.4 20.6 19.1

P/E high 22.1 15.1 18.2 21.3 22.3 20.4

P/E low 14.4 8.4 9.2 15.6 15.3 17.2

EV/Sales average 3.11 2.29 2.45 3.25 3.42 3.31 4.14 3.85 3.55

EV/Sales high 3.67 2.87 3.27 3.90 3.98 3.59

EV/Sales low 2.39 1.59 1.62 2.80 2.71 3.01

Operating profit margin 22.3% 22.9% 24.1% 22.6% 21.2% 21.1% 22.2% 22.9% 23.1%

EV/EBITDA average 12.1 8.7 8.8 12.1 13.6 13.3 16.1 14.7 13.5

EV/EBITDA high 14.3 10.9 11.7 14.6 15.9 14.5

EV/EBITDA low 9.3 6.0 5.8 10.5 10.8 12.1

EV/EBIT average 13.9 10.0 10.2 14.3 16.1 15.6 18.6 16.8 15.4

EV/EBIT high 16.5 12.5 13.5 17.2 18.8 17.0

EV/EBIT low 10.7 6.9 6.7 12.4 12.8 14.3

FCF yield average 4.6% 7.1% 6.4% 6.8% 5.5% 5.5% 4.2% 4.5% 5.0%

FCF yield high 6.0% 10.2% 9.6% 7.8% 6.9% 6.1%

FCF yield low 3.9% 5.6% 4.8% 5.7% 4.7% 5.1%

Dividend yield average 2.8% 3.8% 4.6% 3.3% 3.3% 3.4% 2.9% 3.1% 3.4%

Dividend yield high 2.3% 3.0% 3.5% 2.7% 2.9% 3.1%

Dividend yield low 3.6% 5.5% 6.9% 3.7% 4.2% 3.7%

EV/IC average 5.33 4.05 3.75 5.67 6.06 5.90 7.60 7.30 7.04

EV/IC high 6.31 5.08 5.00 6.82 7.06 6.41

EV/IC low 4.10 2.81 2.48 4.90 4.80 5.37

P/BV average 5.5 4.3 3.6 4.8 5.2 5.2 6.1 5.6 5.0

P/BV high 6.5 5.4 4.8 5.7 6.0 5.6

P/BV low 4.2 3.0 2.4 4.2 4.1 4.7

ROIC 29.2% 33.2% 28.6% 34.1% 32.6% 32.5% 35.0% 37.0% 38.9%

ROCE 34.5% 39.8% 33.6% 41.6% 37.5% 36.7% 39.6% 41.7% 43.8%

DCF

Source: Company data, Credit Suisse estimates

96

Geberit – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 2,147 2,123 2,188 2,290 2,428 2,587

Growth, % -1.6% -1.1% 3.1% 4.7% 6.1% 6.6%

Sales Deductions (247) (255) (268) (291) (304) (323)

Cost of Materials (573) (588) (591) (598) (631) (686)

Personnel Expenses (447) (436) (464) (480) (502) (525)

Deprciation and Amortisation (88) (83) (80) (81) (81) (82)

Other operating income/(Expenses) (306) (312) (323) (332) (354) (373)

Group Reported EBIT 486 449 462 508 556 597

Exceptionals / one-offs - - - - - -

Operating profit 486 449 462 508 556 597

Operating profit margin, % 22.6% 21.2% 21.1% 22.2% 22.9% 23.1%

Underlying EBITDA 574 532 542 589 637 680

EBITDA margin, % 26.7% 25.1% 24.8% 25.7% 26.2% 26.3%

Net interest income / (expense) (14) (7) (7) (2) 1 3

Rate, %

Profit Before Tax 472 442 455 507 557 601

Underlying PBT 472 442 455 507 557 601

Tax (65) (58) (63) (71) (84) (90)

Effective rate, %

Reported profit after tax 407 384 392 436 474 511

Minority interest - - - - - -

Capital Gain on Discontinued operations - - - - - -

Reported Net Income 407 384 392 436 474 511

Operating Net Income 407 384 392 436 474 511

Net income margin, % 18.9% 18.1% 17.9% 19.0% 19.5% 19.7%

CS operating EPS, CHF 10.3 9.8 10.3 11.6 12.6 13.6

EPS growth, % 1.9% -4.7% 4.7% 12.6% 8.7% 7.8%

DPS, CHF 6.0 6.3 6.6 7.4 8.1 8.7

Dividend growth, % -6.3% 5.0% 4.8% 12.6% 8.7% 7.8%

Dividend Cover (x) 1.72 1.56 1.56 1.56 1.56 1.56

Diluted number of shares 39 39 38 38 38 38

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 419 390 399 437 472 508

NOPAT Margin, % 20% 18% 18% 19% 19% 20%

Invested capital 1,228 1,197 1,227 1,248 1,279 1,304

ROIC 34% 33% 32% 35% 37% 39%

ROIC (average) 32% 32% 33% 35% 37% 39%

Operating Net Income 407 384 392 436 474 511

Equity 1,521 1,420 1,431 1,587 1,757 1,940

ROE 27% 27% 27% 27% 27% 26%

EBITDA 573.7 532.0 542.4 589.5 636.9 679.6

Total debt 73 76 15 15 15 15

Net debt (513) (379) (347) (483) (623) (782)

Total debt / EBITDA 0.1 0.1 0.0 0.0 0.0 0.0

Net debt / EBITDA (0.9) (0.7) (0.6) (0.8) (1.0) (1.2)

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 1,173 1,161 1,159 1,178 1,197 1,215

Deferred tax receivables 79 79 67 67 67 67

Other long term financial assets 15 21 22 21 19 18

Fixed assets 1,267 1,262 1,248 1,266 1,283 1,300

Inventories 149 162 164 176 193 213

Trade and other receivables 169 157 173 185 199 209

Trade and other payables 206 221 199 220 233 248

Other current liabilities 57 62 70 71 78 84

Working capital 55 35 68 70 81 89

Working capital days 9 6 11 11 12 13

WC as % of sales 2.6% 1.7% 3.1% 3.1% 3.4% 3.5%

Cash 587 455 361 497 638 796

Short-term debt 3 65 4 4 4 4

Long-term debt 70 11 11 11 11 11

Net (debt) / cash 513 379 347 483 623 782

Other liabilities 314 344 293 293 293 293

Net assets 1,521 1,333 1,370 1,526 1,695 1,878

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Net Income 407 384 392 436 474 511

Depreciation, Amortisation & Imapirment 88 83 80 81 81 82

Finance Cost 14 7 7 2 (1) (3)

Income Tax Expense 65 58 63 71 84 90

EBITDA 600 549 569 589 637 680

Tax Paid (82) (48) (59) (71) (84) (90)

Interest Paid - - - (2) 1 3

Other (non-cash gains/losses) - - - - - -

Gross cash flow 518 501 510 517 555 593

Working capital change 52 (8) (16) (2) (12) (8)

Operating cash flows 570 493 494 515 543 585

Operating cash / Operating profit 117% 110% 107% 101% 98% 98%

Net capex (78) (89) (85) (100) (100) (100)

% of Sales 4.1% 4.8% 4.4% 5.0% 4.7% 4.4%

Free cash flow 492 404 409 415 443 485

FCF / Net Income 121% 105% 104% 95% 94% 95%

Acquisitions (of associates, subsidiaries) (1) (88) - - - -

Disposals (of associates, subsidiaries) - - - - - -

Loans raised / paid back (8) (4) (81) - - -

Shares issue / purchase 10 (196) (198) - - -

Dividends (253) (236) (242) (280) (304) (328)

Other Net (12) (9) 19 1 1 1

Net cash flow 229 (129) (92) 136 140 158

Source: Company data, Credit Suisse estimates

97

Geberit – Company Summary

Cost Mix Split Sales Mix Sales by product area

Management

Chairman&CEO Albert M. Baehny

CFO Roland Iff

IR Roman Sidler

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Sanitary Systems

FY 2012 Sales CHF 1.24 Bn

4.3% YoY ex-FX growth

Installation Systems, Cisterns &

Mechanisms, Faucets & Flushing Systems

and Waste Fittings and Traps.

Growth in construction business; Demand in

the European residential renovation business;

Investment in R&D

Piping Systems

FY 2012 Sales CHF 0.95 Bn

4.8% YoY ex-FX growth

Building Drainage Systems and Supply

Systems

Growth in construction business; Demand in

the European residential renovation business;

Investment in R&D

Germany 35%, Switzerland 13%, italy 8%,

Benelux 8%, Austria 7%, Central/eastern

Europe 7%, Nordic Countries 5%, France 4%,

Americas 4% and Others 9%

Air Water Inc, Cleanup Corp, Coop Costruttori

Scarl, Eagle Industries, Grohe, Kohler Co,

Sanitec Corp, Uponor, Viega, Wavin, Ideal

Standarad, Elkay Manufacturing

Renovation 66% & New Construction 34%.

Geberit’s products are exclusively distributed

through wholesalers, which subsequently sell

to plumbers. The shower toilet segment is the

only part of the

group that operates a business– to customer

model.

GEBERIT (GEBN.VX) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.comGeographic Mix Shareholding Structure

Free Float:91%

Top 5 shareholders

Capital Group Companies 9.72%, Barclays

PLC 5.4%, BlackRock 4.72%, Capital Group

4.43%, Geberit AG 3.18%

Ownership by country

United States 53%, UK 16%, Switzerland

15%, Luxembourg 5%, Germany 1% and

Others

Cash Discounts

15%

Materials34%

Personnel Expenses

27%

Depreciation & Amortisation

5%

Other Operating Expenses

19%

SanitarySystems

80%

Piping Systems

20%

Germany35%

Sw itzerland13%

Italy8%Benelux

8%

Austria7%

Central /Eastern Europe

7%

NordicCountries

5%

France4%

Americas4%

Others9%

Installation Systems

36%

Cisterns & Mechanisms

11%

Faucets & Flushing Systems

6%

Waste Fittings and Traps

4%

Building Drainage Systems

14% Supply Systems

29%

Source: Company data

98

GKN – Outperform, TP 430p

Bull Case Attractive valuation against both the UK Cap Goods sector (PE and

EV/EBITA) but also against its peer group weighted SOTP (implies c415p+).

Group margin improvement underpinned by increasing RoS at Driveline and

Aerospace.

Continued potential for self-help - incl. Volvo Aero synergy benefits and

asset turns at Driveline.

With major restructuring now sunk cash generation should improve going

forward with a similar trend playing out for Group ROIC.

Bear Case

Further delays in improvement in the aerospace aftermarket cycle for GKN

imply current aerospace consensus estimates could be too high for 2014.

Slower than expected margin improvement at Driveline while lack of higher

margin aftermarket impacts Aerospace.

UK£ continues to strengthen against key currencies including US$.

Acquisition risk - both overpaying for Spirits Wing business + with its poor

cash generation track record Spirit further extends GKN historic profile of

weak cash conversion.

Investment summary: Remains undervalued relative to its peer group weighted SOTP. Growing exposure to

Aerospace should drive re-rating further. Should deliver better cash conversion and ROIC this cycle vs. last.

0

50

100

150

200

250

300

350

400

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-25%-20%-15%-10%-5%0%5%10%15%20%25%

0%

2%

4%

6%

8%

10%

12%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2%

4%

6%

8%

10%

12%

14%

16%

18%

GKN ROIC (LHS) Sector ROIC (LHS)

GKN Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

99

GKN – Valuation Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

19%

- 39%- 8%

- 15%

4%6%

- 29%0%

20%

40%

60%

80%

100%

120%

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Cap

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Am

ort.

PP

A

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erre

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Fre

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2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 216.5 127.5 226.0 245.0 237.2 364.4 364.4 364.4

Share price - year low 45.1 38.3 102.0 157.0 173.6 364.4 364.4 364.4

Share price - year average 149.5 88.2 147.0 201.7 208.7 364.4 364.4 364.4

Enterprise value - high 3100.3 2932.4 3982.0 5579.9 5884.0 8222.9 7974.7 7699.8

Enterprise value - low 1885.3 1798.1 2405.1 4213.6 4896.2 8222.9 7974.7 7699.8

Enterprise value - average 2625.7 2432.1 2976.8 4907.1 5441.2 8222.9 7974.7 7699.8

EBITA 201.0 152.0 411.0 495.0 577.0 652.5 731.0 800.0

EV/EBITA - High 15.4 19.3 9.7 11.3 10.2 12.6 10.9 9.6

EV/EBITA - Low 9.4 11.8 5.9 8.5 8.5 12.6 10.9 9.6

EV/EBITA - Average 13.1 16.0 7.2 9.9 9.4 12.6 10.9 9.6

EBITDA 367.0 347.0 602.0 686.0 791.0 882.5 971.0 1040.0

EV/EBITDA - high 8.4 8.5 6.6 8.1 7.4 9.3 8.2 7.4

EV/EBITDA - low 5.1 5.2 4.0 6.1 6.2 9.3 8.2 7.4

EV/EBITDA - average 7.2 7.0 4.9 7.2 6.9 9.3 8.2 7.4

Sales 4617.0 4468.0 5429.0 6112.0 6904.0 7695.0 7888.2 8241.4

EV/Sales - high 0.67 0.66 0.73 0.91 0.85 1.07 1.01 0.93

EV/Sales - low 0.41 0.40 0.44 0.69 0.71 1.07 1.01 0.93

EV/Sales - average 0.57 0.54 0.55 0.80 0.79 1.07 1.01 0.93

CS EPS Adjusted (p) 23.8 5.5 20.7 24.1 27.3 27.4 31.4 34.5

PER - high 9.1 23.2 10.9 10.2 8.7 13.3 11.6 10.6

PER - low 1.9 7.0 4.9 6.5 6.4 13.3 11.6 10.6

PER - average 6.3 16.0 7.1 8.4 7.6 13.3 11.6 10.6

NAV 131.7 76.4 108.7 104.6 121.4 113.3 132.7 153.9

PBV - high 1.6 1.7 2.1 2.3 2.0 3.2 2.7 2.4

PBV - low 0.3 0.5 0.9 1.5 1.4 3.2 2.7 2.4

PBV - average 1.1 1.2 1.4 1.9 1.7 3.2 2.7 2.4

Dividend Yield 4.5 0.0 5.0 6.0 7.3 8.0 8.8 9.7

Dividend Yield - high 2% 0% 2% 2% 3% 2% 2% 3%

Dividend Yield - low 10% 0% 5% 4% 4% 2% 2% 3%

Dividend Yield - average 3% 0% 3% 3% 3% 2% 2% 3%

FCF before distributions 50 107 -147 191 136 302 342 381

FCF/Sales 1% 2% -3% 3% 2% 4% 4% 5%

FCF per share 7.1 8.4 -9.5 12.2 8.5 18.5 20.9 23.3

FCF/EBITDA 14% 31% -24% 28% 17% 34% 35% 37% Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

100

GKN – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 3,648 3,634 4,122 4,617 4,468 5,429 6,112 6,904 7,695 7,888 8,241

Change yoy, % -0.4% 13.4% 12.0% -3.2% 21.5% 12.6% 13.0% 11.5% 2.5% 4.5%

EBITDA 365.0 379.0 419.0 367.0 347.0 602.0 686.0 791.0 882.5 971.0 1,040.0

Margin, % 10.0% 10.4% 10.2% 7.9% 7.8% 11.1% 11.2% 11.5% 11.5% 12.3% 12.6%

EBITA 228.0 242.0 277.0 201.0 152.0 411.0 495.0 577.0 652.5 731.0 800.0

Margin, % 6.3% 6.7% 6.7% 4.4% 3.4% 7.6% 8.1% 8.4% 8.5% 9.3% 9.7%

CS PBT 203.0 221.0 255.0 167.0 83.0 363.0 442.0 514.0 563.5 655.0 727.0

Income Tax (14.0) (5.0) (1.0) 10.0 15.0 (20.0) (45.0) (85.0) (112.7) (137.6) (159.9)

Exceptional - Tax (26.0) (12.0) (5.0) 3.0 (11.0) (17.0) (15.0) 11.0 0.0 0.0 0.0

CS EPS (Diluted) 22.0 28.7 35.0 23.8 5.5 20.7 24.1 27.3 27.4 31.4 34.5

Reported EPS (Diluted) 7.6 24.9 27.8 -17.3 -3.2 19.6 17.9 30.0 20.3 27.8 30.8

DPS, p 12.2 12.8 13.5 4.5 0.0 5.0 6.0 7.3 8.0 8.8 9.7

DPS growth yoy, % 5% 5% - - - 20% 21% 10% 10% 10%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 365.0 379.0 419.0 367.0 347.0 602.0 686.0 791.0 882.5 971.0 1040.0

Working Capital Change 15.0 (3.0) (49.0) (5.0) 133.0 (59.0) (89.0) (104.0) (77.2) (90.1) (104.0)

Operating Cash Flow 308.0 117.0 299.0 328.0 288.0 89.0 500.0 538.0 717.3 772.9 828.0

Net Financing Cost (14.0) (33.0) (44.0) (48.0) (61.0) (46.0) (43.0) (68.0) (53.9) (44.8) (42.7)

Tax Paid (35.0) (31.0) (28.0) (45.0) (15.0) (33.0) (38.0) (62.0) (90.2) (110.0) (128.0)

Net Operating Cash Flow 259.0 53.0 227.0 235.0 212.0 10.0 419.0 408.0 573.2 618.0 657.4

Net Capex (220.0) (217.0) (171.0) (185.0) (105.0) (157.0) (228.0) (272.0) (271.0) (276.0) (276.0)

Free Cash Flow 39.0 (164.0) 56.0 50.0 107.0 (147.0) 191.0 136.0 302.2 342.0 381.4

Acquisitions (51.0) (126.0) (71.0) (1.0) (99.0) (6.0) (450.0) (448.0) (70.0) 0.0 0.0

Disposals 1.0 13.0 0.0 25.0 1.0 6.0 13.0 3.0 0.0 0.0 0.0

Pre Financing Cash Flow (3.0) (269.0) (8.0) 86.0 26.0 (160.0) (264.0) (329.0) 273.2 383.0 422.4

Dividend Paid (86.0) (88.0) (91.0) (97.0) 0.0 (23.0) (85.0) (101.0) (119.6) (134.8) (147.5)

Net Cash / (Debt) Year End (65.0) (426.0) (506.0) (708.0) (300.0) (151.0) (538.0) (871.0) (717.3) (469.1) (194.3)

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 1,364 1,354 1,462 1,797 1,636 1,651 1,812 1,964 2,009 2,049 2,089

Goodwill 241 245 280 367 338 350 534 551 551 551 551

Intangible Assets 54 111 136 153 187 200 424 989 949 909 869

Working capital 567 516 459 583 510 535 614 866 943 1033 1137

Total assets 1851 1895 2033 2470 2268 2438 3030 3776 3796 3862 3932

Shareholders' funds 875 892 1,177 905 948 1,313 1,252 1,574 1,486 1,800 2,145

Minorities 26 16 19 23 24 374 372 353 353 353 353

Equity 901 908 1,196 928 972 1,687 1,624 1,927 1,839 2,153 2,498

Total Borrowings 789 768 788 822 636 593 694 1,052 898 650 375

Cash and equivalents (724) (342) (282) (114) (336) (442) (156) (181) (181) (181) (181)

Net Debt / (Cash) 65 426 506 708 300 151 538 871 717 469 194

Pension Deficit 885 561 331 834 996 600 868 978 1240 1240 1240

Total liabilities 1851 1895 2033 2470 2268 2438 3030 3776 3796 3862 3932

Source: Company data, Credit Suisse estimates

101

GKN – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Driveline

FY2012 Sales - £3,236m,

4.3% org. growth

FY2012 EBITA - £235m,

7.3% margin

CVJ driveshafts, propellershafts, torque

mgmt, geared products. CVJ sideshafts

60m units, propeller shafts 3m units, torque

2m, Geared Products 1.3m;

Global Automotive industry,

VW 16%, BMW 4%, Big3=24% Driveline

CVJ Systems = c75%, AWD / eDrive

= c25%. 41% Global market share in CVJ

CVJ - NTN, Dana, AAM; Torque mgmt -

Borg-Warner, Eaton, Dana,

Asia & RoW - £866m (31%)

Americas - £811m (29%)

Europe - £1,118m (40%)

Global automotive production volumes.

Electric vehicles market share gain

Aerospace

FY2012 Sales - £1,775m,

10.8% org. growth

FY2012 EBITA - £192m,

10.8% margin

15% Propulsion systems, 75%

integrated aerostructures

(composite tech) and 10% special products -

transparency sys.

Sales split is 85% OE and 15% aftermarket

with a split 70% civil and 30% military.

Sales method is directly into the aeroplane

and engine manufacturer.

Alenia, Spirit Aerosystems, Triumph,

Transdigm

Americas - £811m (52%)

Europe - £1,118m (48%)

Civil aerospace build rates. Through life

engine service schedules

Land Systems

FY2012 Sales - £933m,

1.6% org. growth

FY2012 EBITA - £88m,

9.4% margin

Driveline Systems, Wheels, Service and

Distribution. Structures, Industrial

Distribution Services

Global leader in manufacture of off-road

metal wheels. Agriculture 35% (European

Agr c25%), Construction & Mining 11%,

Commercial/Passenger Vehicle 24%,

Industrial

30%

Titan (wheel), Bondoli, Comer, Weasler

Driveline systems

Asia & RoW - £35m (4%)

Americas - £195m (22%)

Europe - £655m (74%)

Urbanisation, growing population, dietary

needs, renewable energy, military

Powder Metallurgy

FY2012 Sales - £874m,

5.4% org. growth

FY2012 EBITA - £87m,

10.0% margin

Hoeganaes c17%, Sinter Americas c38%,

Sinter Europe c38%, Sinter RoW c7%

Hoeganaes US No.1 & 22% global market

share. Automotive industry (75%).

Big3=17% of Powder Met sales, VW 2%

Sumimoto, Fine Sinter

Hitachi, Metaldyne, Hoganas AB.

Asia & RoW - £59m (7%)

Americas - £465m (55%)

Europe - £321m 38%)

Efficient transmissions, reduced

emissions, energy efficiency,

electrification

GKN (GKN.L / GKN LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Automotive

59%Aerospace - Civil

22%

Aerospace -

Defence10%

Industrial

5%

Agriculture

4%Driveline

37%

Aerospace

37%

Land Systems

12%

Power Metallurgy

14% Driveline

46%

Aerospace

30%

Land Systems

12%

Power Metallurgy

12%Asia & RoW, 15%

Americas, 38%

Europe, 47%

Shareholding structure

Free float: 100%

Top 5 shareholders: Standard Life

Investments - 14%, Dimensional Fund

Adv. - 8%, Old Mutual - 8%, Schroder -

7%, Mondrian Investment Partners- 6%

Ownership by Country: UK, 54%, USA

- 29%, Norway - 3%, Luxembourg - 2%,

Ireland - 2%

Management

Chairman -Roy Brown

CEO - Nigel Stein

CFO - William Seeger

CS - Judith Felton

Source: Company data

102

Halma – Outperform, TP 620p

Bull Case Target to double profit every 5 years: Both organically and by acquisition.

Strong market positions with high barriers to entry drives organic growth. Cash

generation, low net debt /EBITDA underpins acquisitions.

High quality fundamentals: Lowest margin volatility in the sector (16%-22%),

>80% cash conversion, YoY dividend growth for last 35 years. We see no

change to this trend.

Emerging market potential: Significant scope to further sales to emerging

markets through products focusing on healthcare, process safety,

environmental protection and medical.

Attractive Valuation versus its higher quality UK structural growth peer group

of Rotork, Spirax Sarco and Renishaw

Bear Case

Unable to deliver 5% organic growth through cycle impacting ability to double

profit every 5 years.

Environmental & Analysis fails to deliver organic growth as forecast.

Lack of decent acquisition opportunities with multiples paid rising above

historic level of 9x EBIT.

CEO resignation.

Investment summary: Key pick amongst the UK structural names for 2014. Legislation driven end markets with

high barriers to entry maintain above sector average organic growth. Valuation undemanding vs. structural UK

peers.

0

100

200

300

400

500

600

700

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

15%

17%

19%

21%

23%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

120%

10%

12%

14%

16%

18%

20%

HLMA ROIC (LHS) Sector ROIC (LHS)

HLMA Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

103

Halma – Valuation

2007 2008 2009 2010 2011 2012 2013 2014e 2015e

Share price - year high 239.5 246.0 221.5 263.8 366.6 429.6 531.5 571.0 571.0

Share price - year low 172.0 181.5 143.3 164.3 239.5 306.3 373.1 571.0 571.0

Share price - year average 204.6 217.8 190.3 213.7 306.7 362.5 430.7 571.0 571.0

Enterprise value - high 928.9 993.4 919.4 1020.2 1447.9 1667.7 2156.0 2272.5 2228.4

Enterprise value - low 679.7 754.0 627.7 648.0 970.6 1203.3 1559.0 2272.5 2228.4

Enterprise value - average 799.9 888.7 803.0 832.9 1223.0 1414.8 1775.9 2272.5 2228.4

EBITA 67.9 74.9 82.5 89.1 105.6 122.3 134.8 147.5 156.0

EV/EBITA - High 13.7 13.3 11.1 11.4 13.7 13.6 16.0 15.4 14.3

EV/EBITA - Low 10.0 10.1 7.6 7.3 9.2 9.8 11.6 15.4 14.3

EV/EBITA - Average 11.8 11.9 9.7 9.3 11.6 11.6 13.2 15.4 14.3

EBITDA 75.6 83.6 92.8 100.6 117.2 134.5 147.5 162.0 170.5

EV/EBITDA - high 12.3 11.9 9.9 10.1 12.4 12.4 14.6 14.0 13.1

EV/EBITDA - low 9.0 9.0 6.8 6.4 8.3 8.9 10.6 14.0 13.1

EV/EBITDA - average 10.6 10.6 8.7 8.3 10.4 10.5 12.0 14.0 13.1

Sales 354.6 395.1 455.9 459.1 518.4 579.9 619.2 682.7 705.2

EV/Sales - high 2.6 2.5 2.0 2.2 2.8 2.9 3.5 3.3 3.2

EV/Sales - low 1.9 1.9 1.4 1.4 1.9 2.1 2.5 3.3 3.2

EV/Sales - average 2.3 2.2 1.8 1.8 2.4 2.4 2.9 3.3 3.2

CS EPS Adjusted (p) 12.4 13.8 15.3 16.8 20.5 24.4 26.2 29.4 31.1

PER - high 19.3 17.8 14.5 15.7 17.9 17.6 20.3 19.4 18.3

PER - low 13.9 13.2 9.4 9.8 11.7 12.5 14.2 19.4 18.3

PER - average 16.5 15.8 12.5 12.7 15.0 14.8 16.4 19.4 18.3

NAV 55.7 64.1 80.1 85.9 94.4 105.6 120.0 134.7 144.5

PBV - high 4.3 3.8 2.8 3.1 3.9 4.1 4.4 4.2 4.0

PBV - low 3.1 2.8 1.8 1.9 2.5 2.9 3.1 4.2 4.0

PBV - average 3.7 3.4 2.4 2.5 3.3 3.4 3.6 4.2 4.0

Dividend Yield 7.2 7.6 7.9 8.5 9.1 9.7 10.4 11.2 11.9

Dividend Yield - high 3% 3% 4% 3% 2% 2% 2% 2% 2%

Dividend Yield - low 4% 4% 6% 5% 4% 3% 3% 2% 2%

Dividend Yield - average 4% 3% 4% 4% 3% 3% 2% 2% 2%

FCF before distributions 43 29 50 91 81 82 92 100 108

FCF/Sales 12.3% 7.4% 10.9% 19.7% 15.6% 14.2% 14.9% 14.6% 15.3%

FCF per share 11.62 7.82 13.30 24.05 21.42 21.84 24.44 26.40 28.51

FCF/EBITDA 57.5% 35.1% 53.8% 90.0% 69.0% 61.3% 62.6% 61.6% 63.2%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%97%

- 2%

- 4%- 4%

0%

8% 1%

50%

60%

70%

80%

90%

100%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

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ital

Del

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Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

104

Halma – Financials PROFIT & LOSS 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 310.8 354.6 395.1 455.9 459.1 518.4 579.9 619.2 682.7 705.2 737.7

Change yoy, % 14.1% 11.4% 15.4% 0.7% 12.9% 11.9% 6.8% 10.3% 3.3% 4.6%

EBITDA 67.9 75.6 83.6 92.8 100.6 117.2 134.5 147.5 162.0 170.5 180.5

Margin, % 21.8% 21.3% 21.1% 20.3% 21.9% 22.6% 23.2% 23.8% 23.7% 24.2% 24.5%

EBITA 60.0 67.9 74.9 82.5 89.1 105.6 122.3 134.8 147.5 156.0 166.0

Margin, % 19.3% 19.2% 19.0% 18.1% 19.4% 20.4% 21.1% 21.8% 21.6% 22.1% 22.5%

CS PBT 58.1 66.1 72.8 79.1 86.2 104.6 120.5 130.7 142.1 150.9 160.9

Income Tax (17.5) (19.7) (21.1) (21.9) (22.8) (27.4) (28.3) (31.7) (31.0) (33.2) (35.7)

Exceptional - Tax 0.5 1.1 1.4 1.7 1.9 1.5 3.0 4.6 2.7 0.0 0.0

CS EPS (Diluted) 11.0 12.4 13.8 15.3 16.8 20.5 24.4 26.2 29.4 31.1 33.1

Reported EPS (Diluted) 11.0 11.8 13.4 14.0 16.1 19.2 23.0 25.2 25.3 26.4 28.4

DPS, p 6.8 7.2 7.6 7.9 8.5 9.10 9.74 10.43 11.16 11.94 12.78

DPS growth yoy, % 5% 5% 5% 7% 7% 7% 7% 7% 7% 7%

CASH FLOW 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

EBITDA 67.9 75.6 83.6 92.8 100.6 117.2 134.5 147.5 162.0 170.5 180.5

Working Capital Change (0.7) (4.1) (14.0) (5.4) 13.1 (3.6) (7.6) (10.9) (8.7) (8.3) (7.0)

Operating Cash Flow 70.8 70.3 62.6 86.4 112.7 113.2 125.5 133.7 146.1 155.1 166.3

Net Financing Cost (0.4) (0.9) (1.8) (2.7) (0.9) (0.5) (1.3) (2.3) (2.9) (1.9) (1.9)

Tax Paid (16.8) (19.5) (17.6) (20.5) (12.4) (18.1) (27.8) (25.5) (26.9) (29.9) (32.2)

Net Operating Cash Flow 53.6 49.9 43.2 63.2 99.5 94.6 96.4 105.9 116.3 123.3 132.3

Net Capex (10.8) (6.4) (14.0) (13.3) (8.9) (13.7) (14.0) (13.6) (16.5) (15.5) (15.5)

Free Cash Flow 42.7 43.5 29.3 49.9 90.6 80.8 82.5 92.4 99.8 107.8 116.8

Acquisitions (36.2) (27.5) (46.5) (12.4) (1.7) (82.1) (18.7) (148.8) (20.8) (20.8) (20.8)

Disposals 14.6 0.0 2.4 0.0 0.5 0.0 3.6 19.6 1.9 1.2 1.2

Pre Financing Cash Flow 19.4 11.2 (19.6) 31.8 85.0 (8.7) 61.3 (43.3) 78.0 88.2 97.2

Dividend Paid (24.5) (25.9) (27.3) (28.8) (30.4) (32.9) (35.2) (37.8) (40.4) (43.8) (46.4)

Net Cash / (Debt) Year End 3.5 (7.7) (44.3) (51.2) 9.1 (37.1) (18.7) (110.3) (73.7) (29.3) 21.6

BALANCE SHEET 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

PPE 50 50 57 71 67 70 72 77 79 81 82

Goodwill 122 130 161 198 195 260 267 352 352 352 352

Inangible Assets 12 15 33 41 34 73 74 134 118 102 86

Working capital 73 79 93 107 95 107 112 135 144 152 159

Total assets 231 252 319 393 356 429 450 611 629 622 613

Shareholders' funds 188 207 239 300 322 355 398 453 509 546 588

Minorities 0 0 0 0 0 0 0 0 0 0 0

Total Borrowings 32 30 72 86 22 80 64 160 123 79 28

Cash and equivalents (36) (22) (28) (35) (31) (43) (45) (50) (50) (50) (50)

Net Debt / (Cash) (4) 8 44 51 (9) 37 19 110 74 29 (22)

Pension Deficit 46 37 36 43 43 36 33 47 47 47 47

Total liabilities 231 252 319 393 356 429 450 611 629 622 613

Source: Company data, Credit Suisse estimates

105

Halma – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Infrastructure Safety

FY2013 Sales - £205m,

1% org. growth

FY2013 EBITA - £42.1m,

20.5% margin

Smoke and heat detectors, sounders, beacons and

interfaces, Beam smoke detectors and specialist fire

extinguishing systems, Sensors for automatic doors

Elevator safety components, Infrared safety systems for

elevator doors and elevator emergency communications,

Control panels for the elevator industry, Security sensors

and signalling products

Fire Detection, Automatic Door Sensors,

Elevator Safety, Security Sensors

Halma products are very niche focused and

designed to solve a specific problem. Large

competitors are few but include Roper

Industires and Danaher

UK - £53m (26%)

USA - £37m (18%)

Europe - £69m (34%)

Far east & Asia - £31m (15%)

Other - £14m (7%)

Health & Safety legislation in buildings

and the workplace

Environmental & Analysis

FY2013 Sales - £153m,

-6% org. growth

FY2013 EBITA - £30.4m,

19.9% margin

Ultraviolet treatment of drinking water, waste water, water

for re-use and water used in industrial processes,

Equipment and software for flow analysis of water and

sewerage systems and leak detection systems,

Electrochemical sensors, Mass flow meters and

controllers, Gas dryers and humidifiers

Water, Fluid Technology, Photonics

Halma products are very niche focused and

designed to solve a specific problem. Large

competitors are few but include Roper

Industires and Danaher

UK - £13m (13%)

USA - £44m (44%)

Europe - £16m (16%)

Far east & Asia - £19m (19%)

Other - £8m (8%)

Legislation focusing on reducing leakage

Medical

FY2013 Sales - £136m,

12% org. growth

FY2013 EBITA - £35.9m,

26.4% margin

Life sciences and medical diagnostics, Dichroic optical

filters and precision optics, Surgical and diagnostic

instruments and a variety of pharmaceuticals, Instruments

for ophthalmic surgery, Diagnostic medical devices,

Clinical grade non-invasive blood pressure monitoring

products and technologies, components for medical, life

science and scientific instruments.

Health Optics

Halma products are very niche focused and

designed to solve a specific problem. Large

competitors are few but include Roper

Industires and Danaher

UK - £7m (7%)

USA - £43m (43%)

Europe - £25m (25%)

Far east & Asia - £13m (13%)

Other - £12m (12%)

Increasing demand for Healthcare

particurlaly for the eye.

Process Safety

FY2013 Sales - £125.7m,

10% org. growth

FY2013 EBITA - £32.3m,

25.7% margin

Safety systems for controlling hazardous industrial

processes Safety systems for controlling access to

dangerous machines Key interlocks and interlocking

systems for the protection of personnel and equipment

Process safety systems for petrochemical and industrial

applications Safety systems for controlling access to

dangerous machines Process safety systems for

petrochemical and industrial applications Gas detection

instruments for personnel and plant safety

Safety Interlocks, Gas Detection, Bursting

Disks, Asset Monitoring

Halma products are very niche focused and

designed to solve a specific problem. Large

competitors are few but include Roper

Industires and Danaher

UK - £34m (28%)

USA - £27m (22%)

Europe - £32m (26%)

Far east & Asia - £17m (14%)

Other - £12m (10%)

Increasing demand for protection of

people and process within industrial

environment

HALMA (HLMA.L / HLMA LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Infrastructure Safety

27%

Medical

23%

Process Safety

26%

Environmental &

Analysis24%

USA, 28%

Mainland Europe,

26%

UK, 22%

APAC, 15%

Africa/M.East, 5%

Other, 4% Photonics

9% Health Optics

8%

Water

7%

Fluid Technology

5%

Fire Detection

17%Automatic Door

Sensors12%

Elevator Safety

9%

Security Sensors

6%

Safety Interlocks

12%

Gas Detection

7%

Bursting Disks

5%

Asset Monitoring

3%Infrastructure Safety

33%

Medical

22%

Process Safety

20%

Environmental &

Analysis25%

Shareholding structure

Free float: 95%

Top 5 shareholders: Sun Life Financial

- 8%, Schroder Investment Mgmt Ltd -

4%, Legal & General - 4%, Neptune

Investment Management - 4%, Capital

Group - 3%

Ownership by Country: UK 51%, USA -

28%, Canada - 5%, Norway - 5%,

Luxembourg - 3%

Management

Chairman - Paul Walker

CEO - Andrew Williams

CFO - Kevin Thompson

Source: Company data

106

IMI – Outperform, TP 1640p

Bull Case IMI is now a more focused process business (Severe Service / Fluid Power

= c80% of group revenue) able to deliver better through cycle growth.

Group margins under the new structure (ex Merchandising / Beverage) to

potentially exceed 20% this cycle and within top quartile of the sector.

Mark Selway to improve asset turns of the business which alongside margin

improvement to drive ROIC higher.

Continued balance sheet optionality on the back of strong cash generation –

fund acquisitions or further cash returns to shareholders.

M&A target with large cap European and US players looking to increase

their exposure to Process.

Bear Case

Portfolio reorganisation now complete with the sale of Beverage /

Merchandising.

Valuation – IMI has rerated with discount vs. Process peers now closed.

Acquisition risk – overpaying for in demand Process assets.

Currency risk to consensus from strengthening UK£.

Investment summary: While having undergone a significant transformation into a more focused Process

business we believe there is still more to go for (self-help / acquisitions) under new CEO Mark Selway.

0

200

400

600

800

1000

1200

1400

1600

0

20

40

60

80

100

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-24%

-16%

-8%

0%

8%

16%

10%

12%

14%

16%

18%

20%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

10%

12%

14%

16%

18%

20%

22%

24%

IMI ROIC (LHS) Sector ROIC (LHS)

IMI Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

107

IMI – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 637 533.5 537 948 1119 1107 1444 1444 1444

Share price - year low 387.25 220 222.5 518.5 636.5 760 1444 1444 1444

Share price - year average 544.9 398.46 367.69 711.39 905.48 921.85 1444 1444 1444

Enterprise value - high 2396.56 2133.17 2126.96 3401.42 3890.13 3912.79 5045.10 4916.38 4891.60

Enterprise value - low 1570.64 1132.16 1124.33 2031.32 2360.61 2812.80 5045.10 4916.38 4891.60

Enterprise value - average 2091.98 1701.98 1587.20 2646.63 3213.27 3325.86 5045.10 4916.38 4891.60

EBITA 210.8 266.3 234.2 319.7 374.1 373.0 324.5 347.0 371.5

EV/EBITA - High 11.4 8.0 9.1 10.6 10.4 10.5 15.5 14.2 13.2

EV/EBITA - Low 7.5 4.3 4.8 6.4 6.3 7.5 15.5 14.2 13.2

EV/EBITA - Average 9.9 6.4 6.8 8.3 8.6 8.9 15.5 14.2 13.2

EBITDA 246.7 309.4 282.9 366.9 417.7 414.6 364.5 387 411.5

EV/EBITDA - high 9.7 6.9 7.5 9.3 9.3 9.4 13.8 12.7 11.9

EV/EBITDA - low 6.4 3.7 4.0 5.5 5.7 6.8 13.8 12.7 11.9

EV/EBITDA - average 8.5 5.5 5.6 7.2 7.7 8.0 13.8 12.7 11.9

Sales 1599 1897 1792 1924 2131 2190 1757 1831 1927

EV/Sales - high 1.50 1.12 1.19 1.77 1.83 1.79 2.87 2.69 2.54

EV/Sales - low 0.98 0.60 0.63 1.06 1.11 1.28 2.87 2.69 2.54

EV/Sales - average 1.31 0.90 0.89 1.38 1.51 1.52 2.87 2.69 2.54

CS EPS Adjusted (p) 42.41 53.45 45.45 65.23 80.03 83.20 70.72 90.29 98.87

PER - high 15.02 9.98 11.81 14.53 13.98 13.30 20.42 15.99 14.60

PER - low 9.13 4.12 4.90 7.95 7.95 9.13 20.42 15.99 14.60

PER - average 12.85 7.45 8.09 10.91 11.31 11.08 20.42 15.99 14.60

NAV 124.9 144.6 126.1 180.5 193.8 215.1 214.5 247.8 284.6

PBV - high 5.1 3.7 4.3 5.3 5.8 5.1 6.7 5.8 5.1

PBV - low 3.1 1.5 1.8 2.9 3.3 3.5 6.7 5.8 5.1

PBV - average 4.4 2.8 2.9 3.9 4.7 4.3 6.7 5.8 5.1

Dividend Yield 20.20 20.70 21.20 26.00 30.00 32.50 35.75 39.33 43.26

Dividend Yield - high 3% 4% 4% 3% 3% 3% 2% 3% 3%

Dividend Yield - low 5% 9% 10% 5% 5% 4% 2% 3% 3%

Dividend Yield - average 4% 5% 6% 4% 3% 4% 2% 3% 3%

FCF before distributions 66 156 194 203 150 156 179 138 230

FCF/Sales 4.1% 8.2% 10.8% 10.6% 7.1% 7.1% 10.2% 7.5% 11.9%

FCF per share 19.80 48.60 60.50 62.75 46.64 48.53 57.51 50.66 85.57

FCF/EBITDA 26.6% 50.5% 68.6% 55.4% 36.0% 37.7% 49.1% 35.7% 55.9%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%94%

- 25%

3%

-1% -1%

8%9%

0%

20%

40%

60%

80%

100%

120%

Cle

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et in

com

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Rep

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ome

Wor

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Del

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Def

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Fre

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Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

108

IMI – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 1,578.0 1,505.0 1,599.0 1,897.0 1,792.0 1,924.0 2,131.0 2,190.0 1,757.0 1,831.0 1,927.0

Change yoy, % -4.6% 6.2% 18.6% -5.5% 7.4% 10.8% 2.8% -19.8% 4.2% 5.2%

EBITDA 228.7 230.5 246.7 309.4 282.9 366.9 417.7 414.6 364.5 387.0 411.5

Margin, % 14.5% 15.3% 15.4% 16.3% 15.8% 19.1% 19.6% 18.9% 20.7% 21.1% 21.4%

EBITA 178.3 191.8 210.8 266.3 234.2 319.7 374.1 373.0 324.5 347.0 371.5

Margin, % 11% 12.7% 13.2% 14.0% 13.1% 16.6% 17.6% 17.0% 18.5% 19.0% 19.3%

CS PBT 176.1 192.6 208.5 254.0 211.7 304.2 363.2 372.3 310.0 341.5 367.5

Income Tax (56.6) (59.7) (64.9) (79.0) (63.6) (91.3) (101.8) (95.2) (74.7) (74.4) (80.4)

Exceptional - Tax 2.2 10.7 11.9 19.0 9.8 (1.2) 4.1 11.9 0.0 0.0 0.0

CS EPS (Diluted) 33.1 38.1 42.4 53.5 45.5 65.2 80.0 83.2 70.7 90.3 98.9

Reported EPS (Diluted) 3.8 21.3 35.3 35.1 40.6 69.4 62.1 71.6 75.1 76.7 85.1

DPS, p 17.5 18.7 20.2 20.7 21.2 26.0 30.0 32.5 35.8 39.3 43.3

DPS growth yoy, % 7% 8% 2% 2% 23% 15% 8% 10% 10% 10%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 228.7 230.5 246.7 309.4 282.9 366.9 417.7 414.6 364.5 387.0 411.5

Working Capital Change (10.9) (26.7) (10.7) 1.2 60.7 32.2 (13.0) (30.6) (22.4) (23.6) (21.9)

Operating Cash Flow 165.4 170.7 157.1 271.8 302.1 313.7 307.5 314.3 325.3 276.6 372.8

Net Financing Cost (8.2) (8.7) (12.7) (16.6) (19.8) (15.5) (16.9) (17.7) (28.3) (25.9) (24.2)

Tax Paid (54.2) (40.0) (37.1) (54.4) (52.6) (56.3) (90.9) (102.9) (71.0) (70.7) (76.4)

Net Operating Cash Flow 103.0 122.0 107.3 200.8 229.7 241.9 199.7 193.7 226.1 180.0 272.2

Net Capex (41.9) (32.0) (41.6) (44.5) (35.5) (38.7) (49.3) (37.4) (47.0) (42.0) (42.0)

Free Cash Flow 61.1 90.0 65.7 156.3 194.2 203.2 150.4 156.3 179.1 138.0 230.2

Acquisitions (63.6) (118.4) (52.2) 0.0 (19.4) (129.8) (8.9) (83.1) (12.0) (7.0) (7.0)

Disposals 209.0 0.0 2.0 0.0 0.0 7.4 0.0 0.0 0.0 690.0 0.0

Pre Financing Cash Flow 200.2 0.6 11.2 151.2 161.9 80.3 143.7 78.5 148.6 821.0 223.2

Dividend Paid (59.4) (60.7) (63.9) (66.2) (66.0) (70.9) (88.8) (97.8) (103.3) (117.3) (128.4)

Net Cash / (Debt) Year End (10.6) (80.4) (233.1) (298.7) (172.4) (145.4) (108.2) (143.8) (245.2) (186.4) (91.7)

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 192 190 208 266 233 241 248 245 255 210 215

Goodwill 166 231 261 343 341 401 404 404 404 404 404

Intangible Assets 20 56 53 57 45 117 93 140 113 86 59

Working capital 292 308 354 457 368 371 371 409 431 455 477

Total assets 605 618 711 900 833 922 928 1060 1087 1034 1029

Shareholders' funds 418 413 407 452 400 526 565 636 611 617 706

Minorities 4 4 6 9 2 50 49 48 48 48 48

Total Borrowings 200 188 340 423 253 268 256 247 348 289 194

Cash and equivalents (189) (107) (107) (124) (81) (123) (148) (103) (103) (103) (103)

Net Debt / (Cash) 11 80 233 299 172 145 108 144 245 186 92

Pension Deficit 173 121 65 140 258 201 206 232 183 113 183

Total liabilities 605 618 711 900 833 922 928 1060 1087 964 1029

Source: Company data, Credit Suisse estimates

109

IMI – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Severe service

FY2012 Sales - £686m,

11.6% org. growth

FY2012 EBITA - £96m,

14.0% margin

Severe service valve apps (high

pressures drops, high flow rates,

extreme temperatures, fine control req.)

Products 1. Control valves (61% of

sales), 2) actuators & controls (2%), 3)

nuclear sol (21%), 4) Isolation valves

(17%).

29% O&G (with LNG focus), 26% fossil

power, 13% nuclear, 32% aftmarket

LNG (Koso, PBVS, Severn, Glocon, Tyco),

Nuclear (Emerson, Flowserve, GE,

Sempell),

Fossil (Bopp & Reuther, GE, ), Petrochem

(Curtiss Wright,

Poyam), Iron & steel (Fouress,

Siemens)

Emerging markets - £194m (34%)

North America - £103m (18%)

UK - £23m (4%)

Western Europe - £160m (28%)

RoW - £92m (16%)

Replacement of ageing coal power

generation capacity. Emerging market

power demand

Fluid power

FY2012 Sales - £717m,

(4.2)% org. growth

FY2012 EBITA - £142m,

19.8% margin

Pneumatic solutions (actuators, control

valves, cylinders, filters, regulators,

lubricators) to control air, water, oil and

other fluids in engineering apps. 45% of

sales on focus sectors, 33% aftermarket,

25% related to factory automation.

Sector sales - 16% trucks, 7% life sciences,

6% food and beverage, 4% energy, 2% rail,

CV - powertrain & cab (Bendix, Bosch,

Pierburg, Wabco), Life sciences fluid control

Bukert, Hamilton, Idex, Tecan), Food &

Beverage (Bukert, Festo, Parker, Seitz),

Rail (ACL, Bode, Muller, Parker), Energy

Asco, Bifold, Midland, Versa)

Emerging markets - £130m (17%)

North America - £176m (23%)

UK - £61m (8%)

Western Europe - £368m (48%)

RoW - £31m (4%)

Process automation.

Indoor climate

FY2012 Sales - £293m,

(1.2)% org. growth

FY2012 EBITA - £62m,

21.0% margin

Thermostatic radiator valves (TRV,

40% of sales), balancing valves

(60%), and automatic flow control

devices. 65% of sales are

aftermarket.

Buildings & Indoor environments

Hydronic balancing (Danfoss,

Oventrop), Hydronic conditioning

(Flamco, Relfex, Spirotech), TRV

(Danfoss, Honeywell, Oventrop)

Emerging markets - £56m (18%)

North America - £16m (5%)

UK - £6m (5%)

Western Europe - £229m (74%)

RoW - £3m (1%)

Legislation calling for increased heating

efficiency. Emission legislation

IMI (IMI.L / IMI LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Severe Service

35%

Fluid Power

45%

Indoor Climate

20%

Auto

4%

Process

Industries38%

Environmental

Control16%

Capital

Equipment33%

Truck

9%Severe Service

40%

Fluid Power

42%

Indoor Climate

18%Emerging

Markets, 27%

North America,

18%RoW, 20%

Western Europe,

29%

UK, 6% Shareholding structure

Free float: 99%

Top 5 shareholders: Standard Life

Investments - 7%, Threadneedle Asset

Management - 5%, Ameriprise Financial

Inc - 5%, AXA - 5%, FIL - 4%

Ownership by Country: UK - 46%,

USA - 22%, Canada - 6%, Luxembourg -

5%, Norway - 3%

Management

Chairman -Roberto Quarta

CEO - Martin Lamb

CFO - Douglas Hurt

IR - Will Shaw

Source: Company data

110

KONE – Neutral, TP €34 Investment summary: Best positioning to benefit from China maintenance market development and scope for

margin increases offset by risk of China NI topping out and expensive valuation.

Bull Case Strongest positioning in China to capture the building maintenance market

opportunity (400 selling locations – highest by far among peers), especially

given new regulation coming into force in 2014;

Impressive new product momentum – UltraRope for high rise and new low-

rise offering;

Scope for margin improvement with efficiency improvements, rising density

and developing China maintenance market;

Best in class Returns and Cash Conversion profile combined with negative

incremental invested capital.

Bear Case China new installations growth topping out over the next 12-24 months

resulting in a slower earnings growth profile (China is a high margin NI

market) and hence de-rating;

Otis targeting to regain market share lost in China over the past 18 months

leading to pricing pressure;

Capacity ramp up in China across major international and local players

may lead to price pressure, especially if market growth comes to an end

(however, capacity in elevators space is relatively easy to manage);

Expensive valuation – relative to sector and to other high-quality

construction-exposed industrial peers.

0

5

10

15

20

25

30

35

40

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

0%

5%

10%

15%

20%

8%

10%

12%

14%

16%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

120%

5%

10%

15%

20%

25%

30%

35%

KNEB ROIC (LHS) Sector ROIC (LHS)

KNEB Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

111

Kone – Valuation

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 23.5 21.2 22.0 34.5 40.2 48.7 32.6 32.6 32.6

High 29.7 27.6 30.0 42.9 43.8 59.4

Low 20.7 14.0 14.3 28.6 34.1 40.0

P/E average 36.0 25.7 22.4 33.0 35.5 36.8 22.1 20.2 18.2

P/E high 45.5 33.5 30.4 41.0 38.7 44.8

P/E low 31.7 17.0 14.5 27.3 30.1 30.2

EV:sales average 2.99 2.35 2.28 3.43 3.81 3.89 2.40 2.23 2.07

EV:sales high 3.76 3.06 3.13 4.29 4.17 4.76

EV:sales low 2.63 1.56 1.45 2.81 3.21 3.18

Operating margin 11.6% 12.1% 12.7% 14.0% 13.9% 11.4% 13.9% 14.5% 15.2%

EV:EBITDA average 22.5 17.3 16.2 22.4 25.2 26.0 15.4 13.9 12.4

EV:EBITDA high 28.2 22.6 22.3 28.0 27.5 31.8

EV:EBITDA low 19.8 11.5 10.3 18.4 21.2 21.2

EV:EBIT average 25.8 19.3 18.0 24.5 27.5 28.6 17.3 15.4 13.6

EV:EBIT high 32.4 25.2 24.7 30.7 30.0 35.0

EV:EBIT low 22.7 12.8 11.4 20.1 23.1 23.3

FCF yield average 1.9% 3.4% 5.9% 3.6% 2.5% 3.4% 4.9% 4.9% 5.4%

FCF yield high 1.5% 2.6% 4.3% 2.9% 2.3% 2.8%

FCF yield low 2.1% 5.1% 9.1% 4.4% 2.9% 4.1%

Dividend yield average 2.7% 3.1% 5.9% 2.6% 7.2% 3.6% 7.0% 3.3% 3.7%

Dividend yield high 2.1% 2.4% 4.3% 2.1% 6.6% 2.9%

Dividend yield low 3.1% 4.6% 9.1% 3.2% 8.5% 4.4%

EV/IC average 12.19 9.51 10.92 16.64 14.26 18.37 13.15 12.53 11.78

EV/IC high 15.33 12.39 15.00 20.82 15.59 22.50

EV/IC low 10.74 6.31 6.94 13.65 12.00 14.99

P/BV average 15.98 10.37 8.36 11.07 10.14 13.16 11.95 10.06 8.55

P/BV high 20.17 13.52 11.37 13.75 11.06 16.04

P/BV low 14.04 6.86 5.42 9.15 8.59 10.80

ROIC 38.0% 36.5% 45.8% 50.9% 40.0% 50.1% 58.3% 61.4% 64.8%

ROE 50.8% 40.0% 33.8% 32.7% 27.5% 34.9% 52.4% 48.1% 45.3%

ROCE 45.1% 42.3% 54.2% 61.3% 46.2% 58.2% 71.9% 75.1% 78.4%

Grow th (years 4 to 10) 7.0%

EBIT margin (years 4+) 16.0%

NOPAT margin 12.0%

Invested capital 1,257

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 11.5%

WACC 9.0%

EBITA NOPAT

margin margin 6.0% 6.5% 7.0% 7.5% 8.0%

12.0% 9.0% 25 25 26 26 27

12.5% 9.4% 26 26 27 27 28

13.0% 9.8% 26 27 28 28 29

13.5% 10.1% 27 28 29 29 30

16.0% 12.0% 31 32 33 34 35

16.5% 12.4% 32 33 34 35 36

17.0% 12.8% 33 34 35 36 36

17.5% 13.1% 34 35 36 37 37

18.0% 13.5% 35 36 37 37 38

18.5% 13.9% 36 37 37 38 39

Source: Company data, Credit Suisse estimates

112

Kone – Financials

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 523 559 665 733 801 887

Invested capital 1,027 1,397 1,329 1,257 1,304 1,369

ROIC 50.9% 40.0% 50.1% 58.3% 61.4% 64.8%

ROIC (average) 51.9% 46.1% 48.8% 56.7% 62.5% 66.3%

Operating Net Income 536 581 681 757 827 920

Equity 1,601 2,034 1,905 1,401 1,664 1,958

ROE 33.5% 28.6% 35.8% 54.0% 49.7% 47.0%

ROE (average) 36.5% 32.0% 34.6% 45.8% 54.0% 50.8%

EBITDA 762 791 940 1,074 1,177 1,296

Total debt 69 97 112 112 112 112

Net debt (748) (824) (761) (381) (598) (827)

Total debt / EBITDA 0.1 0.1 0.1 0.1 0.1 0.1

Net debt / EBITDA (1.0) (1.0) (0.8) (0.4) (0.5) (0.6)

PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 4,987 5,225 6,277 6,897 7,317 7,778

Change yoy, % 5.1% 4.8% 20.1% 9.9% 6.1% 6.3%

Direct Material Supplies & external services (1,797) (1,918) (2,477) (2,793) (2,927) (3,111)

Wages & Other salaries (1,152) (1,571) (1,747) (1,834) (1,926) (1,983)

Depreciation & amortisation (66) (66) (86) (115) (116) (114)

Other - - (37) 9 (1) (28)

Total Cost (4,290) (4,500) (5,493) (5,958) (6,261) (6,601)

Reported EBIT 697 725 784 939 1,056 1,177

Reported EBIT margin, % 14.0% 13.9% 12.5% 13.6% 14.4% 15.1%

Exceptionals / one-offs - - (37) - - -

Operating profit 697 725 854 959 1,061 1,182

Operating profit margin, % 14.0% 13.9% 13.6% 13.9% 14.5% 15.2%

Depreciation & Amortisation (66) (66) (86) (115) (116) (114)

EBITDA 762 791 940 1,074 1,177 1,296

EBITDA margin, % 15.3% 15.1% 15.0% 15.6% 16.1% 16.7%

Shares in Earnings of Associates 12 10 4 2 2 2

Net interest income / (expense) 6 18 16 28 32 42

Rate, % 7.3% 7.0% 21.0% 6.0% 7.0% 7.0%

Profit Before Tax 715 816 804 969 1,090 1,222

Underlying PBT 715 753 875 989 1,095 1,227

Tax (179) (172) (193) (232) (268) (307)

Effective rate, % 25.0% 22.9% 22.1% 23.5% 24.5% 25.0%

Minority interest 1 1 10 11 12 14

Operating Net Income 536 581 681 757 827 920

Net income margin, % 10.8% 11.1% 10.9% 11.0% 11.3% 11.8%

CS operating EPS 1.0 1.1 1.3 1.5 1.6 1.8

EPS growth, % 6.2% 8.3% 16.9% 11.0% 9.3% 11.3%

DPS, EUR 0.9 2.9 1.8 2.3 1.1 1.2

DPS growth, % -30.7% 222.2% -39.7% 30.3% -53.0% 11.3%

Dividend Cover (X) 1.2 0.4 0.8 1.5 1.5 1.5

Ordinary shares in issue 513 513 514 514 514 514

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 1,065 1,397 1,546 1,580 1,624 1,660

Other f ixed assets 359 353 359 359 359 359

Fixed assets 1,423 1,750 1,905 1,939 1,983 2,019

Inventories (Net of advances from customers) (137) (167) (261) (470) (442) (408)

Trade and other receivables 1,141 1,262 1,350 1,625 1,704 1,811

Trade and other payables 1,302 1,359 1,529 1,701 1,804 1,918

Other Current Liabilities 99 89 136 136 136 136

Working capital (397) (353) (576) (682) (679) (650)

Working capital days nm nm nm nm nm nm

WC as % of sales nm nm nm nm nm nm

Cash 817 920 873 493 710 939

Short-term debt 41 76 91 78 78 78

Long-term debt 29 21 21 34 34 34

Net debt / (cash) (748) (824) (761) (381) (598) (827)

Pension deficit 113 105 97 150 150 150

Other liabilities 61 82 88 88 88 88

Net assets 1,601 2,034 1,905 1,401 1,664 1,958

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Operating Net Income 697 725 854 959 1,061 1,182

Depreciation & amortisation 66 66 86 115 116 114

Gross cash flow 762 791 940 1,074 1,177 1,296

Change in receivables (11) (29) (26) - - -

Change in Payables 28 (1) 425 - - -

Change in Inventory 79 (15) (170) - - -

Working capital change 95 (44) 230 106 (3) (28)

Operating cash flow 683 530 997 978 940 1,006

Operating cash / Operating profit 1.0 0.7 1.2 1.0 0.9 0.9

Exceptionals - 73 (37) (20) (5) (5)

Net capex (46) (92) (113) (130) (110) (100)

% of Sales 0.9% 1.8% 1.8% 1.9% 1.5% 1.3%

Free Cash Flow 637 511 846 828 825 901

FCF / Net income 1.2 0.9 1.2 1.1 1.0 1.0

Acquisitions (114) (144) (128) (20) (50) (50)

Disposals - 5 7 - - -

Loans raised / paid back (237) (80) 58 - - -

Shares issue / purchase 6 (24) (7) - - -

Dividends Paid (333) (230) (741) (1,188) (559) (622)

Other 17 5 13 - - -

Net Cash Flow (24) 43 48 (380) 217 229

Source: Company data, Credit Suisse estimates

113

Kone – Company Summary

Employee Mix E&E in Operation End Market Mix

Management

Chairman Antti Herlin

CEO Matti Alahuhta

CFO Henrik Ehrnrooth

IR Karla Lindahl

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Elevators & Escalators

FY 2012 Sales EUR 6.28 Bn

9.6% YoY organic growth

FY 2012 EBIT EUR 0.85 Bn

13.6% Margin

Passenger Elevators, Goods Elevators,

Escalators, Autowalks

Residential Construction 60%, Commercial

Construction 20% and Government Construction

20%

OTIS, Thyssen, Schindler EMEA 49%, Asia Pacific 35%, Americas 16%

Urbanisation; Wealth creation in EM;

Development in energy efficiency; Demographic

change

KONE CORPORATION (KNEBV.HE) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic MixShareholding Structure (Source)

Free Float:91%

Top 5 shareholders

Herlin Antti 9.2%%, Capital Group 7.5%,

Holdings Manutas Oy 6.4%, Toshiba Elev &

Building Systems 5.4%, D Sijoitus Oy 3.9%

Ownership by country

Germany 22%, US 21%, UK 11%, Qatar 8%,

Luxembourg 6% and others

EMEA48%

Asia Pacific 38%

Americas 14%

EMEA49%

North America

10%

Japan &Korea10%

China21%

South America

4%

Rest of APAC

6%

EMEA49%

Asia Pacific35%

Americas16%

Residential Construction

60%

Commercial Construction

20%

Government Construction

20%

Source: Company data

114

Laird – Underperform, TP 215p

Bear Case

Unjustified optimism: Laird trades at a premium to its peer group weighted

SOTP.

Poor EVA® track record: 2007A-20012A Laird ROIC has not covered its

Cost of Capital. With NOPAT margins seeing no material improvement we

see this trend continuing in 2014.

Below average capital turns: Significant balance sheet goodwill contributes

to low capital turns and highlights the need for acquisitions to drive growth

(organic growth was a disappointing 0% in 2012A, CS forecast -2% for

FY13E).

Unfavoured traits: Lack of pricing power, short product lifecycles, limited

aftermarket, no material order book, poor visibility, competition.

Bull Case Increased demand for connectivity and complexities of consumer

electronics will drive long term demand for EMI shielding and Thermal

Interface.

Under new management (CEO / Chairman) Laird re-positions itself

accompanied by potential for positive earning surprise 2014-15.

Investment summary: With Laird trading at a premium to its peer group weighted SOTP combined with

unfavourable business traits and ROIC consistently < WACC we rate the stock at Underperform.

0

100

200

300

400

500

600

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0%

4%

8%

12%

16%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2%

4%

6%

8%

10%

12%

14%

16%

18%

LRD ROIC (LHS) Sector ROIC (LHS)

LRD Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

115

Laird – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 635.0 580.0 195.2 173.4 207.0 243.9 258.8 258.8 258.8

Share price - year low 417.5 65.3 47.7 98.8 127.9 148.1 258.8 258.8 258.8

Share price - year average 544.9 363.0 127.1 132.2 153.9 201.7 258.8 258.8 258.8

Enterprise value - high 1291.0 1221.6 396.2 570.4 674.4 762.6 797.2 782.5 767.4

Enterprise value - low 879.5 264.7 134.7 372.0 464.0 508.4 797.2 782.5 767.4

Enterprise value - average 1120.6 818.2 275.3 460.7 533.3 650.5 797.2 782.5 767.4

EBITA 80.0 68.5 33.6 46.4 59.4 68.1 63.2 68.2 73.5

EV/EBITA - High 16.1 17.8 11.8 12.3 11.4 11.2 12.6 11.5 10.4

EV/EBITA - Low 11.0 3.9 4.0 8.0 7.8 7.5 12.6 11.5 10.4

EV/EBITA - Average 14.0 11.9 8.2 9.9 9.0 9.6 12.6 11.5 10.4

EBITDA 90.3 80.9 50.3 64.9 76.0 81.9 79.2 84.2 89.5

EV/EBITDA - high 14.3 15.1 7.9 8.8 8.9 9.3 10.1 9.3 8.6

EV/EBITDA - low 9.7 3.3 2.7 5.7 6.1 6.2 10.1 9.3 8.6

EV/EBITDA - average 12.4 10.1 5.5 7.1 7.0 7.9 10.1 9.3 8.6

Sales 564.3 635.3 528.8 567.4 586.0 520.2 541.0 554.0 577.0

EV/Sales - high 2.3 1.9 0.7 1.0 1.2 1.5 1.5 1.4 1.3

EV/Sales - low 1.6 0.4 0.3 0.7 0.8 1.0 1.5 1.4 1.3

EV/Sales - average 2.0 1.3 0.5 0.8 0.9 1.3 1.5 1.4 1.3

CS EPS Adjusted (p) 32.8 27.3 9.6 11.7 16.3 18.9 16.9 18.7 20.5

PER - high 19.3 21.3 20.4 14.8 12.7 12.9 15.4 13.8 12.6

PER - low 12.7 2.4 5.0 8.4 7.8 7.8 15.4 13.8 12.6

PER - average 16.6 13.3 13.3 11.3 9.4 10.7 15.4 13.8 12.6

NAV 241.3 330.3 217.9 216.1 165.9 166.0 164.5 165.1 165.9

PBV - high 2.6 1.8 0.9 0.8 1.2 1.5 1.6 1.6 1.6

PBV - low 1.7 0.2 0.2 0.5 0.8 0.9 1.6 1.6 1.6

PBV - average 2.3 1.1 0.6 0.6 0.9 1.2 1.6 1.6 1.6

Dividend Yield 61.5 11.9 6.0 6.3 8.0 10.0 12.0 13.2 14.5

Dividend Yield - high 10% 2% 3% 4% 4% 4% 5% 5% 6%

Dividend Yield - low 15% 18% 13% 6% 6% 7% 5% 5% 6%

Dividend Yield - average 11% 3% 5% 5% 5% 5% 5% 5% 6%

FCF before distributions -2 11 31 29 33 57 37 47 51

FCF/Sales -0.4% 1.7% 5.9% 5.1% 5.6% 11.0% 6.8% 8.5% 8.9%

FCF per share -1.23 6.06 14.80 10.71 12.22 21.23 13.61 17.60 19.12

FCF/EBITDA -3% 13% 62% 44% 43% 70% 46% 56% 57%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

69%

-65% - 7%

- 13%

- 6%

26%

34%

-30%

-10%

10%

30%

50%

70%

90%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

& D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (D

efer

red

tax,

Pen

sion

,M

inor

ity e

tc)

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Cas

h Fl

ow

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

116

Laird – Financials PROFIT & LOSS 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY

Revenue 370.6 564.3 635.3 528.8 549.7 586.0 520.2 541.0 554.0 577.0

Change yoy, % 52.3% 12.6% -16.8% 4.0% 6.6% -11.2% 4.0% 2.4% 4.2%

EBITDA 63.3 90.3 80.9 50.3 64.9 76.0 81.9 79.2 84.2 89.5

Margin, % 17.1% 16.0% 12.7% 9.5% 11.8% 13.0% 15.7% 14.6% 15.2% 15.5%

EBITA 55.4 80.0 68.5 33.6 46.4 59.4 68.1 63.2 68.2 73.5

Margin, % 14.9% 14.2% 10.8% 6.4% 8.4% 10.1% 13.1% 11.7% 12.3% 12.7%

CS PBT 45.5 72.4 60.6 26.5 40.2 52.7 60.7 55.2 61.2 67.0

Income Tax (6.3) (10.8) (12.0) (6.2) (8.8) (9.0) (10.0) (9.9) (11.0) (12.1)

Exceptional - Tax (2.5) (1.0) (0.2) 0.0 1.4 (8.3) (1.5) (1.7) 0.0 0.0

CS EPS (Diluted) 20.6 32.8 27.3 9.6 11.7 16.3 18.9 16.9 18.7 20.5

Reported EPS (Diluted) 26.6 68.0 8.0 -1.7 -6.0 -44.5 17.3 10.6 13.1 14.9

DPS, p 10.3 61.5 11.9 6.0 6.3 8.0 10.0 12.0 13.2 14.5

DPS growth yoy, % 5% 27% 25% 20% 10% 10%

CASH FLOW 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 63.3 90.3 80.9 50.3 64.9 76.0 81.9 79.2 84.2 89.5

Working Capital Change (11.8) (32.3) 5.4 12.6 2.3 1.5 3.8 (8.3) (3.8) (3.9)

Operating Cash Flow 80.8 42.4 66.4 65.3 61.5 61.2 93.4 70.9 80.4 85.6

Net Financing Cost (9.7) (9.6) (9.7) (7.7) (6.6) (7.0) (7.0) (8.0) (7.0) (6.5)

Tax Paid (3.4) (7.7) (17.2) (9.8) (8.5) (9.5) (17.9) (12.8) (12.1) (13.3)

Net Operating Cash Flow 67.7 25.1 39.5 47.8 46.4 44.7 68.5 50.1 61.2 65.8

Net Capex (19.5) (27.4) (28.7) (16.4) (17.7) (12.0) (11.5) (13.5) (14.0) (14.5)

Free Cash Flow 48.2 (2.3) 10.8 31.4 28.7 32.7 57.0 36.6 47.2 51.3

Acquisitions (102.0) (81.4) (17.7) (1.8) (55.5) (19.0) (31.9) 0.0 0.0 0.0

Disposals (8.5) 219.9 11.5 (2.6) (0.7) (0.3) 15.5 3.0 0.0 0.0

Pre Financing Cash Flow (62.3) 136.2 4.6 15.9 (37.0) (1.2) 37.8 33.8 47.2 51.3

Dividend Paid (19.4) (120.0) (21.1) (14.0) (19.4) (18.4) (23.2) (28.4) (32.5) (36.2)

Net Cash / (Debt) Year End (109.1) (85.4) (139.5) (45.4) (103.6) (117.7) (106.8) (101.4) (86.6) (71.5)

BALANCE SHEET 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY

PPE 87 76 124 109 110 84 71 69 68 67

Goodwill 354 362 500 445 481 414 437 437 437 437

Intangible Assets 76 89 110 97 116 101 77 62 47 32

Working capital 108 99 117 80 97 103 82 90 94 98

Total assets 529 538 729 630 684 564 556 547 534 521

Shareholders' funds 409 449 585 580 575 440 441 437 438 441

Minorities 0 0 0 0 0 0 0 0 0 0

Total Borrowings 153 118 186 99 158 194 176 170 155 140

Cash and equivalents (44) (33) (47) (54) (55) (76) (69) (69) (69) (69)

Net Debt / (Cash) 109 85 140 45 104 118 107 101 87 71

Pension Deficit 11 4 4 5 6 6 9 9 9 9

Total liabilities 529 538 729 630 684 564 556 547 534 521

Source: Company data, Credit Suisse estimates

117

Laird – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Performance materials

FY2012 Sales - £325m,

1.8% org. growth

FY2012 EBITA - £49m,

15.1% margin

EMI: board level shields, fabric over foam,

fingerstock, conductive elastomers.

Thermal: thermal interface materials,

thermoelectric assemblies, Signal integrity:

ferrite cable cores, chip inductors, Critical

for effcient performance of electronic

devices, Materials, components,

subsystems and systems, Specified with

OEMs. Short life cycles.

IT/Datacom, Handset,

Industrial/Medical/Military, Consumer,

Transportation

Includes contract manufacturers particularly

the Chinese as well as larger players

including Flextronics.

Electronic miniaturisation, complexity and

increasing heat and electro magntic

emmission.

Wireless systems

FY2012 Sales - £196m,

(3.2)% org. growth

FY2012 EBITA - £26m,

13.2% margin

Telematics/M2M: antennae systems and

M2M modules and solutions. Wireless

Automation and Control Solutions: remote

control systems Infrastructure. Antennae:

wireless (WLAN), RFID, Components or

comprehensive solutions. Solutions sold

direct to OEM, end users or distribution.

Long life cycles. Enable connectivity for

wired, wireless and remote control systems.

Developed within businesses, with service

and aftermarket support

IT/Datacom, Industrial, Consumer,

Transportation/Automative

Includes contract manufacturers particularly

the Chinese as well as larger players

including Flextronics. Also Eaton now it has

acquired Cooper Industries. Laird is a

volume manufacturer which historically has

been a price taker.

US automotive build rates. Increasing

penetration of telematics /digital radio

within automotive. Automation of

industrial process.

LAIRD (LRD.L / LRD LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

UK - £211m (36%)

USA - £94m (16%)

Europe - £264m (45%)

Far east & Asia - £12m (2%)

Other - £6m (1%)

Performance

Materials64%

Wireless Systems

36%Performance

Materials68%

Wireless Systems

32%

Transportation /

Auto19%

IT / Datacom

25%

Other

6%

Ind/Med/Military

16%

Handset

9%

Consumer

6%

Transportation

19%

North America,

36%

Europe, 15%

Asia, 47%

RoW, 2%

Shareholding structure

Free float: 94%

Top 5 shareholders: Franklin

Resources - 20%, Artemis Investment

Management Lt - 13%, Shroders PLC -

8%,

Mondrian Investment Partners Ltd - 7%,

Norges - 6%

Ownership by Country: UK - 61%,

USA - 24%, Ireland - 6%, Norway - 5%,

Luxembourg - 1%

Management

Chairman -Nigel Keen

CEO - David Lockwood

CFO - Jonathan Silver

CS - AM Downie

Source: Company data

118

Legrand – Underperform, TP €38

0

5

10

15

20

25

30

35

40

45

0.00

0.50

1.00

1.50

2.00

2.50

2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

10%

12%

14%

16%

18%

20%

22%

Margins % (LHS) Organic Growth (RHS)

Investment summary: High-quality company with the strongest cash conversion in the sector yet valuation levels

are stretched at times when organic sales growth is unlikely going to improve significantly in FY14 and inorganic

initiatives so far rather sluggish.

Bear Case Limited top-line improvement potential with only c.1% GDP growth

expectations for FY14 in Europe and bearish market outlook for France not only

anticipated by Legrand butalso by peer Schneider and customer Rexel.

Clear bear case would be if France follows market pattern of Italy in FY14

Stretched valuation levels (17% sector premium) particularly given sluggish

top-line growth outlook and therefore limited margin expansion potential

Large scale M&A at unreasonable multiple causing significant returns dilution

Bull Case Improving construction markets particularly in France, Italy and the US

boosting organic sales growth

Stronger volume provides solid operational gearing potential (c.30%) hence

faster earnings growth

Continuous strong pricing power particularly in weaker end markets at least

offsetting translational FX impact from weaker emerging markets currencies

Valuation multiples will unlikely de-rate at times of improving top line and

profitability hence stock will at least keep current valuation

Reasonable M&A activity which doesn’t disrupt the existing business at

attractive valuation levels allowing market share gains 0%

20%

40%

60%

80%

100%

120%

140%

10%

12%

14%

16%

18%

20%

LEGD ROIC (LHS) Sector ROIC (LHS)

LEGD Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

119

Legrand – Valuation

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Price

Year End 23.35 13.66 21.00 30.48 23.64 31.88 39.70 39.70 39.70 39.70

Average 24.68 17.11 16.16 25.07 27.66 27.55 39.70 39.70 39.70 39.70

High 27.59 23.35 20.66 31.98 31.40 32.03 39.70 39.70 39.70 39.70

Low 21.67 10.91 11.72 19.48 22.72 23.63 39.70 39.70 39.70 39.70

EV/EBITA

Year end 11.2 7.9 11.6 12.1 8.9 11.0 13.1 12.5 11.9 11.2

Average 11.7 9.2 10.1 10.3 10.2 9.7 13.1 12.5 11.9 11.2

High 12.7 11.7 12.2 12.6 11.3 11.1 13.1 12.5 11.9 11.2

Low 10.6 6.9 8.1 8.4 8.7 8.6 13.1 12.5 11.9 11.2

EV/ Sales

Year end 2.03 1.37 1.88 2.44 1.80 2.16 2.60 2.50 2.38 2.25

Average 2.11 1.60 1.64 2.07 2.05 1.91 2.60 2.50 2.38 2.25

High 2.30 2.01 1.97 2.54 2.28 2.17 2.60 2.50 2.38 2.25

Low 1.92 1.20 1.31 1.70 1.74 1.68 2.60 2.50 2.38 2.25

PE (CSFB)

Year end 12.8 8.6 15.9 18.0 11.9 15.8 19.2 19.1 18.5 17.9

Average 13.6 10.8 12.2 14.8 13.9 13.6 19.2 19.1 18.5 17.9

High 15.2 14.8 15.6 18.9 15.8 15.9 19.2 19.1 18.5 17.9

Low 11.9 6.9 8.8 11.5 11.4 11.7 19.2 19.1 18.5 17.9

FCF Yield

Year end 9.4% 11.8% 12.4% 8.4% 9.2% 8.3% 5.5% 6.0% 6.3% 6.7%

Average 9.0% 10.1% 14.2% 9.9% 8.1% 9.5% 5.5% 6.0% 6.3% 6.7%

HIgh 8.3% 8.0% 11.8% 8.1% 7.3% 8.3% 5.5% 6.0% 6.3% 6.7%

Low 10.0% 13.5% 17.7% 12.1% 9.5% 10.8% 5.5% 6.0% 6.3% 6.7%

Dividend Yield

Year end 3% 5% 3% 2.9% 3.9% 3.1% 2.5% 2.6% 2.7% 2.8%

Average 3% 4% 4% 3.5% 3.4% 3.6% 2.5% 2.6% 2.7% 2.8%

High 3% 3% 3% 2.8% 3.0% 3.1% 2.5% 2.6% 2.7% 2.8%

Low 3% 6% 6% 4.5% 4.1% 4.2% 2.5% 2.6% 2.7% 2.8%

ROCE 11.5% 10.9% 9.3% 12.1% 12.5% 13.4% 14.7% 13.2% 13.7% 14.3%

ROIC 14.1% 13.1% 11.3% 14.3% 14.4% 15.3% 14.7% 13.2% 13.7% 14.3%

ROE 22.8% 18.6% 14.5% 16.3% 17.8% 16.7% 15.8% 14.9% 14.4% 14.0%

Target multiple 12.0

EBIT 905

EPS

Net debt 686

Liabilities 180

Other liabilities 180

Equity valuation 9,991

NOSH 263

Implied TP (€) 38

Target Price (€)

2014 EV/EBIT

Multiple Valuation

Source: Company data, Credit Suisse estimates

120

Legrand – Financials Annual Income Statement 2010A 2011A 2012A 2013E 2014E 2015E 2016E

Revenue 3,891 4,250 4,467 4,464 4,531 4,639 4,765

Grow th Rate, % 9% 9% 5% (0)% 2% 2% 3%

Cost of Sales (ex restructuring) (1,798) (2,028) (2,158) (2,156) (2,189) (2,240) (2,302)

Cogs as a % of sales (46.2)% (47.7)% (48.3)% (48.3)% (48.3)% (48.3)% (48.3)%

Gross Profit 2,093 2,222 2,309 2,308 2,343 2,398 2,464

Gross profit margins 53.8% 52.3% 51.7% 51.7% 51.7% 51.7% 51.7%

SG&A (1,032) (1,137) (1,197) (1,183) (1,196) (1,220) (1,249)

SG&A as a % of sales (26.5)% (26.8)% (26.8)% (26.5)% (26.4)% (26.3)% (26.2)%

R&D (186) (202) (197) (198) (202) (207) (214)

R&D as a % of sales (4.8)% (4.7)% (4.4)% (4.4)% (4.5)% (4.5)% (4.5)%

Other Exp (117) (71) (67) (70) (70) (70) (70)

Of which Restructuring Charges (32) (19) (26) (26) (26) (26) (26)

Operating Profit 758 812 848 857 875 901 931

Margin, % 19.5% 19.1% 19.0% 19.2% 19.3% 19.4% 19.5%

Purchase Accounting /Acquisition cost 27 44 26 30 30 30 30

Adjusted EBIT incl restructuring 784 857 874 887 905 931 961

Margin, % 20.2% 20.2% 19.6% 19.9% 20.0% 20.1% 20.2%

EBITDA 951 1,011 1,017 1,025 1,043 1,069 1,100

Financial Costs (111) (72) (93) (85) (85) (85) (85)

Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Pre Tax Profit 647 741 755 772 790 816 846

Income Tax (227) (261) (248) (257) (271) (279) (289)

Effective Rate 35% 35% 33% 33% 34% 34% 34%

Minorities (1) (1) (1) (1) (1) (1) (1)

Profit for the year 418 479 506 514 518 535 556

Adjusted Profit for the year 445 523 532 544 548 565 586

Basic Earnings per share 1.59 1.82 1.92 1.95 1.97 2.03 2.11

Diluted Earnings per share 1.54 1.76 1.90 1.93 1.95 2.01 2.09

Adjusted Earnings per share 1.70 1.99 2.02 2.06 2.08 2.15 2.22

DPS 0.88 0.93 1.00 1.01 1.05 1.09 1.12

Weighted Average Share count (m) 262 263 263 263 263 263 263

Diluted Weighted Average share count 272 272 266 266 266 266 266

Interest cover using EBIT 10.6 9.9 10.4 10.1 10.3 10.6 11.0

Legrand Cash Flow (in € mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E

Profit for the year 419 479 507 515 519 537 557

Depreciation 120 111 105 105 105 105 105

Amortisation 73 88 63 63 63 63 63

Changes in non current deferred tax 2 7 11 0 0 0 0

Change in other non current assets/liabilities 35 38 32 0 0 0 0

FX (gains) losses 23 (7) 9 0 0 0 0

(gains) losses on disposal of assets/securities (2) (2) (3) 0 0 0 0

Change in Inventories (88) (33) 16 (30) (10) (10) (10)

Change in Trade receivables 47 (21) 65 (50) (30) (20) (20)

Change in Trade payables 57 (8) (1) 40 30 20 20

Change in Other current assets and liabilities 59 (6) (66) 0 0 0 0

Net cash from operating activities 749 646 739 644 678 695 716

Sale of Fixed Assets 9 14 8 0 0 0 0

Capital Expenditure (83) (107) (93) (93) (93) (93) (93)

Development costs capitalised (30) (30) (28) (28) (28) (28) (28)

Acquisitions (257) (342) (196) (140) 0 0 0

Net cash flow from investing activities (393) (465) (308) (261) (121) (121) (121)

Issuance of Share capital (Buyback) 4 3 15 1 1 1 1

Dividends to shareholders (184) (231) (245) (266) (277) (287) (295)

(Reduction) increase in Long-term debt 135 330 (104) 43 0 0 0

(Reduction) increase in Short-term debt (264) (26) (83) 0 0 0 0

Net cash flow from financing activities (310) 76 (418) (223) (276) (287) (295)

Effect of FX 12 (1) (7) 0 0 0 0

Increase/(decrease) in cash 59 256 6 159 280 287 300

Source: Company data, Credit Suisse estimates

121

Legrand – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman and CEO Giles Schnepp

CFO Antonie Burel

Investor Relations Francois Poisson

Investor Relations Nicolas Pasques

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Building Infrastructures

FY 2012 Sales EUR 4.47 Bn

3.7% YoY organic growth

FY 2012 EBIT EUR 0.85 Bn

19% Margin

Products for control and command, cable

management, energy distribution and data

distribution, solutions that manage lighting,

heating, power, networks and building

Commercial Construction 45%, Residential

Construction 42% and General Industry

Production 13%

80% sales through distributors, 20% through

retailers

Hubbell, Schneider, ABB

France 24%, USA & Canada 17%, Italy 13%,

Rest of Europe 18% and Rest of the World

28%

60% refurbishment & 40% new build; global

construction; new product development

LEGRAND (LEGD.PA) - SIMON TOENNESSEN +44 20 7883 6893/ simon.toennessen@credit-suisse.comGeographic Mix Shareholding Structure

Free Float: 85%

Top 5 shareholders

SunLife Financials 10.87%, BlackRock

9.35%, Morgan Stanley 6.51%, Legron BV

5.46%, Capital Group Companies 4.96%

Ownership by country

USA 56%, France 12%, Luxembourg 9%,

Netherlands 9%, UK 5%, Norway 4% and

Others

France30%

Italy21%

Other Europe

17%

USA14%

Rest of World

22%

France24%

Italy13%

Other Europe

18%

USA17%

Rest ofWorld

28%

France24%

Italy13%

Rest ofEurope

18%

United States and Canada

17%

Rest of the

w orld28%

Commercial Construction

45%

Residential Construction

42%

Rest ofEurope

18%

Source: Company data

122

Melrose – Neutral, TP 275p

Bull Case Impressive management track record of generating value from under

performing industrial assets.

Signs that SMART is starting to gain momentum at Elster Electricity.

High quality assets like Energy and Bridon are still to be sold with proceeds

to be returned to shareholders.

Both Elster and Energy likely to see +ve competitive tension at time of

disposal.

Bear Case

CS M&A disposal SOTP for Melrose (peak multiples) is 300p offering little

difference to current price.

Outside of Elster Book-to-Bill for the group has been < 1x. No signs that

this will immediately reverse.

Low hanging efficiency gains at Elster now complete. Upside to consensus

margins for Elster of 18% in 2015E harder to achieve.

Next acquisition is likely to be larger than Elster (£1.6bn) in our view,

potentially up to £3bn in EV, and will require a rights issue.

Acquisition risk – overpaying for in demand industrial assets at the stated

£3bn target EV.

Investment summary: A strong track record of value creation and turning around underperforming assets.

However, with the shares now re-rated vs. the sector we see this fully discounted in the current share price.

0

50

100

150

200

250

300

350

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012

1 Yr Forward EPS (LHS) Share Price (RHS)

-20%

0%

20%

40%

60%

80%

100%

5%

8%

10%

13%

15%

18%

20%

Margins % (LHS) Sales Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

MRO ROIC (LHS) Sector ROIC (LHS)

MRO Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

123

Melrose – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 204.7 172.0 194.9 312.0 365.4 259.6 289.0 289.0 289.0

Share price - year low 145.8 58.3 59.5 162.0 268.0 193.4 289.0 289.0 289.0

Share price - year average 183.4 135.0 122.2 236.7 317.8 228.3 289.0 289.0 289.0

Enterprise value - high 424.4 1231.4 1461.4 1960.9 2071.1 3708.0 3924.9 3939.2 3904.7

Enterprise value - low 300.3 872.4 787.7 1214.5 1627.6 3082.3 3924.9 3939.2 3904.7

Enterprise value - average 379.5 1114.8 1099.9 1586.3 1854.3 3412.2 3924.9 3939.2 3904.7

EBITA 24.5 99.7 149.3 197.3 180.8 243.1 274.8 300.7 323.9

EV/EBITA - High 17.3 12.4 9.8 9.9 11.5 15.3 14.3 13.1 12.1

EV/EBITA - Low 12.3 8.8 5.3 6.2 9.0 12.7 14.3 13.1 12.1

EV/EBITA - Average 15.5 11.2 7.4 8.0 10.3 14.0 14.3 13.1 12.1

EBITDA 34.8 120.4 182.0 229.3 203.3 271.2 319.8 345.7 368.9

EV/EBITDA - high 12.2 10.2 8.0 8.6 10.2 13.7 12.3 11.4 10.6

EV/EBITDA - low 8.6 7.2 4.3 5.3 8.0 11.4 12.3 11.4 10.6

EV/EBITDA - average 10.9 9.3 6.0 6.9 9.1 12.6 12.3 11.4 10.6

Sales 344.0 938.3 1298.5 1379.5 1153.9 1551.4 1813.0 1874.0 1967.5

EV/Sales - high 1.2 1.3 1.1 1.4 1.8 2.4 2.2 2.1 2.0

EV/Sales - low 0.9 0.9 0.6 0.9 1.4 2.0 2.2 2.1 2.0

EV/Sales - average 1.1 1.2 0.8 1.1 1.6 2.2 2.2 2.1 2.0

CS EPS Adjusted (p) 9.1 16.8 16.3 24.2 24.7 16.1 12.7 17.1 19.1

PER - high 22.4 10.2 12.0 12.9 14.8 16.1 22.8 16.9 15.2

PER - low 16.0 3.5 3.7 6.7 10.8 12.0 22.8 16.9 15.2

PER - average 20.1 8.0 7.5 9.8 12.9 14.2 22.8 16.9 15.2

NAV 127.1 255.9 153.4 177.4 142.4 184.2 209.9 190.3 189.4

PBV - high 1.6 0.7 1.3 1.8 2.6 1.4 1.4 1.5 1.5

PBV - low 1.1 0.2 0.4 0.9 1.9 1.0 1.4 1.5 1.5

PBV - average 1.4 0.5 0.8 1.3 2.2 1.2 1.4 1.5 1.5

Dividend Yield 6.75 7.00 7.70 11.00 13.00 7.60 8.21 8.86 9.57

Dividend Yield - high 3% 4% 4% 4% 4% 3% 3% 3% 3%

Dividend Yield - low 5% 12% 13% 7% 5% 4% 3% 3% 3%

Dividend Yield - average 4% 5% 6% 5% 4% 3% 3% 3% 3%

FCF before distributions -13 93 157 98 64 3 50 122 148

FCF/Sales -3.7% 9.9% 12.1% 7.1% 5.5% 0.2% 2.8% 6.5% 7.5%

FCF per share -5.81 29.50 30.85 18.74 13.16 0.29 4.03 11.62 14.01

FCF/EBITDA -36% 77% 86% 43% 31% 1% 16% 35% 40%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

64%

40% 7% - 8% 1%23%

- 100%

0%

50%

100%

150%

200%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

&D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (

Def

erre

d ta

x, P

ensi

on,

Min

ority

etc

)

Fre

e C

ash

Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

124

Melrose – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 269.9 507.0 344.0 938.3 1,298.5 1,379.5 1,153.9 1,551.4 1,813.0 1,874.0 1,967.5

Change yoy, % 87.8% -32.1% 172.8% 38.4% 6.2% -16.4% 34.4% 16.9% 3.4% 5.0%

EBITDA 35.3 69.5 34.8 120.4 182.0 229.3 203.3 271.2 319.8 345.7 368.9

Margin, % 13.1% 13.7% 10.1% 12.8% 14.0% 16.6% 17.6% 17.5% 17.6% 18.4% 18.7%

EBITA 26.9 55.3 24.5 99.7 149.3 197.3 180.8 243.1 274.8 300.7 323.9

Margin, % 10.0% 10.9% 7.1% 10.6% 11.5% 14.3% 15.7% 15.7% 15.2% 16.0% 16.5%

CS PBT 20.9 43.9 27.0 75.4 118.6 170.8 161.2 214.3 224.8 254.7 282.9

Income Tax (4.5) 3.7 (7.2) (21.8) (36.1) (44.4) (41.4) (57.8) (62.9) (71.3) (79.2)

Exceptional - Tax (0.9) (2.9) 1.6 11.7 8.8 30.4 58.8 8.7 13.1 0.0 0.0

CS EPS (Diluted) 5.2 6.8 5.2 9.6 9.3 13.8 14.1 16.1 12.7 17.1 19.1

Reported EPS (Diluted) -1.4 8.2 4.1 -8.3 8.9 15.4 33.7 4.4 11.3 10.0 11.9

DPS, p 1.7 3.4 3.8 4.0 4.4 6.3 7.4 7.6 8.2 8.9 9.6

DPS growth yoy, % 100% 13% 4% 10% 43% 18% 3% 8% 8% 8%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 35.3 69.5 34.8 120.4 182.0 229.3 203.3 271.2 319.8 345.7 368.9

Working Capital Change (5.5) (8.4) (2.9) 43.0 80.1 3.1 (23.3) (44.0) (23.6) (21.8) (19.2)

Additional Pension Contribution (5.2) (5.4) (26.1) (19.8) (32.0) (27.5) (24.9) (33.7) (33.7) (33.7) (33.7)

Other (8.2) (10.9) (0.5) 23.7 (38.5) (33.9) (15.0) (58.8) (60.0) 0.0 0.0

Operating Cash Flow 16.4 44.8 5.3 167.3 191.6 171.0 140.1 134.7 202.5 290.2 316.0

Net Financing Cost (3.8) (7.5) 1.4 (28.2) (9.6) (16.6) (16.0) (31.8) (42.7) (45.6) (41.6)

Tax Paid (4.8) (4.0) (4.2) (16.1) (3.4) (27.2) (22.9) (49.4) (29.9) (42.8) (47.5)

Net Operating Cash Flow 7.8 33.3 2.5 123.0 178.6 127.2 101.2 53.5 129.8 201.8 226.9

Net Capex (6.7) (7.6) (15.1) (29.9) (21.9) (29.2) (37.3) (50.7) (79.4) (79.4) (79.4)

Free Cash Flow 1.1 25.7 (12.6) 93.1 156.7 98.0 63.9 2.8 50.4 122.4 147.5

Acquisitions (199.6) 0.0 (14.5) (171.7) 0.0 (9.1) 0.0 0.0 (11.0) 0.0 0.0

Disposals 0.0 7.4 446.7 (1.5) 48.6 (0.1) 370.7 30.7 928.5 0.0 0.0

Pre Financing Cash Flow (198.1) 33.3 419.1 (84.7) 204.6 87.9 428.4 29.7 964.3 124.9 150.0

Dividend Paid 0.0 (13.5) (13.0) (37.1) (27.0) (43.8) (52.8) (65.7) (95.1) (109.6) (115.5)

Net Cash / (Debt) Year End (198.7) (162.6) 32.4 (543.1) (321.7) (287.4) (289.6) (997.7) (158.4) (743.1) (708.6)

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 90 79 61 297 252 254 215 319 354 389 424

Goodwill 348 308 184 822 779 798 569 1,837 1,837 1,837 1,837

Intangible Assets 60 48 24 458 405 384 338 1,183 1,111 1,036 961

Working capital 72 81 50 402 293 287 258 457 480 502 521

Total assets 530 473 260 1494 1254 1290 1056 3001 2953 2920 2877

Shareholders' funds 270 254 266 805 762 882 648 1,735 2,586 1,969 1,959

Minorities 1 1 1 2 2 1 0 7 7 7 7

Total Borrowings 214 196 21 709 469 483 485 1,154 315 900 865

Cash and equivalents (15) (33) (54) (166) (148) (196) (196) (157) (157) (157) (157)

Net Debt / (Cash) 199 163 (33) 543 322 287 290 998 158 743 709

Pension Deficit 61 55 25 143 169 120 118 261 202 202 202

Total liabilities 530 473 260 1494 1254 1290 1056 3001 2953 2920 2877

Source: Company data, Credit Suisse estimates

125

Melrose – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Energy

FY2012 Sales - £487m,

9.9% org. growth

FY2012 EBITA - £93m,

19.2% margin

Power generation equipment with 10 kW to

250 MW electric generators, Synchronous

motors, induction motors, submersible and

traction motors, Power management and

excitation systems, Medium voltage AC and

DC switchgear, Power and system

transformers. Aftermarket servicing

Energy, Oil&Gas, Industrials, Other

20-130MW - GE (30% share), Siemens

(15%), Nanjing (1%), BHEL (3%). Other

Turbo sizes - Shanghai Electric

Europe - £291m (63%)

North America - £106m (23%)

Asia - £46m (10%)

RoW - £18m (4%)

Build out of gas-fired generation capacity

from 2014.

Lifting

FY2012 Sales - £524m,

7.7% org. growth

FY2012 EBITA - £95m,

18.2% margin

Wire rope, fibre rope and wire Hooks,

shackles, blocks, sheaves, clamps and

links Material handling products Monorail

systems Chain hoists Industrial carts and

trailers

Energy, Oil&Gas, Mining, Industrials, Other.

Crosby distribution channel is mostly

through distributors

Bridon - KisWire, WireCo, Usha, Haggie,

Redaelli. Crosby - Gunnebo Johnson,

Columbus Mckinnon, Campbell, Ropeblock,

Yoke, China Juli

Europe - £237m (49%)

North America - £107m (22%)

Asia - £82m (17%)

RoW - £58m (12%)

Off-shore and onshore gas explorations.

Basic industries including mining.

Other industrial

FY2012 Sales - £129m,

4.1% org. growth

FY2012 EBITA - £17m,

13.2% margin

Manufacture and service of a full range of

waste recycling equipment. Industrials, Automotive, Scrap processing,

OtherGeneral levels of IP

Elster

FY2012 Sales - £411m,

org. growth not disclosed for FY12

FY2012 EBITA - £58m,

14.1% margin

Advanced metering for gas, electricity,

water. Standard and Smart meters Gas, Electricity, Water, Energy

Itron (19%), Landis+Gyr (12%), Sensus

(8%), Neptune (4%). Concentrating on the

gas markets which is the largest for Elster

market share is Elster (29%), Itron (18%),

Dresser (5%), Landis+Gyr (5%), Sensus

(3%), Esco (3%)

Europe - £578m (49%)

North America - £602m (51%)

Traditional Metrology growth short to

medium term. Smart Meter growth from

medium term

MELROSE (MRON.L / MRO LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Energy

60%

Oil&Gas

11%

Mining

4%

Industrials

10%

Other

3%

Water

10%

Scrap Process

2%

Energy

24%

Lifting

13%

Other Industrial

1%

Elster

62%

Energy

19%

Lifting

15%

Other Industrial

2%

Elster

64%

Europe, 39%

North America,

40%

Asia, 11%

RoW, 10%

Shareholding structure

Free float: 97%

Top 5 shareholders: Blackrock - 15%,

Schroders PLC - 7%, Legal & General -

6%, Threadneedle Asset Management -

6%, Artemis Inv. Mngmnt. - 5%

Ownership by Country: UK - 59%,

USA - 22%, Switzerland - 3%, Norway -

2%, France- 2%

Management

Chairman -Christopher Miller

Vice Chairman - David Roper

CEO - Simon Peckham

CFO - Geoffrey Martin

Source: Company data

126

Metso – Outperform, TP €35 Investment summary: Attractive valuation opportunity ahead of Valmet (ex-PPP) demerger in Jan 2014 with

Group trading at >15% discount to SOTP, plus one of the strongest self-help cases in the sector.

Bull Case Substantial discount to its SOTP despite a looming Valmet spin off – valuing

New Metso on 11x EBITA (inline with Mining & Construction and Automation

peers) and Valmet on 10.5x EBITA (>10% discount to Andritz) suggests €35/

share valuation;

Over €200m targeted cost savings across New Metso and Valmet should result

in margin stabilisation in 2014 despite tough end-markets outlook;

Already discounting a 50% peak-to-trough drop in Mining new equipment and a

c-10% further decline in Valmet new equipment (across PPP);

Heavily outsourced business equipment manufacturing setup combined with a

mid-single digit recovery in aftermarket should drive margin resilience;

Potential strategic attractions of both parts to other players post spin off.

Bear Case Scope for further deterioration in mining new equipment (miners capex cuts

beyond 40-50% with no reallocation to brownfield) or longer than expected de-

stocking in aftermarket (we currently discount c15 months);

Pricing deterioration in mining equipment beyond the c2% we discount in our

estimates (we see crushing and grinding as relatively higher risk);

Pricing deterioration in aftermarket (we discount only limited pressure in wear

parts for Mining & Construction).

Risk of not delivering on cost savings or not internalising any of the savings (we

discount c30-40% retention).

0

10

20

30

40

50

60

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-30%

-20%

-10%

0%

10%

20%

30%

0%

2%

4%

6%

8%

10%

12%

Margins % (LHS) Sales Growth (RHS)

0%

20%

40%

60%

80%

100%

4%

6%

8%

10%

12%

14%

16%

18%

MEO ROIC (LHS) Sector ROIC (LHS)

MEO Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

127

Metso – Valuation

Per share Proportion Sales EBITA

pence % 2014E 2014E Valuation EV/Sales EV/EBITA

Metso M&C 22 63% 2,821 303 3,335 1.18 11.0

Metso Automation 8 24% 815 114 1,256 1.54 11.0

Valmet 8 24% 2,518 118 1,243 0.49 10.5

Enterprise value 39 111% 6,155 536 5,833 0.95 10.9

Net debt (2) (336)

Pensions deficit (2) (245)

Other EV Components 0 21

Equity value 35 5,273

Number of shares 150

Valuation per share 35

Price 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 41.8 24.5 14.6 29.8 33.3 30.1 28.4 28.4 28.4

High 49.9 37.3 24.7 43.2 42.8 36.9

Low 34.9 7.8 7.2 21.2 20.1 25.1

P/E average 13.6 8.2 8.1 14.8 12.0 9.9 11.9 12.2 10.9

P/E high 16.2 12.5 13.7 21.3 15.4 12.2

P/E low 11.3 2.6 4.0 10.5 7.2 8.3

EV:sales average 1.11 0.78 0.64 0.94 0.84 0.69 0.75 0.78 0.75

EV:sales high 1.30 1.08 0.96 1.30 1.06 0.83

EV:sales low 0.95 0.40 0.41 0.70 0.54 0.60

Operating profit margin 10.6% 11.0% 8.3% 8.8% 9.5% 9.2% 8.1% 8.7% 9.6%

EV:EBITDA average 9.1 6.3 6.2 8.5 7.5 6.5 7.5 7.0 6.3

EV:EBITDA high 10.7 8.6 9.2 11.8 9.4 7.7

EV:EBITDA low 7.8 3.2 4.0 6.4 4.8 5.6

EV:EBITA average 10.4 7.1 7.8 10.6 8.9 7.6 9.2 9.0 7.9

EV:EBITA high 12.2 9.8 11.6 14.7 11.2 9.1

EV:EBITA low 8.9 3.6 5.0 8.0 5.8 6.5

FCF yield average 2.6% -3.1% 32.6% 8.5% 6.2% 4.8% 4.1% 9.7% 9.4%

FCF yield high 2.1% -2.1% 19.3% 5.9% 4.9% 3.9%

FCF yield low 3.1% -9.9% 66.3% 11.9% 10.3% 5.8%

Dividend yield average 7.2% 2.9% 4.8% 5.2% 5.1% 6.2% 6.0% 6.5% 6.5%

Dividend yield high 6.0% 1.9% 2.8% 3.6% 4.0% 5.0%

Dividend yield low 8.6% 9.0% 9.7% 7.3% 8.4% 7.4%

EV/IC average 2.7 1.7 1.2 1.9 2.0 1.8 1.7 1.7 1.7

EV/IC high 3.2 2.3 1.7 2.7 2.5 2.2

EV/IC low 2.3 0.8 0.8 1.5 1.3 1.6

P/BV average 3.67 2.41 1.23 2.18 2.36 2.04 1.88 1.87 1.81

P/BV high 4.39 3.66 2.07 3.15 3.03 2.50

P/BV low 3.07 0.76 0.61 1.55 1.42 1.71

ROIC 19.0% 17.1% 11.0% 13.4% 16.7% 16.9% 13.3% 13.6% 15.3%

ROE 28.9% 34.1% 16.4% 17.5% 21.9% 22.0% 17.6% 17.2% 18.4%

ROCE 21.5% 19.2% 11.1% 12.9% 18.1% 17.6% 14.6% 14.9% 16.9%

SOTP

Source: Company data, Credit Suisse estimates

128

Metso – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 5,552 6,646 7,504 6,612 6,155 6,234

Growth, % 15% 20% 13% -12% -7% 1%

COGS (4,130) (4,978) (5,703) (4,827) (4,493) (4,551)

Gross Profit 1,422 1,668 1,801 1,785 1,662 1,683

Gross margin, % 26% 25% 24% 27% 27% 27%

SG&A (1,028) (1,107) (1,184) (1,203) (1,120) (1,135)

Other operating income 50 11 (16) 11 11 11

Reported EBIT 445 572 602 486 486 546

Reported EBIT margin, % 8% 9% 8% 7% 8% 9%

Exceptionals / Amortisation (46) (57) (86) (50) (50) (50)

Underlying EBITA 491 629 688 536 536 596

Operating profit margin, % 8.8% 9.5% 9.2% 8.1% 8.7% 9.6%

Depreciation 120 120 116 127 149 154

EBITDA 611 749 804 663 684 750

EBITDA margin, % 11% 11% 11% 10% 11% 12%

Net interest income / (expense) (75) (65) (59) (57) (57) (54)

Rate, % 10% 15% 11% 12% 17% 25%

Reported PBT 370 507 543 429 429 492

Underlying PBT 416 564 629 479 479 542

Tax (112) (149) (175) (124) (131) (150)

Effective rate, % 30% 29% 32% 29% 31% 31%

Minority interest (1) 2 1 3 - -

Reported Net Income 257 360 369 308 298 342

Operating Net Income 303 417 455 357 348 392

Net income margin, % 5% 6% 6% 5% 6% 6%

CS operating EPS 2.0 2.8 3.0 2.4 2.3 2.6

EPS growth, % 12% 37% 9% -21% -3% 13%

DPS, Euro 1.6 1.7 1.9 1.7 1.9 1.9

DPS growth, % 121% 10% 9% -8% 9% 0%

Dividend Cover (X) 1.3 1.6 1.6 1.4 1.3 1.4

Ordinary shares in issue 149.6 149.6 149.8 149.8 149.8 149.8

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 359 463 486 398 391 433

Invested Capital 2,671 2,771 2,878 2,995 2,881 2,823

ROIC 13.4% 16.7% 16.9% 13.3% 13.6% 15.3%

Operating Net Income 303 417 455 357 348 392

Equity 2,049 2,115 2,207 2,260 2,281 2,346

ROE 14.8% 19.7% 20.6% 15.8% 15.3% 16.7%

EBITDA 611 749 804 663 684 750

Total debt 1,373 1,027 1,290 1,290 1,290 1,290

Net debt 728 437 559 472 336 215

Total debt / EBITDA 2.2 1.4 1.6 1.9 1.9 1.7

Net debt / EBITDA 1.2 0.6 0.7 0.7 0.5 0.3

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 1,729 1,737 1,720 1,781 1,768 1,751

Other f ixed assets 410 245 250 260 269 278

Fixed assets 2,426 2,254 2,223 2,294 2,290 2,282

Inventories 1,305 1,677 1,529 1,449 1,332 1,332

Trade and other receivables 1,529 1,861 1,862 1,685 1,551 1,537

Trade and other payables (2,179) (2,776) (2,486) (2,174) (2,023) (2,049)

Working capital 655 762 905 960 860 820

Working capital days 43 42 44 53 51 48

WC as % of sales 12% 11% 12% 15% 14% 13%

Cash 645 590 731 818 954 1,075

Short-term debt (417) (272) (204) (258) (258) (258)

Long-term debt (956) (755) (1,086) (1,032) (1,032) (1,032)

Net (debt) / cash (728) (437) (559) (472) (336) (215)

Pension deficit (195) (238) (245) (245) (245) (245)

Other assets 327 236 297 146 146 146

Other liabilities (414) (441) (394) (405) (417) (428)

Net assets 2,071 2,136 2,227 2,277 2,298 2,363

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Operating profit 491 629 688 536 536 596

Depreciation 120 120 116 127 149 154

Associates - - (1) (1) - -

Net interest paid (58) (50) (39) (46) (46) (43)

Tax paid (98) (122) (188) (137) (131) (150)

Other 26 12 (37) (11) (11) (11)

Gross cash flow 481 589 539 468 497 546

Working capital change 25 (123) (176) (55) 100 40

Operating cash flow 506 466 363 413 597 586

Operating cash / Operating profit 1.03 0.74 0.53 0.77 1.11 0.98

Net Capex (127) (154) (146) (238) (185) (187)

Free cash flow 379 312 217 175 412 399

FCF / Net income 1.25 0.75 0.48 0.49 1.19 1.02

Acquisitions (21) (15) (5) - - -

Disposals 8 - - - - -

Sales / (Purchase) of investments (147) 235 (62) 163 - -

Dividends paid (105) (232) (254) (255) (277) (277)

Shares issue / (purchase) (7) - - - - -

Borrow ings raised / (repaid) (243) (352) 268 - - -

Other 21 (2) (1) - - -

Net cash flow (115) (54) 163 83 135 122

Source: Company data, Credit Suisse estimates

129

Metso – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

CEO Matti Kahkonen

CFO Harri Nikunen

IR Marja Makinen

Division Products End Markets / Channels Main Competitors Orders Received by Geography Key Drivers/ Themes

Mining & Construction

FY 2012 Sales EUR 3.49 Bn

18.0% YoY nominal growth

FY 2012 EBIT EUR 0.42 Bn

12.0% Margin

Grinding Mills, Crushers, Process Equipment,

Mobile Crushers, Conveyors, Spare Parts

Mining 38%, Construction 13%, Mining

Services 37%, Construction Services 10%,

Recycling Services 2%.

FLSmidth, ABB Mining, ThyssenKrupp, Sandvik,

Outotec, Siemens Mining, Rema Tip Top, Atlas

Copco, Terex, Caterpillar, Excel, Astec, Deister

North America 26%, Asia Pacific 24%, South &

Central America 24%, Other European Countries

21%, Middle East/Africa 9%, Other Nordic

Countries 7%, Finland 2%

Demand for minerals; Infrastructure investments;

Growth of middle class; Urbanization; Growth of

EM, Need for process efficiencies at mines

Automation

FY 2012 Sales EUR 0.86 Bn

11.5% YoY organic growth

FY 2012 EBIT EUR 0.1 Bn

11.8% Margin

Process Automation, Process measurement

system, Emergency shutdiown valves,

Positioners and Conditioners,

Oil & Gas 40%, Pulp & Paper 40%, Power 10%,

Mining and Others 10%

ABB, Honeywell, Emerson Process, General

Electric, Flowserve

North America 26%, Asia Pacific 24%, Other

European Countries 18%, Finland 14%, South &

Central America 9%, Middle East/Africa 6%,

Other Nordic Countries 3%

Growth in energy consumption; Growth of EM;

Supply of raw meterial

METSO (MEO1V.HE) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.comGeographic Mix Shareholding Structure

Free Float: 89%

Top 5 shareholders

Solidium Oy 11.1%, Cevian Capital Partners

8.3%, Cevian Capital II Master Fund 5.5%

Illmarinen Mutual Pension Insurance Company

2.7% , Varma Mutual Pension Insurance

Company 1.9%

Ownership by country

Finland 45%, UK 25%, Norway 8%, US 7%,

Sweden 6% and Others.

Mining & Construction

81%

Automation19%

Automotive0%

Mining & Construction

76%

Automation19%

Automotive5%

Europe30%

North America19%

South and Central America

22%

APAC22%

Africa andMiddle East

7%

Mining55%

Pulp and Paper7%

Construction18%

Power Generation

12%

Other8%

Orders Recieved Split Sales Mix Employee by Geography

Management

CEO Pasi Laine

CFO Markku Honkasalo

IR Hanna- Maria Heikkinen

VALMET - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.comGeographic Mix Shareholding Structure

Top 5 shareholders

Solidium Oy 11.1%

Cevian Capital Partners 8.4%

Cevian Capital II Master Fund 5.5%

Illmarinen Mutual Pension Insurance Company

2.7%

Varma Mutual Pension Insurance Company

1.9%

Service Business 43%

Equipment, product & project business

57%

Paper27%

Pulp & Energy 39%

Services34%

APAC11%

South & Central America

17%

North America19%

EMEA40%

China13%

North America

9%

South America

4%

EMEA65%

APAC5%

China17%

Source: Company data

130

Morgan Advanced Materials – Underperform, TP 270p

Bear Case

Cumulative cash conversion has been below the sector average. At this

juncture we see this track record continuing.

No ROIC improvement. Despite a ‘changed’ business model ROIC has

seen little change and remains below the level achieved in 2007 questioning

whether the business has improved over the cycle

Organic Growth & EBITA margins have lagged the sector. We see this

trend likely to continue under the current portfolio structure.

Further downside risk to consensus from FX / strengthening UK£

Bull Case

Potential M&A candidate for either an Industry competitor (particularly

Ceramics) or Private Equity.

Portfolio reorganization self help – Morgan undertakes material portfolio

reorganisation and sells (as alluded to) underperforming assets

Undemanding valuation – trading at a material discount to its peer group

weighted SOTP.

Investment summary: Under the current portfolio structure Morgan has seen little change with the ROIC

generated in 2013E still below the level achieved in 2007. Against this backdrop we rate the share at

Underperform

0

50

100

150

200

250

300

350

400

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

8%

9%

10%

11%

12%

13%

14%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

6%

8%

10%

12%

14%

16%

18%

MGAM ROIC (LHS)Sector ROIC (LHS)MGAM Cash conversion (RHS)Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

131

Morgan Advanced Materials – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 323.0 244.8 192.3 254.1 357.1 360.0 290.0 290.0 290.0

Share price - year low 173.0 67.8 70.3 157.7 224.0 220.3 290.0 290.0 290.0

Share price - year average 280.4 180.7 126.6 205.0 283.0 284.6 290.0 290.0 290.0

Enterprise value - high 1109.7 1095.6 902.6 1058.3 1353.4 1373.8 1177.8 1136.1 1086.9

Enterprise value - low 679.0 607.7 575.4 799.4 994.2 994.2 1177.8 1136.1 1086.9

Enterprise value - average 987.3 919.0 726.4 926.5 1153.4 1168.9 1177.8 1136.1 1086.9

EBITA 79.1 97.4 77.0 101.6 141.5 108.8 105.1 123.5 131.1

EV/EBITA - High 14.0 11.2 11.7 10.4 9.6 12.6 11.2 9.2 8.3

EV/EBITA - Low 8.6 6.2 7.5 7.9 7.0 9.1 11.2 9.2 8.3

EV/EBITA - Average 12.5 9.4 9.4 9.1 8.2 10.7 11.2 9.2 8.3

EBITDA 111.8 136.4 120.7 141.8 176.4 152.0 151.5 159.5 168.1

EV/EBITDA - high 9.9 8.0 7.5 7.5 7.7 9.0 7.8 7.1 6.5

EV/EBITDA - low 6.1 4.5 4.8 5.6 5.6 6.5 7.8 7.1 6.5

EV/EBITDA - average 8.8 6.7 6.0 6.5 6.5 7.7 7.8 7.1 6.5

Sales 693.2 835.0 942.6 1017.1 1101.0 1007.5 957.0 970.0 1008.0

EV/Sales - high 1.6 1.3 1.0 1.0 1.2 1.4 1.2 1.2 1.1

EV/Sales - low 1.0 0.7 0.6 0.8 0.9 1.0 1.2 1.2 1.1

EV/Sales - average 1.4 1.1 0.8 0.9 1.0 1.2 1.2 1.2 1.1

CS EPS Adjusted (p) 21.7 22.8 12.6 17.8 28.6 22.8 20.9 24.8 27.1

PER - high 14.9 10.8 15.2 14.3 12.5 15.8 13.9 11.7 10.7

PER - low 8.0 3.0 5.6 8.9 7.8 9.7 13.9 11.7 10.7

PER - average 12.9 7.9 10.0 11.5 9.9 12.5 13.9 11.7 10.7

NAV 71.2 77.9 80.1 93.4 99.5 98.1 114.8 134.7 153.5

PBV - high 4.5 3.1 2.4 2.7 3.6 3.7 2.5 2.2 1.9

PBV - low 2.4 0.9 0.9 1.7 2.3 2.2 2.5 2.2 1.9

PBV - average 3.9 2.3 1.6 2.2 2.8 2.9 2.5 2.2 1.9

Dividend Yield 6.8 7.0 7.0 7.7 9.3 10.1 10.7 11.3 12.0

Dividend Yield - high 2% 3% 4% 3% 3% 3% 4% 4% 4%

Dividend Yield - low 4% 10% 10% 5% 4% 5% 4% 4% 4%

Dividend Yield - average 2% 4% 6% 4% 3% 4% 4% 4% 4%

FCF before distributions 24 23 54 77 58 49 50 72 74

FCF/Sales 3% 3% 6% 8% 5% 5% 5% 7% 7%

FCF per share 8.36 8.46 19.13 26.95 20.32 17.38 17.60 25.24 26.09

FCF/EBITDA 21% 17% 44% 54% 33% 32% 33% 45% 44%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

40%

- 33%

- 13% - 3%

2%7%

- 20%

0%

20%

40%

60%

80%

100%

120%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

& D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (D

efer

red

tax,

Pen

sion

,M

inor

ity e

tc)

Free

Cas

h Fl

ow

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

132

Morgan Advanced Materials – Financials PROFIT & LOSS 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY

Revenue 677.8 693.2 835.0 942.6 1,017.1 1,101.0 1,007.5 957.0 970.0 1,008.0

Change yoy, % 2.3% 20.5% 12.9% 7.9% 8.2% -8.5% -5.0% 1.4% 3.9%

EBITDA 99.6 111.8 136.4 120.7 141.8 176.4 152.0 151.5 159.5 168.1

Margin, % 14.7% 16.1% 16.3% 12.8% 13.9% 16.0% 15.1% 15.8% 16.4% 16.7%

EBITA 74.9 88.1 108.8 89.0 109.5 143.4 122.0 120.0 127.5 135.1

Margin, % 11.1% 12.7% 13.0% 9.4% 10.8% 13.0% 12.1% 12.5% 13.1% 13.4%

Restructuring Costs (recurring) (27.7) (9.0) (11.4) (12.0) (7.9) (1.9) (13.2) (27.9) (4.0) (4.0)

CS EBITA 47.2 79.1 97.4 77.0 101.6 141.5 108.8 92.1 123.5 131.1

Margin, % 7.0% 11.4% 11.7% 8.2% 10.0% 12.9% 10.8% 9.6% 12.7% 13.0%

Income Associates 0.0 0.2 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net interest Income / (Expense) (3.4) (5.5) (12.7) (29.3) (25.9) (21.8) (19.1) (22.0) (21.0) (19.0)

Restructuring Costs (recurring) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CS PBT 43.8 73.8 85.9 47.7 75.7 119.7 89.7 70.1 102.5 112.1

Income Tax (16.2) (15.8) (20.1) (8.7) (19.7) (32.6) (22.1) (20.8) (28.2) (31.3)

Exceptional - Tax 5.6 0.6 0.0 0.0 0.0 0.0 0.0 (2.8) 0.0 0.0

CS EPS (Diluted) 17.2 21.7 22.8 12.6 17.8 28.6 22.8 16.3 24.8 27.1

Reported EPS (Diluted) 12.3 18.5 21.6 6.8 15.0 25.7 27.3 12.3 21.8 23.9

DPS, p 5.5 6.8 7.0 7.0 7.7 9.3 10.1 10.7 11.3 12.0

DPS growth yoy, % 23% 4% 0% 10% 20% 9% 6% 6% 6%

CASH FLOW 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 99.6 111.8 136.4 120.7 141.8 176.4 152 151.5 159.5 168.1

Working Capital Change (22.9) (18.5) (21.8) 25.8 10.5 (29.1) (12.6) (1.0) (6.8) (11.6)

Operating Cash Flow (8.9) 78.1 99.7 122.4 140.3 129.3 121.0 132.4 152.7 156.5

Net Financing Cost (4.7) (8.8) (16.9) (23.2) (22.7) (20.4) (18.5) (19.8) (18.9) (17.1)

Tax Paid (6.3) (12.5) (28.1) (32.0) (24.1) (25.6) (26.8) (23.6) (28.2) (31.3)

Net Operating Cash Flow (19.9) 56.8 54.7 67.2 93.5 83.3 75.7 88.9 105.6 108.0

Net Capex (32.9) (33.1) (31.5) (13.7) (17.0) (25.5) (26.7) (39.0) (34.0) (34.0)

Free Cash Flow (52.8) 23.7 23.2 53.5 76.5 57.8 49.0 49.9 71.6 74.0

Acquisitions (20.7) (9.4) (79.2) (31.9) (32.9) (10.4) (6.6) 0.0 0.0 0.0

Disposals 13.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Pre Financing Cash Flow (62.2) 14.0 (63.0) 22.1 37.9 43.3 43.2 51.9 71.6 74.0

Dividend Paid (7.4) (18.8) (18.8) (12.1) (15.4) (18.4) (16.1) (26.9) (18.3) (24.8)

Net Cash / (Debt) Year End (34.1) (119.7) (290.4) (252.7) (236.2) (215.4) (192.8) (194.8) (141.5) (92.3)

BALANCE SHEET 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 230 247 320 276 269 260 246 254 257 259

Goodwill 54 57 118 207 197 200 191 191 191 191

Intangible Assets 12 13 59 90 88 84 74 68 62 56

Working capital 127 141 215 194 200 227 212 213 219 231

Total assets 280 364 600 573 592 621 631 661 663 667

Shareholders' funds 187 176 178 185 215 229 234 285 341 394

Minorities 16 20 30 30 37 41 38 38 38 38

Total Borrowings 132 228 445 360 321 299 273 275 222 172

Cash and equivalents (97) (108) (155) (108) (85) (83) (80) (80) (80) (80)

Net Debt / (Cash) 34 120 290 253 236 215 193 195 142 92

Pension Deficit 43 48 102 106 104 135 167 143 143 143

Total liabilities 280 364 600 573 592 621 631 661 663 667

Source: Company data, Credit Suisse estimates

133

Morgan Advanced Materials – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

We show Divisional breakdown below based on the old structure rather than the new geographic segmentation

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Engineering Materials

FY2012 Sales - £347m,

(14.3)% org. growth

FY2012 EBITA - £33m,

9.4% margin

Electrical brushes

Seals and bearings

Protective ballistic armour

Ultra-high-temperature insulation

Crucibles

Lithium ion battery anode materials

Industrial

Security & Defence

Transportation

Energy

Electronics

Petrochemical

LeCarbone, Schunk, SGLCarbon,

ToyoTanso, StGobain, ESK,

Europe - £222m (53%)

North America - £148m (36%)

Asia & RoW - £46m (11%)

AMT (Carbon) is mostly a replacement driven market. MMS

is non ferous metal foundry while NPA is defence spending

exposed

Ceramics

FY2012 Sales - £661m,

(2.7)% org. growth

FY2012 EBITA - £95m,

14.3% margin

Insulating fibre, insulating bricks and

monolithics

Ceramic cores for complex turbine blades

Components for electron tubes

Feedthroughs for medical implants

Piezoelectric ceramic actuators

Industrial

Transportation

Electronics

Petrochemical

Energy

Healthcare

Kyocera, Ceramtec, Coorstek, St Gobain,

Ceradyne.

Europe - £207m (30%)

North America - £235m (34%)

Asia & RoW - £243m (36%)

Thermal Ceramics is IP driven + substitution of RCF.

Technical Ceramics operates with a low order book with

products made to order.

MORGAN ADVANCED MATERIALS (MGAMM.L / MGAM LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Industrial

45%

Transportation

19%

Security &

Defence8%

Electronics

9%

Petrochemical

9%

Energy

6%

Healthcare

4%North America

38%

Europe

37%

Asia & ROW

25%Europe, 35%

North America,

34%

South America,

4%

Asia & RoW, 27%North America

45%

Europe

33%

Asia & ROW

22%

Shareholding structure

Free float: 96%

Top 5 shareholders: AXA - 16%,

Prudential PLC - 14%, HSBC IB UK Ltd. -

7%, Hsbc Holdings Plc - 5%, AVIVA PLC -

5%

Ownership by Country: UK - 76%, USA -

9%, France - 7%, Norway - 3%,

Luxembourg - 2%

Management

Chairman -Tim Stevenson OBE

CEO - Mark Robertshaw

CFO -Kevin Dangerfield

CS - Paul Boulton

Source: Company data

134

Nexans – Neutral, TP €31

Investment summary: Relatively low expectations but on-going uncertainty regarding 2015 targets following Q313

results. Risk of pricing pressure eroding cost savings due to exposure to commoditized cable end markets.

Bull Case Expectations are sufficiently low following c25% cuts to FY13 guidance and

a rights issue at the Q313 results.

The company can surprise positively on its cost improvements programme

which includes €50m of fixed cost savings and €40m of variable cost savings

by 2015.

Nexans hired a new Chief Operating Officer in July 2013 to oversee the

cost savings programme which could improve execution. Madeco (22.5%

shareholder) also now have three seats on the board.

Bear Case

Pricing pressure could erode cost savings due to Nexans’ exposure to

commoditized cable end markets (building cables).

Under the current management Nexans has disappointed on execution

(2012 Halden production issues) giving limited confidence in the execution of

the current programme.

ROIC to remain below the cost of capital out to 2015E and cumulative c€0

FCF generated in 2014/15E due to antitrust fine and restructuring costs.

The valuation discount vs the sector is in-line with the historical average and

therefore, despite the negative sentiment, the shares are not cheap.

Power Distribution

& D&I41%

Submarine cables26%

Other33%

-20%

-15%

-10%

-5%

0%

5%

10%

0%

2%

4%

6%

8%

10%

2007 2008 2009 2010 2011 2012 2013E2014E2015E

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

2%

4%

6%

8%

10%

12%

14%

16%

18%

NXS ROIC (LHS) Sector ROIC (LHS)

NXS Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

135

Nexans – Valuation

Multiples

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Average/Current 110.8 68.9 44.1 54.9 56.7 35.4 34.3 34.3 34.3 34.3

High 131.7 92.0 59.3 66.0 73.1 54.5 34.3 34.3 34.3 34.3

Low 82.7 36.3 26.1 45.5 37.4 27.8 34.3 34.3 34.3 34.3

Year end 85.5 42.6 55.8 58.9 40.1 27.8 34.3 34.3 34.3 34.3

P/E average 12.7 7.4 13.2 18.9 13.6 20.2 39.7 17.2 9.9 8.9

P/E high 15.1 9.9 17.8 22.8 17.5 34.8 39.7 17.2 9.9 8.9

P/E low 9.5 3.9 7.8 15.7 9.0 17.7 39.7 17.2 9.9 8.9

P/E year-end 9.8 4.6 16.7 20.3 9.6 17.7 39.7 17.2 9.9 8.9

EV/Sales average 0.72 0.57 0.43 0.48 0.48 0.45 0.42 0.54 0.52 0.50

EV/Sales high 0.84 0.69 0.54 0.55 0.58 0.56 0.42 0.54 0.52 0.50

EV/Sales low 0.58 0.39 0.31 0.42 0.36 0.40 0.42 0.54 0.52 0.50

EV/Sales year-end 0.59 0.42 0.51 0.50 0.38 0.40 0.42 0.54 0.52 0.50

Operating profit margin 8.5% 8.9% 6.0% 4.8% 5.6% 4.1% 3.1% 4.5% 6.1% 6.1%

EV/EBIT average 8.5 6.3 7.2 10.0 8.6 10.8 13.7 12.2 8.6 8.2

EV/EBIT high 9.9 7.7 9.0 11.5 10.4 13.6 13.7 12.2 8.6 8.2

EV/EBIT low 6.8 4.3 5.1 8.7 6.4 9.6 13.7 12.2 8.6 8.2

EV/EBIT year-end 7.0 4.7 8.6 10.5 6.7 9.6 13.7 12.2 8.6 8.2

FCF yield average 11.8% 14.2% 17.6% 4.5% 2.0% 1.7% 3.0% -5.8% 6.1% 6.4%

FCF yield high 10.2% 11.6% 14.1% 3.9% 1.6% 1.3% 3.0% -5.8% 6.1% 6.4%

FCF yield low 14.8% 20.7% 24.7% 5.1% 2.7% 1.9% 3.0% -5.8% 6.1% 6.4%

FCF yield year-end 14.5% 19.1% 14.8% 4.2% 2.6% 1.9% 3.0% -5.8% 6.1% 6.4%

Dividend yield average 1.8% 2.9% 2.3% 2.0% 1.9% 1.4% 1.5% 1.5% 2.5% 2.8%

Dividend yield high 1.5% 2.2% 1.7% 1.7% 1.5% 0.9% 1.5% 1.5% 2.5% 2.8%

Dividend yield low 2.4% 5.5% 3.8% 2.4% 2.9% 1.8% 1.5% 1.5% 2.5% 2.8%

Dividend yield year-end 2.3% 4.7% 1.8% 1.9% 2.7% 1.8% 1.5% 1.5% 2.5% 2.8%

EV/IC average 1.47 1.09 0.73 0.77 0.89 0.75 0.71 0.85 0.83 0.80

EV/IC high 1.69 1.33 0.91 0.89 1.09 0.94 0.71 0.85 0.83 0.80

EV/IC low 1.16 0.75 0.52 0.67 0.67 0.67 0.71 0.85 0.83 0.80

EV/IC year-end 1.19 0.81 0.87 0.81 0.70 0.67 0.71 0.85 0.83 0.80

Valuation scenarios Bull case

Base case

and TP

Methodology

Bear case

Target Multiple (2015 EV/EBITA) 8.5 8.5 8.5

2015 operating profit € 331 € 301 € 271

Net Debt & Liabilities 1,152 1,152 1,152

Equity Valuation 1,663 1,408 1,153

Implied Share price (discounted back 1yr) € 36 € 31 € 25

Multiple Valuation

Source: Company data, Credit Suisse estimates

136

Nexans – Financials P&L 2010 2011 2012 2013E 2014E 2015E 2016E

GROUP REVENUE (at constant metals prices) 4309 4594 4872 4760 4827 4976 5135

Cost of Sales (constant metal prices) -3569 -3767 -4046 -3951 -3967 -4086 -4215

GROSS PROFIT 740 827 826 809 859 891 919

as a % of sales 17% 18% 17% 17% 18% 18% 18%

Sales General and Administration -533 -571 -624 -664 -644 -590 -605

as a % of sales 12% 12% 13% 14% 13% 12% 12%

UNDERLYING OPERATING PROFIT 207 256 202 146 215 301 314

Operating Margin 5% 6% 4% 3% 4% 6% 6%

Depreciation, Amortization and Impairment -138 -136 -147 -150 -150 -150 -150

UNDERLYING EBITDA 345 392 349 296 365 451 464

TOTAL ADJUSTMENTS -2 -304 -60 -169 -50 -50 -45

OPERATING PROFIT 205 -48 142 -23 165 251 269

Financial Income / (Expense) -95 -107 -112 -110 -100 -100 -90

PROFIT BEFORE TAX 110 -155 30 -133 65 151 179

UNDERLYING PROFIT BEFORE TAX 112 149 90 36 115 201 224

Income tax expenses -26 -31 -5 -37 -18 -42 -50

effective tax rate -24% 20% -17% -28% -28% -28% -28%

Underlying Tax rate -25% -25% -28% -28% -28% -28% -28%

PROFIT AFTER TAX 84 -186 25 -171 47 109 129

UNDERLYING PROFIT AFTER TAX 84 112 65 26 83 145 161

Minority interest 2 -8 -2 -2 -2 -2 -2

NET INCOME 82 -178 27 -169 49 111 131

UNDERLYING NET INCOME 82 120 67 28 85 147 163

Impact of Interest Exp. Net of Tax 10 0 0 0 0 0 0

NET INCOME 92 -178 27 -169 49 111 131

UNDERLYING NET INCOME 92 120 67 28 85 147 163

Reported Basic EPS 2.9 -6.2 0.9 -5.3 1.2 2.6 3.1

Reported Diluted EPS 2.6 -6.2 0.9 -5.3 1.1 2.6 3.1

UNDERLYING EPS (basic) 2.9 4.2 2.2 0.9 2.0 3.5 3.9

UNDERLYING EPS (diluted) 2.6 4.2 2.2 0.9 2.0 3.4 3.8

UNDERLYING EPS (inc rights issue) 1.8 2.9 1.6 0.9 2.0 3.4 3.8

DIVIDEND PER SHARE 1.10 1.10 0.50 0.50 0.51 0.87 0.97

Payout Ratio 38% 26% 22% 25% 26% 25% 25%

Ordinary shares outstanding 28 29 30 32 42 42 42

Diluted shares outstanding 36 29 30 32 43 43 43

Cash Flow Statement 2010 2011 2012 2013E 2014E 2015E 2016E

Net income (loss) attributable to owners 82 -178 27 -169 49 111 131

Net income (loss) attributable to minorities 2 -8 -2 -2 -2 -2 -2

Depreciation, Amortization and Impairment 196 172 167 150 150 150 150

Cost of Debt (Gross) 79 84 96 110 100 100 90

Core Exposure Effect -89 40 11 0 0 0 0

Other Restatements (includes added back tax) -2 185 -3 37 18 42 50

Cash flows from operations pre int.& tax 268 295 296 127 315 401 419

decrease/(increase) in inventories -126 -34 -19 50 -8 -32 -35

decrease/(increase) in trade receivables -75 -146 110 18 -20 -34 -35

decrease/(increase) in trade payables & exp. 198 108 -100 -10 1 29 37

Income tax paid -62 -53 -73 -37 -18 -42 -50

Impairment of current assets and accrued costs 5 5 -17 0 10 10 10

Net cash flow from Operating 208 175 197 240 79 332 345

FREE CASH FLOW 92 44 36 59 -152 158 165

Proceeds from disposals of PPE and intangibles 13 17 5 0 0 0 0

Capital expenditures -129 -148 -166 -181 -232 -174 -180

Decrease (increase) in short-term financial assets -157 89 46 0 0 0 0

Purchase of shares , net of cash acquired 0 -8 -289 0 0 0 0

Proceeds from sale of shares (net of cash tranf.) 19 6 1 0 0 0 0

Net cash flow from Investing -254.03 -44 -403 -181 -232 -174 -180

Proceeds from (repayment of) long-term borrowings -2 1 525 0 0 0 0

Proceeds (repayment of) short-term borrowings 43 25 -259 0 0 0 0

Cash capital increases (reductions) 22 4 16 280 0 0 0

Interest paid -38 -68 -73 -110 -100 -100 -90

Dividends paid -32 -33 -33 -16 -22 -37 -41

Net cash flow from Financing -7 -71 176 154 -122 -137 -131

Exhange gain/(loss) 26 -4 7 0 0 0 0

Net cash used in the period -27 56 -23 213 -274 22 34

Cash and cash equivalent beginning of period 810 783 839 816 1029 756 777

cash and cash equivalent end of period 783 839 816 1029 756 777 811

Source: Company data, Credit Suisse estimates

137

Nexans – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman & CEO Frederic Vincent

CFO Nicolas Badre

IR Laura Duquesne

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Transmission, Distribution & Operators

FY 2012 Sales EUR 2.09 Bn

-4.0% YoY organic growth

FY 2012 EBIT EUR 0.07 Bn

3.4% Margin

Cables and cabling solutions for power

production, transmission and distribution and

Telecom

Transmission and Distribution, Telecom

network and Transport infrastructuresABB, Prysmian, General Cables, Southwire,

Developed market 60%, Emerging market

40%

Increasing share of renewables (offshore

wind); Grade upgrades (interconnection)

Industry

FY 2012 Sales EUR 1.20 Bn

3.7% YoY organic growth

FY 2012 EBIT EUR 0.04 Bn

3.7% Margin

Cables and solutions for market segments as

diverse as the automotive, rolling stock and

aerospace industries, shipbuilding, nuclear

power, oil & gas and petrochemicals, material

handling and automation

Automotive 30%, Transport 24%, Resources

21%, Automation 5% and others 20%Prysmian, Leoni, Pirelli, ABB

Increasing importance of APAC, weak Europe

and North America

Globacl industrial production; Oil & gas

capex; Automotive demand

Distributors & Installers

FY 2012 Sales EUR 1.29 Bn

2.0% YoY organic growth

FY 2012 EBIT EUR 0.08 Bn

3.3% Margin

Cables and network solutions for structures of

all types: from small residences to public and

office buildings and big industrial complexes

using power cables and LAN cabl.

Residential, Industrial and Commercial

Building.

General Cables, Prysmian, Sumitomo, Leoni,

Encore Wire, Southwire

Europe 39%, North America 24%, Asia

Pacific 15%, South America 13%, MERA 9%

European & US construction new build (50%);

Renovation (50%)

NEXANS (NEXS.PA) - MAX YATES +44 20 7883 6893/ max.yates@credit-suisse.comGeographic Mix Shareholding Structure

Free Float: 80%

Top 5 shareholders

Madeco 19.6%, FSI 5.5%, Dodge & Cox

5.2%, Manning & Napier 5.1%, Third Avenue

Management 5.1%.

Ownership by country

Germany 22%, US 21%, UK 11%, Qatar 8%,

Luxembourg 6% and others

T,D&O34%

Industry22%

Distributors & Installers

39%

Others5%

T,D&O43%

Industry25%

Distributors & Installers

26%

Others6%

Europe56%

NorthAmerica

15%

Asia Pacif ic

13%

Central &South America

9%

MERA7%

Pow er T&D44%

Commercial Construction

18%

Residential Construction

9%

Automotive7%

General Industry

6%

Others16%

Source: Company data

138

Philips – Neutral, TP €26

Bull Case Recovering Healthcare equipment demand in the US with on-going strong

volume trends in EM providing solid top-line growth

Potential commercial construction recovery in Europe and the US could

enhance organic sales growth in Lighting division

Strong cost savings focus providing margin support

Shareholder friendly management with on-going share buyback in place

Valuation supportive with 10% sector discount on EV/EBITA

Bear Case Ambitious 90bps margin improvement in FY14 Healthcare consensus at

times of limited self help potential, Siemens flagging Healthcare margin

peaking and rising pricing risk from Japanese competition

Disruption to becoming a higher quality company with improved cash flow

conversion and better returns generation (e.g. issues selling audio/video biz)

Consumer Lifestyle growth leveling out from c.10% avg. last quarters

Increased competition in Lighting from emerging and developed market

players putting pressure on margins

Investment summary: Attractive end market play with solid organic top-line growth potential from structurally

growing Healthcare markets in the developing world yet ambitious consensus margin expectations particularly in

Healthcare providing potential risk for disappointment.

-15%

-10%

-5%

0%

5%

10%

15%

0%

2%

4%

6%

8%

10%

12%

Margins % (LHS) Organic Growth (RHS)

0

5

10

15

20

25

30

0.00

0.50

1.00

1.50

2.00

2.50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

0%

20%

40%

60%

80%

100%

2%

4%

6%

8%

10%

12%

14%

16%

18%

PHG ROIC (LHS) Sector ROIC (LHS)PHG Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

139

Philips – Valuation

Nature of

metric

Value of

metric

Multiple/

ShareFair value % of EV Comments

2014E 2014E 2014E 2014E

Healthcare EBITA 1,526 10.5 16,021 55% US healthcare multiples

Consumer Lifestyle EBITA 575 9.3 5,344 18% Higher quality consumer goods company

Lighting EBITA 874 8.5 7,426 26% Lighting peers

Unallocated costs EBITA -222 8.5 -1,887

Divisions 2,752 9.8 26,903 99%

Equity Stakes 168 1%

Net Debt (2013) -1,532

Pension -1,208

Net SOP Value 24,210

Value per Share 26

2007A 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E

Share Price:

Average/ Current 29.7 21.4 15.3 23.1 17.4 16.7 25.7 25.7 25.7

High 33.0 29.5 21.0 27.0 23.1 20.3

Low 26.7 12.1 10.9 20.1 12.2 13.1

Year End 29.5 13.8 20.7 22.8 16.3 19.9

Year End 6.5 13.7 21.9 12.7 14.8 33.2

EV/Sales:

Average/ Current 1.03 0.89 0.62 0.87 0.83 0.74 1.13 1.07 0.99

High 1.17 1.30 0.70 1.02 1.07 0.89

Low 0.90 0.47 0.53 0.76 0.61 0.60

Year End 1.02 0.53 0.51 0.86 0.78 0.87

Recurring EBITA Margin 7.4% 5.6% 5.9% 10.1% 7.6% 6.6% 10.1% 10.9% 11.3%

EV/Recurring EBITA:

Average/ Current 13.9 15.9 10.4 8.7 10.9 11.3 11.2 9.8 8.7

High 15.7 23.2 11.8 10.1 14.0 13.5

Low 12.1 8.4 9.0 7.6 8.0 9.1

Year End 13.7 9.5 8.6 8.5 10.3 13.2

EV/EBITDA:

Average/ Current 9.4 14.9 6.9 6.4 15.8 8.5 7.7 6.9 6.3

High 10.6 21.7 7.8 7.4 20.3 10.2

Low 8.2 7.8 5.9 5.6 11.6 6.9

Year End 9.3 8.9 5.7 6.3 14.9 10.0

EV/IC:

Average/ Current 1.8 1.5 0.9 1.4 1.3 1.3 1.8 1.8 1.7

High 2.0 2.1 1.1 1.7 1.7 1.6

Low 1.6 0.8 0.8 1.2 0.9 1.1

Year End 1.8 0.9 0.8 1.4 1.2 1.5

Dividend Yield

Average/ Current 2.4% 3.3% 4.6% 3.2% 4.3% 4.5% 3.0% 3.3% 3.5%

High 2.1% 2.4% 3.3% 2.8% 3.2% 3.7%

Low 2.6% 5.8% 6.4% 3.7% 6.1% 5.7%

Year End 2.4% 5.1% 3.4% 3.3% 4.6% 3.8%

FCF Yield (based on EV)

Average/ Current -5.9% 4.3% 6.9% 6.4% 0.8% 11.0% 0.5% 5.6% 6.5%

High -5.2% 3.0% 6.1% 5.5% 0.7% 9.2%

Low -6.8% 8.2% 8.1% 7.4% 1.1% 13.6%

Year End -6.0% 7.2% 8.3% 6.5% 0.9% 9.4%

SOTP

Source: Company data, Credit Suisse estimates

140

Philips – Financials P&L 2010A 2011A 2012A 2013E 2014E 2015E 2016E

Healthcare 8,601 8,852 9,983 9,527 9,908 10,304 10,716

Consumer Lifestyle 8,906 5,615 4,319 4,636 5,040 5,393 5,771

Lighting 7,552 7,638 8,442 8,343 8,736 9,217 9,770

I,G&S 360 474 713 683 663 643 624

Net Sales 25,419 22,579 23,457 23,189 24,347 25,557 26,880

Healthcare 1,186 1,145 1,226 1,494 1,506 1,603 1,705

Margin 13.8% 12.9% 12.3% 15.7% 15.2% 15.6% 15.9%

Consumer Lifestyle 639 297 456 466 575 647 727

Margin 12.4% 5.3% 10.6% 10.1% 11.4% 12.0% 12.6%

Lighting 869 445 128 681 824 945 1,083

Margin 11.5% 5.8% 1.5% 8.2% 9.4% 10.3% 11.1%

I,G&S (142) (207) (704) (290) (252) (302) (292)

EBITA 2,552 1,680 1,106 2,351 2,652 2,893 3,224

Margin 10.0% 7.4% 4.7% 10.1% 10.9% 11.3% 12.0%

Healthcare 922 93 1,026 1,324 1,336 1,433 1,535

Consumer Lifestyle 595 217 400 406 515 587 667

Lighting 695 (362) (66) 531 674 795 933

I,G&S (147) (217) (712) (295) (252) (302) (292)

EBIT 2,065 (269) 648 1,966 2,272 2,513 2,844

Margin 8.1% -1.2% 2.8% 8.5% 9.3% 9.8% 10.6%

Financial Income (Expense) (122) (240) (329) (285) (250) (250) (250)

PBT 1,943 (509) 319 1,681 2,022 2,263 2,594

Income Tax (509) (283) (185) (511) (607) (679) (778)

Tax rate 26% -56% 58% 31% 31% 31% 31%

Normal Tax rate 29% 29% 30% 30% 30% 30% 30%

Results Relating to Unconsolidated Co.s 18 16 (211) 21 0 0 0

Extraordinary Items/Discontinued 0 (515) 47 12 0 0 0

Minority 0 (4) (5) (15) (18) (19) (22)

Net Income 1,452 (1,295) (35) 1,188 1,398 1,565 1,794

Credit Suisse Net Income 1,690 1,049 553 1,411 1,664 1,831 2,060

Headline EPS (Euro) 1.54 (1.36) (0.04) 1.30 1.55 1.77 2.08

Restated EPS (Euro) 1.80 1.10 0.60 1.55 1.84 2.07 2.39

EPS (ex Unconsolidated Cos) 1.78 1.09 0.83 1.53 1.84 2.07 2.39

Net dividend (Euro) 0.75 0.75 0.75 0.78 0.84 0.90 0.96

Weighted average shares 940 952 922 911 904 883 863

Cash flow 2010A 2011A 2012A 2013E 2014E 2015E 2016E

Net Income 1,452 (1,295) (35) 1,188 1,398 1,565 1,794

Depreciation & Amortization 1,422 1,456 1,398 1,440 1,483 1,528 1,573

Net Gain on Sale of Assets/ Impairment (206) 1,299 (127) 0 0 0 0

Income/(Loss) from Unconsolidated Co.s 1 30 20 (21) 0 0 0

Minority Interest (net of dividend) 0 0 1 3 4 4 4

Variation in Working Capital 16 (679) 546 (100) (100) (100) (100)

Variation in non-Current Assets (291) (596) (327) (580) (580) (580) (580)

Variation in Provisions (237) 6 429 (531) 79 83 91

Other Items (1) 615 177 (509) 0 0 0

Cash from operating activities 2,156 836 2,082 890 2,284 2,499 2,782

Purchase of Intangible Assets (299) (347) (219) (336) (341) (358) (376)

Capital Expenditures (653) (725) (661) (700) (730) (750) (770)

Proceeds from Disposal of Tangible Assets 129 128 425 0 0 0 0

Purchase of non-current Financial Assets (16) (43) (167) 0 0 0 0

Disposal of non-current Financial Assets 268 87 3 0 0 0 0

Purchase of Businesses (net of cash acq) (223) (509) (261) 0 0 0 0

Proceeds from Disposal of Businesses 117 19 1 0 0 0 0

Other (25) 26 (46) 0 0 0 0

Cash from investing activities (702) (1,364) (925) (1,036) (1,071) (1,108) (1,146)

Dividends Paid (296) (259) (255) (686) (713) (751) (786)

Share Issue & Treasury stocks 65 (671) (768) 0 (500) (500) (500)

Change in Net Debt 135 (857) 730 (1,502) (0) (7) 2

Cash from financing activities (96) (1,787) (293) (2,188) (1,213) (1,258) (1,284)

Effect of Exchange Rates and Others 89 (364) (177) 0 0 0 0

Net increase (decrease) in cash 1,447 (2,679) 687 (2,334) 0 134 352

FCF per share 1.5 (0.6) 1.3 (0.2) 1.3 1.6 1.9

Source: Company data, Credit Suisse estimates

141

Philips – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

CEO Frans van Houlen

EVP & CEO Ron Wirahadiraksa

IR Abhijit Bhattacharya

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Healthcare

FY 2012 Sales EUR 9.98 Bn

6.4% YoY organic growth

FY 2012 EBIT EUR 1.16 Bn

11.6% Margin

Scanners, Nuclear medicine, EmergencY care

& Resuscitaion, Respiratory care, Monitoring,

Cardiology

Imaging Systems 38%, Customer Services

25%, Patient Care & Clinical Informatics 22%,

and Home Healthcare Solutions 15%

General Electric, Siemens, MindrayNorth America 44%, Emerging Markets 24%,

Western Europe 20%, Others 12%

Ageing population in EM; Increasing emphasis

on quality of life; Increasing access to

healthcare; Urbanization

Consumer Lifestyle

FY 2012 Sales EUR 4.32 Bn

8.7% YoY organic growth

FY 2012 EBIT EUR 0.46 Bn

10.6 % Margin

Audio Video Systems, Earphones, Portable

Multimedia, Grooming Products, Kitchen

Appliances, Skincare

Domestic Appliances 33%, Lifestyle

Entertainment 27%, Personal Care 25% and

Health & Wellness 15%

Sony, Samsung, LG Electronics, PanasonicEmerging Markets 46%, Western Europe

31%, North America 18%, Others 5%

Growth in EM; Urbanization; Increasing

importance of male grooming

Lighting

FY 2012 Sales EUR 8.44 Bn

3.8% YoY organic growth

FY 2012 EBIT EUR 0.25 Bn

2.9% Margin

Indoor & Outdoor Luminaires, Lamps,

Electronic Control Gear, Lighting Controls

Light Sources & Electronics 52%,

Professional Lighting Solutions 29%,

Automotive 9%, Lumileds 5% and Consumer

Luminaires 5%.

Zumptobel, Siemens, ActuityEmerging Markets 41%, Western Europe

28%, North America 25%, Others 6%

Increasing importance of energy saving;

Increasing reliability

PHILIPS (PHG.AS) - SIMON TOENNESSEN +44 20 7883 6893/ simon.toennessen@credit-suisse.comGeographic Mix Shareholding Structure

Free Float:100%

Top 5 shareholders

Dodge & Cox 4.7%, Blackrock 4.6%, South

Eastern Asset Management 4.3%, Norges

Bank 2.4%, Franklin Resources 1.4%

Ownership by country

USA 54%, Netherlands 17%, Norway 6%,

Luxembourg 6% and others

Healthcare62%

ConsumerLifestyle

25%

Lighting13%

Healthcare44%

Consumer Lifestyle

19%

Lighting37%

Emerging Markets

35%

North America

31%

WesternEurope

26%

Other Mature Markets

8%

Medical39%

Consumer33%

Commercial Construction

18%

Residential Construction

8%

Automotive2%

Source: Company data

142

T&I & Power

Distribution22%

Submarine & Optical

Fibre cable36%

Other42%

Prysmian – Outperform, TP €21

Investment summary: Attractive valuation for a company improving its end market exposure (Submarine and Optical

Fibre). Combined with on-going cost savings this can result in growth and ROIC in-line with the sector average.

Bull Case Re-rating potential 1) On average 4% organic growth in 2014/15E (in-line with

sector average) having underperformed the sector average through the last

cycle by 250bps and 2) on-going above sector average FCF conversion and

ROIC rising to in-line with the sector average by 2015E.

Increasing exposure to higher growth and higher margin end markets of

Submarine and Optical Fibre cable which are now 36% of group EBITDA.

Gearing to a European short-cycle recovery and we estimate that 23% of

group sales would be directly impacted.

On-going potential for positive surprises on Draka synergies savings with the

company beating both its 2011 and 2012 synergy targets.

Bear Case The stock has already re-rated vs the sector and vs its historical average

limiting the upside potential.

Relatively high risks associated with producing and laying offshore wind

connection cables which could result in charges.

Soft pricing dynamics in the global cable industry result in synergies being

eroded and limit the scope for margin expansion.

Political risk from Germany placing less emphasis on renewables in its

energy mix which would have an adverse impact on submarine cable demand.

-20%

-10%

0%

10%

20%

30%

40%

0%

2%

4%

6%

8%

10%

12%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

120%

140%

5%

10%

15%

20%

25%

30%

PRY ROIC (LHS) Sector ROIC (LHS)PRY Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

143

Prysmian – Valuation

MULTIPLES 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E

Average/Current 18.4 13.7 10.6 13.1 12.9 15.2 18.3 18.3 18.3 18.3

High 21.2 18.6 13.8 15.8 16.0 16.5 16.5 16.5 16.5 16.5

Low 15.3 6.2 6.1 11.3 9.3 11.5 11.5 11.5 11.5 11.5

Year end 16.9 11.1 12.2 12.8 9.6 13.0 13.0 13.0 13.0 13.0

P/E average 12.9 10.7 8.7 14.6 12.3 12.4 15.5 12.7 11.0 10.4

P/E high 14.9 14.5 11.4 17.6 15.2 13.4 14.0 11.5 9.9 9.4

P/E low 10.8 4.8 5.0 12.6 8.8 9.4 9.7 8.0 6.9 6.5

P/E year-end 11.9 8.6 10.0 14.2 9.2 10.6 11.0 9.0 7.8 7.4

EV/Sales average 0.84 0.64 0.70 0.71 0.55 0.61 0.72 0.68 0.64 0.59

EV/Sales high 0.94 0.81 0.85 0.81 0.63 0.65 0.67 0.63 0.59 0.54

EV/Sales low 0.73 0.38 0.48 0.63 0.45 0.51 0.53 0.50 0.46 0.42

EV/Sales year-end 0.78 0.55 0.77 0.69 0.46 0.55 0.57 0.54 0.50 0.46

Operating profit margin 9.1% 9.3% 9.0% 6.8% 5.6% 6.2% 6.3% 7.0% 7.5% 7.6%

EV/EBITDA average 8.1 6.1 6.5 8.3 7.3 7.4 8.6 7.5 6.7 6.1

EV/EBITDA high 9.1 7.7 7.9 9.6 8.4 7.8 8.0 6.9 6.2 5.7

EV/EBITDA low 7.0 3.6 4.5 7.5 6.0 6.2 6.3 5.4 4.8 4.4

EV/EBITDA year-end 7.6 5.2 7.2 8.2 6.1 6.7 6.8 5.9 5.2 4.7

EV/EBIT average 9.2 6.9 7.8 10.4 9.7 9.9 11.5 9.7 8.5 7.8

EV/EBIT high 10.3 8.8 9.5 12.0 11.2 10.5 10.6 9.0 7.8 7.2

EV/EBIT low 8.0 4.1 5.4 9.4 8.0 8.3 8.4 7.1 6.1 5.5

EV/EBIT year-end 8.6 5.9 8.6 10.2 8.1 8.9 9.1 7.6 6.6 6.0

FCF yield average 6.7% 11.8% 8.7% 5.9% 10.3% 8.6% 5.2% 6.8% 7.6% 9.5%

FCF yield high 6.0% 9.3% 7.1% 5.1% 8.9% 8.1% 5.5% 7.4% 8.2% 10.3%

FCF yield low 7.7% 20.2% 12.6% 6.6% 12.6% 10.3% 7.0% 9.4% 10.6% 13.4%

FCF yield year-end 7.1% 13.8% 7.8% 6.0% 12.3% 9.5% 6.5% 8.7% 9.7% 12.3%

Dividend yield av. 3.1% 4.0% 3.2% 1.6% 2.8% 2.4% 2.9% 3.3% 3.5%

Dividend yield high 2.3% 3.0% 2.6% 1.3% 2.5% 2.6% 3.2% 3.7% 3.9%

Dividend yield low 6.7% 6.9% 3.7% 2.3% 3.7% 3.8% 4.6% 5.3% 5.6%

Dividend yield year-end 3.8% 3.4% 3.3% 2.2% 3.2% 3.3% 4.0% 4.7% 5.0%

EV/IC average 3.13 2.63 1.88 1.99 1.65 1.93 2.11 2.02 1.93 1.85

EV/IC high 3.51 3.33 2.30 2.28 1.91 2.04 1.96 1.88 1.79 1.71

EV/IC low 2.73 1.54 1.30 1.78 1.35 1.61 1.55 1.47 1.39 1.31

EV/IC year-end 2.93 2.25 2.09 1.94 1.38 1.74 1.67 1.59 1.51 1.43

Target Price Methodology 11.4

5% discount to 2014 multiple (EV/EBIT) 10.8

2014 EBIT 542

Equity Value 5,874

Net Debt Inc pension 1144

Liabilities 253

NOSH 211

Implied TP 21

Bull Case Valuation 11.4

5% discount to 2014 multiple (EV/EBITDA) 7.6

2015 EBITDA 826

Equity Value 6,278

Net Debt Inc pension 838

Liabilities 253

NOSH 211

Implied TP (discounted 1 yr back) 23

Multiple Valuation

Source: Company data, Credit Suisse estimates

144

Prysmian – Financials

P&L 2010 2011 2012 2013E 2014E 2015E 2016E

Group Sales 4571 7583 7848 7515 7724 8031 8355

COGS -2963 -4917 -5083 -4802 -4928 -5116 -5322

Gross Profit 1608 2666 2765 2713 2796 2915 3033

Gross Margin 35% 35% 35% 36% 36% 36% 36%

Sales, General and Administration -1243 -2405 -2229 -2126 -2129 -2188 -2274

as a % of sales 27% 32% 28% 28% 28% 27% 27%

Reported EBITDA 365 269 546 587 668 727 759

Margin 8.0% 3.5% 7.0% 7.8% 8.6% 9.0% 9.1%

Total non recurring expenses 22 299 101 45 39 40 42

of which restructuring costs 11 56

UNDERLYING EBITDA 387 568 647 632 706 767 800

Margin 8.5% 7.5% 8.2% 8.4% 9.1% 9.5% 9.6%

Depreciation -71 -117 -129 -128 -131 -128 -134

Amortization -7 -25 -35 -34 -32 -33 -34

Non Recurring Impairments -21 -38 -24 0 0 0 0

UNDERLYING OPERATING PROFIT 309 426 483 470 542 605 632

Margin 6.8% 5.6% 6.2% 6.3% 7.0% 7.5% 7.6%

Total non-recurring charges 2 407 121 45 39 40 42

REPORTED OPERATING PROFIT 307 19 362 425 504 565 591

Margin 6.7% 0.3% 4.6% 5.7% 6.5% 7.0% 7.1%

Net Interest -96 -129 -135 -130 -125 -120 -120

REPORTED PROFIT BEFORE TAX 213 -101 244 310 394 460 486

UNDERLYING PROFIT BEFORE TAX 215 306 365 355 432 500 527

Income tax expenses -63 -44 -73 -90 -114 -133 -141

Exceptional Tax -56 -80 -102 -103 -125 -145 -153

Effective tax rate 30% 44% 30% 29% 29% 29% 29%

Underlying Tax rate 26% 26% 28% 29% 29% 29% 29%

PROFIT AFTER TAX 150 -145 171 220 280 327 345

UNDERLYING PROFIT AFTER TAX 159 226 263 252 307 355 374

Minority interest 2 -9 -3 -3 -3 -3 -3

NET INCOME 148 -136 168 217 277 324 342

UNDERLYING NET INCOME 161 217 260 249 304 352 371

Reported EPS (basic) 0.82 -0.65 0.79 1.03 1.31 1.53 1.62

Repoted EPS (diluted) 0.82 -0.65 0.79 1.03 1.31 1.53 1.62

UNDERLYING EPS (BASIC) 0.90 1.05 1.23 1.18 1.44 1.67 1.76

UNDERLYING EPS (DILUTED) 0.90 1.05 1.23 1.18 1.44 1.67 1.76

DIVIDEND PER SHARE 0.42 0.21 0.42 0.43 0.52 0.61 0.65

Payout Ratio 51% -32% 53% 42% 40% 40% 40%

Ordinary shares outstanding ('000) 179 208 211 211 211 211 211

Diluted shares outstanding ('000) 179 208 211 211 211 211 211

Cash Flow Statement 2010 2011 2012 2013E 2014E 2015E 2016E

Net income/(loss) before income tax expenses 213 -101 244 310 394 460 486

Depreciation and Amortisation 99 180 188 162 164 161 168

Depreciation expense 71 150 153 128 131 128 134

Amortization expense 28 30 35 34 32 33 34

Gain on disposal of PP&E and intangible assets 0 -2 -14 0 0 0 0

Gain from disposal activities 0 0 0 0 0 0 0

Share of income from invetsment in associates -2 -9 -17 -15 -15 -15 -15

Share based payments 0 7 17 0 0 0 0

Fair value change in metal derivatives -41 63 -21 0 0 0 0

decrease/(increase) in inventories -131 115 23 -6 -24 -35 -39

Trade receivables and trade payables 164 50 55 -101 -53 -54 7

Other assets and other liabilities -38 35 -4 0 0 0 0

Fair value of currency derivatives -1 -3 1 0 0 0 0

Cash generated from operations 263 335 472 351 466 518 606

Utilization of provisions -50 -67 -104 0 0 0 0

Accruals of provisions 33 267 117 0 0 0 0

Income tax paid -59 -97 -74 -90 -114 -133 -141

Net f inance costs 96 129 135 130 125 120 120

NET CASH FROM OPERATING ACTIVITIES 283 567 546 391 477 504 586

Purchase of Energy & Telecom cables & Systems division0 0 0 0 0 0 0

Acquisition -21 -419 -86 0 0 0 0

Investment in PP&E -83 -135 -132 -128 -131 -128 -134

Disposal of PP&E 7 14 11 0 0 0 0

Investment in intangible assets -19 -24 -20 0 0 0 0

Investment in f inancial assets held for trading -18 -42 -33 0 0 0 0

disposal of f inancial assets held for trading 0 22 25 0 0 0 0

Investment in available for sale investments -152 0 0 0 0 0 0

Disposal in available for sale investments 12 143 3 0 0 0 0

Investment in associates 0 -1 -1 0 0 0 0

Dividends received from investment in associates 2 5 6 15 15 15 15

Effect of disposed operations 0 0 0 0 0 0 0

NET CASH FROM INVESTING ACTIVITIES -272 -437 -227 -113 -116 -113 -119

FREE CASH FLOW 190 427 411 278 361 391 467

Contribution capital 13 1 1 0 0 0 0

Dividend paid -75 -37 -45 -91 -111 -130 -137

Purchase of treasury shares 0 0 0 0 0 0 0

Net f inance costs -52 -130 -129 -130 -125 -120 -120

Net changes in short and long-term borrow ings 233 128 -65 0 0 0 0

NET CASH FROM FINANCING ACTIVITIES 119 -38 -238 -221 -236 -250 -257

Exchange gain/(loss) 8 5 4 0 0 0 0

Net cash used in the period 138 97 85 57 125 141 210

Cash and cash equivalent beginning of period 492 630 727 812 869 994 1135

Cash and cash equivalent end of period 630 727 812 869 994 1135 1345

Source: Company data, Credit Suisse research

145

Prysmian – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

CEO Valerio Battista

COO Massimo Battani

CFO Pier Fracesco Facchin

IR Luca Caserta

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Utilities

FY 2012 Sales EUR 2.29 Bn

1.2% YoY organic growth

FY 2012 EBIT EUR 0.23 Bn

10.2% Margin

Cables for power transmission and distribution

at both power stations and within primary and

secondary distribution grids.

Power Distribution 43%, Transmission

Submarine 26%, Transmission High Voltage

24%, and Network Component 7%

Nexans, NKT cable, Belden cables, Coleman

Cable, General Cables,

Power Distribution: Italy & Spain 8%, Other

Central & Southern Europe 34%, Eastern

Europe 6%, Nordics 12%, North America

18%, Latin America 10%, Asia Pacific 12%

Increasing share of renewables (offshore

wind); Grade upgrades

Trade & Installers

FY 2012 Sales EUR 2.13 Bn

-2.6% YoY organic growth

FY 2012 EBIT EUR 0.05 Bn

2.3% Margin

Flexible low voltage cables for distributing

power to residential and non-residential

buildings.

Residential (33%) and non-residential

buildings (67%Nexans, Coleman Cable, General Cables

Eastern Europe 22%, Western Europe 36%,

Asia Pacific 10%, Italy & Spain 8%,Nordics

8%, North America 7%, Latin America 6%

European construction new build (50%);

Renovation (50%)

Industry Division

FY 2012 Sales EUR 1.80 Bn

-1.5% YoY organic growth

FY 2012 EBIT EUR 0.1 Bn

5.5% Margin

Cabling solution to large industrial group and

OEM’s

Specialities & OEM's 32%, OGP & SURF

23%, Automotive 22%, Renewables 12%,

Elevator 7% and Others 4%,

Leoni, Nexans, NKT cable, Belden cables,

Coleman Cable, Furukawa, Hitachi Cable

EMEA 48%, North America 26%, Asia Pacific

15%, Latin America 8%

Global industrial production; Oil & gas capex;

Automotive demand

Telecom

FY 2012 Sales EUR 1.47 Bn

-3.5% YoY organic growth

FY 2012 EBIT EUR 0.1 Bn

7.3% Margin

Optical and copper cables for telecom

applications that include voice, video and data

transmission. The division also manufactures

connectivity components and accessories.

Optical Connectivity & Fibre 45%, Multimedia

& Specials 18%, Copper 14%, JV's and

Others 23%.

Nexans, Belden Cables, General Cables,

Fujikura, Furukawa

EMEA 44%, Asia Pacific 27%, Latin America

15%, North America 14%

Increasing data usage; Increased exposure to

Asia; Investment in optical fiber cables

PRYSMIAN (PRY.MI) - MAX YATES +44 20 7883 6893/ max.yates@credit-suisse.comGeographic Mix Shareholding Structure

Free Float:100%

Top 5 shareholders

Clubtre S.R.I 6.2%, Norges Bank 3.3%, DMR

LLC 3.1%, JPM Chase 2.2%, Franklin

Templeton 2.2%

Ownership by country

US 26%, UK 25%, Italy 14%, France 8%,

Norway 4%, Germany 4% and others

Industry48%

Energy10%

Healthcare21%

Infrastructure& Cities

21%

Industry30%

Energy28%

Healthcare23%

Infrastructure & Cities

19%

Latin America9%

Asia Pacif ic14%

EMEA62%

North America15%

Residential Construction

15%

Commercial Construction

15%

GI Aftermarket3%

Oil & Gas5%

GI Capex4%

Pow er T&D33%

Others 25%

Source: Company data

146

Renishaw – Neutral, TP 1715p

Bull Case Number of longer term attractions: Including

i. Selling into customers product development expenditures

ii. Potentially high ROIC / capacity expansion from recently acquired

Miskin facility + sale proceeds

iii. Healthcare still on track to turn profitable on our estimates

iv. R&D (12% of revenue) underpinning market leadership in chosen

product areas.

One of the few ways in the UK to gain exposure to 3D / additive printing.

Remains on the radar screen of US EE Multinationals.

Bear Case

Below structural average cash conversion: as Renishaw has seen

consistent working capital outflows, capex > depreciation and capitalisation

of R&D.

Vs. peer group (HLMA,SPRX,ROR) Renishaw has seen greatest volatility in

group gross/operating margins and ROIC.

Low visibility /lack of order book accentuates volatile quarterly

performance.

Investment summary: Despite longer terms structural growth attractions Renishaw continues to experience

significant quarterly profit volatility. Against this backdrop we prefer HLMA and ROR amongst the UK structural

growth exposed names .

0

500

1000

1500

2000

2500

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-40%-30%-20%-10%0%10%20%30%40%50%60%

0%

5%

10%

15%

20%

25%

30%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0%

5%

10%

15%

20%

25%

30%

RSW ROIC (LHS) Sector ROIC (LHS)

RSW Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

147

Renishaw – Valuation

2007 2008 2009 2010 2011 2012 2013 2014e 2015e

Share price - year high 860.0 796.5 881.0 730.0 1819.0 1886.0 2081.0 1825.0 1825.0

Share price - year low 599.5 597.0 248.5 340.3 725.0 800.0 1260.0 1825.0 1825.0

Share price - year average 759.2 680.2 514.1 572.8 1311.1 1272.7 1724.5 1825.0 1825.0

Enterprise value - high 598.2 546.2 636.2 531.9 1330.0 1386.1 1521.1 1287.1 1266.0

Enterprise value - low 408.6 401.0 175.8 248.2 533.7 595.6 923.5 1287.1 1266.0

Enterprise value - average 524.8 461.5 369.1 417.4 960.4 939.7 1261.6 1287.1 1266.0

EBITA 29.7 37.6 6.3 28.1 78.9 83.2 79.1 80.0 87.5

EV/EBITA - High 20.1 14.5 100.9 18.9 16.8 16.7 19.2 16.1 14.5

EV/EBITA - Low 13.7 10.7 27.9 8.8 6.8 7.2 11.7 16.1 14.5

EV/EBITA - Average 17.7 12.3 58.5 14.9 12.2 11.3 16.0 16.1 14.5

EBITDA 37.6 45.7 15.2 36.0 86.5 92.7 89.4 91.0 98.5

EV/EBITDA - high 15.9 12.0 41.9 14.8 15.4 15.0 17.0 14.1 12.9

EV/EBITDA - low 10.9 8.8 11.6 6.9 6.2 6.4 10.3 14.1 12.9

EV/EBITDA - average 14.0 10.1 24.3 11.6 11.1 10.1 14.1 14.1 12.9

Sales 180.9 201.2 171.2 181.6 288.8 331.9 346.9 350.0 363.0

EV/Sales - high 3.3 2.7 3.7 2.9 4.6 4.2 4.4 3.7 3.5

EV/Sales - low 2.3 2.0 1.0 1.4 1.8 1.8 2.7 3.7 3.5

EV/Sales - average 2.9 2.3 2.2 2.3 3.3 2.8 3.6 3.7 3.5

CS EPS Adjusted (p) 28.4 45.6 10.6 30.9 87.4 94.6 90.0 91.2 100.0

PER - high 30.3 17.5 83.1 23.6 20.8 19.9 23.1 20.0 18.2

PER - low 21.1 13.1 23.4 11.0 8.3 8.5 14.0 20.0 18.2

PER - average 26.8 14.9 48.5 18.5 15.0 13.5 19.2 20.0 18.2

NAV 230.8 228.9 197.5 217.9 277.1 333.0 380.2 472.1 528.1

PBV - high 3.7 3.5 4.5 3.3 6.6 5.7 5.5 3.9 3.5

PBV - low 2.6 2.6 1.3 1.6 2.6 2.4 3.3 3.9 3.5

PBV - average 3.3 3.0 2.6 2.6 4.7 3.8 4.5 3.9 3.5

Dividend Yield 22.1 23.6 7.8 17.6 35.0 38.5 40.0 42.8 45.8

Dividend Yield - high 3% 3% 1% 2% 2% 2% 2% 2% 3%

Dividend Yield - low 4% 4% 3% 5% 5% 5% 3% 2% 3%

Dividend Yield - average 3% 3% 2% 3% 3% 3% 2% 2% 3%

FCF before distributions -6 45 21 22 32 34 53 46 52

FCF/Sales -3% 22% 12% 12% 11% 10% 15% 13% 14%

FCF per share -7.61 61.56 29.34 30.13 44.47 46.88 73.07 62.95 71.36

FCF/EBITDA -15% 98% 141% 61% 37% 37% 60% 50% 53%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

66%

6%

- 17%

- 10%- 3% 0% - 10%

0%

20%

40%

60%

80%

100%

120%

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Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

148

Renishaw – Financials PROFIT & LOSS 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 175.8 180.9 201.2 171.2 181.6 288.8 331.9 346.9 350.0 363.0 377.0

Change yoy, % 2.9% 11.2% -14.9% 6.0% 59.0% 14.9% 4.5% 0.9% 3.7% 3.9%

EBITDA 43.3 37.6 45.7 15.2 36.0 86.5 92.7 89.4 91.0 98.5 105.0

Margin, % 24.6% 20.8% 22.7% 8.9% 19.8% 30.0% 27.9% 25.8% 26.0% 27.1% 27.9%

EBITA 35.5 29.7 37.6 6.3 28.1 78.9 83.2 79.1 80.0 87.5 94.0

Margin, % 20.2% 16.4% 18.7% 3.7% 15.5% 27.3% 25.1% 22.8% 22.9% 24.1% 24.9%

CS PBT 38.1 32.7 41.7 8.8 28.7 80.4 86.0 81.5 83.5 91.5 98.0

Income Tax (7.6) (12.0) (8.4) (1.1) (5.7) (16.3) (17.0) (15.6) (16.7) (18.3) (19.6)

Exceptional - Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CS EPS (Diluted) 41.9 28.4 45.6 10.6 30.9 87.4 94.6 90.0 91.2 100.0 107.1

Reported EPS (Diluted) 41.9 55.2 47.6 4.9 29.3 90.8 95.6 95.4 92.6 101.4 108.5

DPS, p 21.8 22.1 23.6 7.8 17.6 35.0 38.5 40.0 42.8 45.8 49.0

DPS growth yoy, % 2% 7% -67% 126% 99% 10% 4% 7% 7% 7%

CASH FLOW 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

EBITDA 43.3 37.6 45.7 15.2 36.0 86.5 92.7 89.4 91.0 98.5 105.0

Working Capital Change (2.6) (11.1) 5.1 21.2 (12.3) (26.6) (23.5) (2.5) (5.2) (5.6) (6.4)

Operating Cash Flow 41.7 9.9 53.8 37.8 30.1 59.7 77.7 95.8 84.8 91.8 97.6

Net Financing Cost 1.9 1.4 1.6 0.9 0.1 0.2 0.4 0.8 1.8 2.1 2.1

Tax Paid (7.6) (7.0) (6.9) (6.4) (5.6) (11.7) (14.1) (15.7) (15.9) (17.2) (18.7)

Net Operating Cash Flow 36.0 4.3 48.5 32.4 24.6 48.2 64.0 80.9 70.6 76.7 81.0

Net Capex (12.4) (9.9) (3.7) (11.0) (2.7) (15.8) (29.9) (27.7) (24.8) (24.8) (24.8)

Free Cash Flow 23.5 (5.5) 44.8 21.4 21.9 32.4 34.1 53.2 45.8 51.9 56.2

Acquisitions 0.0 0.0 (0.5) 0.0 0.0 0.0 0.0 (7.5) 0.0 0.0 0.0

Disposals 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0 32.0 0.0 0.0

Pre Financing Cash Flow 15.2 (16.1) 37.6 7.2 14.7 12.7 20.8 34.2 77.8 51.9 56.2

Dividend Paid (14.9) (16.1) (17.2) (15.6) (2.9) (17.6) (25.5) (28.8) (31.1) (31.9) (34.1)

Net Cash / (Debt) Year End 30.7 20.8 38.2 20.5 31.1 23.7 21.1 26.6 73.3 93.4 115.5

BALANCE SHEET 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

PPE 69 69 69 74 71 82 101 118 132 146 160

Goodwill 2 2 4 6 6 13 19 20 20 20 20

Intangible Assets 10 12 15 22 23 34 35 36 36 36 36

Working capital 55 63 64 47 66 98 114 115 120 126 132

Total assets 131 147 140 146 165 216 263 292 312 333 354

Shareholders' funds 143 168 166 144 159 202 243 278 345 386 429

Minorities 0 0 0 0 (0) (0) (1) (1) (1) (1) (1)

Total Borrowings 0 0 0 0 0 0 0 0 (47) (67) (89)

Cash and equivalents (31) (21) (38) (20) (31) (24) (21) (27) (27) (27) (27)

Net Debt / (Cash) (31) (21) (38) (20) (31) (24) (21) (27) (73) (93) (115)

Pension Deficit 19 0 11 22 37 38 42 42 42 42 42

Total liabilities 131 147 140 146 165 216 263 292 312 333 354

Source: Company data, Credit Suisse estimates

149

Renishaw – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Metrology

FY2013 Sales - £318m,

5% org. growth

FY2013 EBITA - £85m,

26.7% margin

Machine tool probe systems

Co-ordinate measuring machine (CMM)

products

Styli for probe systems

Performance testing products

Gauging

Large scale metrology

Fixtures

Materials research

Position encoders

Additive manufacturing

Far East - £122m (40%)

Europe - £87m (28%)

Americas - £71m (23%)

UK & Ireland - £17m (6%)

Others - £8m (3%)

Increasing investment in production

capacity, shorter product life cycles,

automation, increasing product quality,

shortening R&D life cycles

Healthcare

FY2013 Sales - £29m,

10.3% org. growth

FY2013 EBITA - £(5.5)m,

(18.8)% margin

Dental scanners

Dental CAD software

Dental milling machines

Dental structures manufacturing service

Neurosurgical robot

Neurosurgical planning software

Neurosurgical implantables

Raman microscopes

Combined Raman systems

Structural and chemical analyser

In situ monitors

Diagnostic systems

Far East - £8m (20%)

Europe - £9m (34%)

Americas - £6m (21%)

UK & Ireland - £2m (7%)

Others - £2m (7%)

Healthcare spend, Advanced operational

procedures, Dentistry.

RENISHAW (RSHW.L / RSW LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Hexagon, Halma, Spectris, Oxford

Instruments, Danaher, Ametek, Perkin

Elmo, Thermo Fisher, Teledyne

Powergen, Medical, Agriculture, Automotive,

Aerospace, Consumer products,

Construction

Metrology

92%

Healthcare

8%

Metrology

94%

Healthcare

-6%

Far East, 39%

Europe, 29%

Americas, 23%

UK&Ireland, 6%Others, 3% Aerospace

10%

Automotive10%

Construction Equipment

10%

Energy10%

Consumer Electronics

10%

General Industrial

42%

Healthcare8%

Shareholding structure

Free float: 47%

Top 5 shareholders: Director &

Related Holdings - 53%, Mcmurtry David

Roberts - 36%, Deer Daniel John - 17%,

Baillie Gifford And Company - 8%,

Blackrock - 5%

Ownership by Country: UK - 30%,

USA - 13%, Luxembourg - 2%, Norway -

1%, Ireland - 1%

Management

Chairman and CEO -Sir David McMurtry

CFO -Allen Roberts

CS - N Tang

Source: Company data

150

0%

5%

10%

15%

20%

10%

15%

20%

25%

30%

Margins % (LHS) Organic Growth (RHS)

Rotork – Outperform, TP 3230p

Bull Case Strategically well positioned: Both to traditional upstream /mid stream /down

stream oil & gas expenditure plus developing trends - LNG / coal bed

methane / mining.

Increasing addressable market: Now c£3bn vs. £4bn target. Scope for

further M&A to underpin expansion. Strategy has not diluted group ROIC.

IQ3 and CMA actuator launched. Service expanded.

Group margins not peaked: Fluid Systems forecast to deliver an impressive

18% in H2 2013. Near term group expansion held back by sales network

expansion / R&D costs.

CS HOLT CFROI upside: Warranted price for Rotork is 3981p.

Potential M&A candidate for global multinationals wanting to increase their

Process exposure.

Bear Case

With order intake -7% at constant currency in Q3 2013 Rotork is showing

signs of going ex-growth.

Further expansion of Instruments likely to dilute both Group margin and

company ROIC.

Investment summary: Sector leading ROIC, healthy cash conversion and an industry leading product portfolio

are all attractive traits. Add in a recent de-rating vs. the UK sector and increasing M&A focus from global

multinationals on Process assets such as Rotork and we continue to rate the stock at Outperform.

0

500

1000

1500

2000

2500

3000

3500

0

20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

5%

15%

25%

35%

45%

55%

ROR ROIC (LHS) Sector ROIC (LHS)

ROR Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

151

Rotork – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 1108 1212 1266 1895 1936 2566 2717 2717 2717

Share price - year low 781 615 674 1186 1501 1854 2717 2717 2717

Share price - year average 932.35 958.52 938.56 1490.33 1687.74 2158.35 2717 2717 2717

Enterprise value - high 927.12 1011.68 1036.46 1557.07 1652.74 2189.88 2336.80 2286.45 2234.25

Enterprise value - low 645.57 497.39 525.67 945.34 1276.88 1574.57 2336.80 2286.45 2234.25

Enterprise value - average 775.88 793.32 753.94 1207.92 1438.23 1837.59 2336.80 2286.45 2234.25

EBITA 55.5 76.0 92.1 99.4 115.9 131.9 150.6 159.8 169.6

EV/EBITA - High 16.7 13.3 11.3 15.7 14.3 16.6 15.5 14.3 13.2

EV/EBITA - Low 11.6 6.5 5.7 9.5 11.0 11.9 15.5 14.3 13.2

EV/EBITA - Average 14.0 10.4 8.2 12.1 12.4 13.9 15.5 14.3 13.2

EBITDA 58.091 79.295 95.652 103.414 120.4 137.318 157.1 166.8 177.1

EV/EBITDA - high 16.0 12.8 10.8 15.1 13.7 15.9 14.9 13.7 12.6

EV/EBITDA - low 11.1 6.3 5.5 9.1 10.6 11.5 14.9 13.7 12.6

EV/EBITDA - average 13.4 10.0 7.9 11.7 11.9 13.4 14.9 13.7 12.6

Sales 235.688 320.207 353.521 380.56 447.833 511.747 585.9 624.6 660.5

EV/Sales - high 3.93 3.16 2.93 4.09 3.69 4.28 3.99 3.66 3.38

EV/Sales - low 2.74 1.55 1.49 2.48 2.85 3.08 3.99 3.66 3.38

EV/Sales - average 3.29 2.48 2.13 3.17 3.21 3.59 3.99 3.66 3.38

CS EPS Adjusted (p) 45.32 62.92 74.52 82.20 97.09 108.73 123.58 130.78 137.94

PER - high 24.45 19.26 16.99 23.05 19.94 23.60 21.99 20.78 19.70

PER - low 17.23 9.77 9.04 14.43 15.46 17.05 21.99 20.78 19.70

PER - average 20.57 15.23 12.59 18.13 17.38 19.85 21.99 20.78 19.70

NAV 118.9 167.6 192.6 235.9 259.4 311.0 308.2 368.7 432.2

PBV - high 9.3 7.2 6.6 8.0 7.5 8.3 8.8 7.4 6.3

PBV - low 6.6 3.7 3.5 5.0 5.8 6.0 8.8 7.4 6.3

PBV - average 7.8 5.7 4.9 6.3 6.5 6.9 8.8 7.4 6.3

Dividend Yield 28.65 37.50 39.90 44.00 48.75 43.00 48.16 53.94 60.41

Dividend Yield - high 3% 3% 3% 2% 3% 2% 2% 2% 2%

Dividend Yield - low 4% 6% 6% 4% 3% 2% 2% 2% 2%

Dividend Yield - average 3% 4% 4% 3% 3% 2% 2% 2% 2%

FCF before distributions 39 47 76 64 64 69 86 100 106

FCF/Sales 17% 15% 22% 17% 14% 13% 15% 16% 16%

FCF per share 45.35 54.59 88.15 73.30 73.55 79.35 98.25 114.85 121.79

FCF/EBITDA 68% 60% 80% 61% 53% 50% 54% 60% 60%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

85%

-3%

- 11%- 3%

3%

-2%

60%

70%

80%

90%

100%

110%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

&D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (

Def

erre

d ta

x, P

ensi

on,

Min

ority

etc

)

Fre

e C

ash

Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

152

Rotork – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 174.7 206.7 235.7 320.2 353.5 380.6 447.8 511.7 585.9 624.6 660.5

Change yoy, % 18.3% 14.0% 35.9% 10.4% 7.6% 17.7% 14.3% 14.5% 6.6% 5.7%

EBITDA 39.2 47.6 58.1 79.3 95.7 103.4 120.4 137.3 157.1 166.8 177.1

Margin, % 22.4% 23.0% 24.6% 24.8% 27.1% 27.2% 26.9% 26.8% 26.8% 26.7% 26.8%

EBITA 36.5 45.1 55.5 76.0 92.1 99.4 115.9 131.9 150.6 159.8 169.6

Margin, % 20.9% 21.8% 23.5% 23.7% 26.1% 26.1% 25.9% 25.8% 25.7% 25.6% 25.7%

CS PBT 36.7 46.1 57.3 76.9 91.5 99.6 116.5 131.6 149.4 159.2 169.1

Income Tax (12.0) (14.7) (18.0) (22.3) (26.9) (28.3) (32.1) (32.8) (41.8) (45.4) (49.0)

CS EPS (Diluted) 28.4 36.2 45.3 62.9 74.5 82.2 97.1 108.7 123.6 130.8 137.9

Reported EPS (Diluted) 28.2 36.0 45.2 61.6 73.9 80.2 92.6 102.6 109.8 117.0 124.1

DPS, p 15.6 27.7 28.7 37.5 39.9 44.0 48.8 43.0 48.2 53.9 60.4

DPS growth yoy, % 78% 3% 31% 6% 10% 11% -12% 12% 12% 12%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 39.2 47.6 58.1 79.3 95.7 103.4 120.4 137.3 157.1 166.8 177.1

Working Capital Change (2.7) (0.7) (3.5) (7.0) 11.6 (10.8) (19.7) (15.0) (20.6) (13.1) (14.1)

Operating Cash Flow 36.3 42.5 56.2 73.9 107.2 94.4 100.9 118.6 132.5 149.7 159.0

Net Financing Cost 0.5 0.7 0.8 0.3 0.1 0.4 0.6 0.5 (0.5) (0.1) (0.1)

Tax Paid (11.3) (11.2) (15.1) (22.5) (27.5) (26.2) (27.8) (37.6) (37.6) (40.8) (44.1)

Net Operating Cash Flow 25.5 31.9 41.9 51.6 79.7 68.6 73.7 81.4 94.3 108.8 114.8

Net Capex (1.3) (2.3) (2.5) (4.3) (3.3) (5.0) (9.9) (12.4) (8.8) (8.8) (8.8)

Free Cash Flow 24.2 29.6 39.4 47.3 76.4 63.5 63.9 69.1 85.5 100.0 106.0

Acquisitions (7.2) (1.6) (0.0) (12.7) (4.9) (5.6) (59.9) (20.9) (53.1) (4.9) (4.9)

Disposals 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0

Pre Financing Cash Flow 16.7 27.7 38.7 33.1 70.8 57.0 2.6 46.1 31.7 95.1 101.1

Dividend Paid (13.4) (24.1) (24.7) (30.0) (24.1) (35.9) (49.5) (33.9) (38.7) (44.7) (48.9)

Net Cash / (Debt) Year End 25.9 27.7 37.9 41.0 78.4 97.7 48.5 59.9 46.6 97.0 149.2

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 17 17 18 24 24 26 32 38 41 43 44

Goodwill 21 21 22 33 33 36 68 81 81 81 81

Intangible Assets 1 1 2 7 8 8 38 41 31 22 12

Working capital 48 50 59 90 74 88 121 131 151 164 178

Total assets 80 70 76 112 110 126 204 242 251 253 256

Shareholders' funds 81 89 102 144 166 204 224 269 267 319 374

Minorities 0 0 0 0 0 0 0 0 0 0 0

Total Borrowings 2 1 0 0 0 0 0 0 13 (37) (89)

Cash and equivalents (28) (28) (38) (41) (79) (98) (49) (60) (60) (60) (60)

Net Debt / (Cash) (26) (28) (38) (41) (78) (98) (48) (60) (47) (97) (149)

Pension Deficit 25 8 11 9 23 20 28 32 31 31 31

Total liabilities 80 70 76 112 110 126 204 242 251 253 256

Source: Company data, Credit Suisse estimates

153

Rotork – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Controls/Electrics

FY2012 Sales - £293m,

6.3% org. growth

FY2012 EBITA - £95m,

32.3% margin

Electric valve actuators and solutions to

industrial valve control and actuation

applications in a range of sizes and

complexities.

41% Oil & gas, 18% water, 30% power,

8% industrial, 3% other

Auma 20%; Limitorque (Flowserve) 12%;

EIM 8%, Biffi (Tyco) 5% and Bernard Control

4%

Europe - £70m (25%)

America - £53m (19%)

Asia - £131m (47%)

ME/Other - £25m (9%)

Oil & Gas capex is more downstream

focused. LNG.

Fluid Systems

FY2012 Sales - £161m,

24.1% org. growth

FY2012 EBITA - £25m,

15.3% margin

Manufactures high torque and

reliable fluid power valve actuators

82% Oil and gas (13%

transmission, 87% shutdown), 1%

water, 3% power, 8% ind, 6% other

Biffi 12% (Pentair); Betis (Emerson) 20%;

Ledeen (Cameron) 10%; Metso 5%

Europe - £38m (29%)

America - £27m (20%)

Asia - £30m (23%)

ME/Other - £37m (28%)

Oil & Gas capex is more upstream

focused. More bought in components

cause lower RoS vs. Controls. Demand

is more project based

Instruments

FY2012 Sales - £16m,

4.1% org. growth

FY2012 EBITA - £5m,

31.1% margin

High precision pneumatic controls &

power transmission - regulators,

boosters, relays & transducers (46%

MRO, 36% IE, 18% cap projects)

20% Oil and gas, rest pharma,

biomedical, tyre manufacture, robotics, food

processing & chem apps.

Honeywell, Pentair, Emerson, Flowserve

Europe - £0.2m (16%)

America - £0.8m (57%)

Asia - £0.2m (12%)

ME/Other - £0.2m (15%)

New market for Rotork. Looking to

develop wider prescence in flow control.

Driver of increase of addressable market

share to £4.2bn

Gears

FY2012 Sales - £53m,

13.9% org. growth

FY2012 EBITA - £12m,

22.9% margin

Valve gearboxes and accessories

associated with valve actuation. Low

cost manual operators to highly specified

versions for critical sub sea valves.

40% Oil and gas, 27% water, 11%

power, 16% industrial, 6% other

Very fragmented market with a large

number of small players

Europe - £25m (53%)

America - £11m (24%)

Asia - £5m (10%)

ME/Other - £6m (13%)

Drivers directly linked to the demand for

actuators. Sells into both Rotork and

external customers

ROTORK (ROR.L / ROR LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Oil&Gas

53%

Power

12%

Water

22%

Industrial

8%

Other

5%

Controls/Electrics

53%

Fluid Systems

33%

Instruments

4%

Gears

10%UK, 5%Rest of Europe,

31%

USA, 21%

Other Americas,

10%

RoW, 33%

Controls/Electrics

65%

Fluid Systems

21%

Instruments

5%

Gears

9%

Shareholding structure

Free float: 97%

Top 5 shareholders: Blackrock - 7%,

AXA - 5%, Mondrian Investment Partners

Ltd - 5%, FMR LLC - 5%, Legal &

General - 4%

Ownership by Country: UK - 51%,

USA - 26%, Luxembourg - 4%, Norway -

4%, Germany - 3%

Management

Chairman -Roger Lockwood

CEO -Peter France

CFO -Jonathan Davis

CS -Stephen Jones

Source: Company data

154

Sandvik – Underperform, TP SEK 75 Investment summary: We are negative because of a meaningful near-term risk to consensus estimates from

Mining & Construction divisions while new product momentum and self-help are rather longer-term drivers.

Bear Case Near-term earnings risk from operational gearing on Mining declines – we see a

risk to Mining margins over the next 2-3 quarters as revenues continue to decline

further (following orders) with limited incremental cost savings coming through

until Q2 2014;

Ongoing softness in Construction – Sandvik Construction profitability declined

by 400bps in 2013 YTD to c5% on only c7% volume declines suggesting pricing

deterioration or internal inflation with company pointing to ongoing softness in the

near-term;

Pricing risk in Mining while we currently discount no pricing deterioration;

Risk of Japan-based competition for Sandvik Materials Technology and to some

extent for Machining Solutions.

Bull Case Geared exposure to short-cycle recovery. We already discount 6% and 7%

organic growth for Sandvik Machining Solutions for 2014/15 while over the past

2-3 years the business has lagged the global industrial production;

Self help with new SEK 500-700m programme in 2014 and a further SEK 3bn

worth programme later (details yet to be released). While we see the cost-

cutting effort as the right thing to do, we already discount SEK 700m of savings

per annum and the above factors may result in a low retention ratio;

New product momentum with multiple launches across the divisions;

Scope for future radical portfolio rationalisation.

0

20

40

60

80

100

120

140

160

-4

-2

0

2

4

6

8

10

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

0%

4%

8%

12%

16%

20%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

0%

5%

10%

15%

20%

SAND ROIC (LHS) Sector ROIC (LHS)

SAND Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

155

Sandvik – Valuation

Grow th (years 4 to 10) 4.5%

EBIT margin (years 4+) 13.5%

NOPAT margin 9.7%

Invested capital 71,958

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 6.8%

WACC 9.0%

EBIT NOPAT Growth rate

margin margin 3.5% 4.0% 4.5% 5.0% 5.5%

11.5% 8.3% 60 60 60 60 60

12.0% 8.6% 63 64 64 64 64

12.5% 9.0% 67 67 67 68 68

13.0% 9.4% 70 71 71 71 72

13.5% 9.7% 73 74 75 75 76

14.0% 10.1% 77 78 78 79 79

14.5% 10.4% 80 81 82 83 83

15.0% 10.8% 84 85 85 86 87

15.5% 11.2% 87 88 89 90 91

16.0% 11.5% 90 92 93 94 95

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 123.8 82.2 64.8 98.0 102.8 94.5 86.5 86.5 86.5

High 149.8 111.3 89.3 132.9 134.9 106.6

Low 93.5 41.8 41.5 76.5 72.9 82.3

P/E average 16.3 12.3 nm 17.9 13.0 13.2 15.6 14.5 12.9

P/E high 19.8 16.7 nm 24.2 17.0 14.8

P/E low 12.3 6.3 nm 13.9 9.2 11.5

EV/Sales average 2.07 1.44 1.52 1.72 1.60 1.48 1.61 1.54 1.42

EV/Sales high 2.43 1.82 1.93 2.22 2.01 1.63

EV/Sales low 1.65 0.93 1.14 1.41 1.23 1.32

Operating profit margin 16.7% 13.8% 1.5% 13.4% 14.3% 14.6% 12.8% 14.0% 14.9%

EV/EBITDA average 10.2 8.2 19.4 9.4 7.8 7.8 8.8 7.8 6.9

EV/EBITDA high 12.0 10.4 24.6 12.2 9.8 8.6

EV/EBITDA low 8.2 5.3 14.6 7.7 6.0 7.0

EV/EBIT average 12.4 10.5 99.8 12.9 11.2 10.1 12.6 11.0 9.6

EV/EBIT high 14.6 13.2 126.2 16.6 14.0 11.2

EV/EBIT low 9.9 6.7 74.7 10.5 8.6 9.1

FCF yield average 0.3% 2.9% 10.5% 7.7% 2.4% 6.8% 2.2% 8.3% 8.4%

FCF yield high 0.4% 5.8% 16.5% 9.9% 3.4% 7.7%

FCF yield low 0.3% 2.2% 7.6% 5.7% 1.8% 6.0%

Dividend yield average 3.2% 3.8% 1.5% 3.1% 3.2% 3.7% 4.0% 4.3% 4.9%

Dividend yield high 2.7% 2.8% 1.1% 2.3% 2.4% 3.3%

Dividend yield low 4.3% 7.5% 2.4% 3.9% 4.5% 4.3%

EV/IC average 2.6 1.6 1.5 2.0 2.0 2.0 1.9 1.9 1.8

EV/IC high 3.0 2.0 1.9 2.6 2.5 2.2

EV/IC low 2.1 1.0 1.1 1.7 1.5 1.8

P/BV average 5.2 2.7 2.7 3.6 3.8 3.7 3.2 2.9 2.6

P/BV high 6.2 3.7 3.7 4.8 4.9 4.1

P/BV low 3.9 1.4 1.7 2.8 2.7 3.2

ROIC 15.3% 11.4% 1.1% 11.6% 12.8% 13.7% 11.2% 12.7% 14.0%

ROE 31.5% 22.3% -3.2% 20.0% 28.9% 27.8% 20.5% 20.0% 20.4%

ROCE 19.2% 13.8% 1.4% 14.8% 16.8% 18.9% 14.1% 16.1% 17.7%

DCF

Source: Company data, Credit Suisse estimates

156

Sandvik – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 82,654 94,083 98,529 85,664 86,513 90,414

Growth, % 14.9% 13.8% 4.7% -13.1% 1.0% 4.5%

COGS (53,131) (61,704) (63,826) (59,965) (60,559) (63,290)

Gross Profit 29,523 32,379 34,703 25,699 25,954 27,124

Gross margin, % 35.7% 34.4% 35.2% 30.0% 30.0% 30.0%

SG&A (16,143) (19,511) (18,297) (16,533) (16,697) (17,450)

R & D expenses (2,106) (2,421) (2,572) (2,399) (2,422) (2,532)

Other operating income/exp (245) (300) (350) 78 79 90

Reported EBIT 11,029 10,147 13,490 9,936 12,115 13,450

Reported EBIT margin, % 13.3% 10.8% 13.7% 11.6% 14.0% 14.9%

Exceptionals / one-offs (25) (3,324) (920) (1,000) 0 0

Operating profit 11,054 13,471 14,410 10,936 12,115 13,450

Operating profit margin, % 13.4% 14.3% 14.6% 12.8% 14.0% 14.9%

Depreciation & Amortisation (4,037) (4,549) (4,216) (4,744) (5,008) (5,103)

EBITDA 15,092 19,294 18,732 15,680 17,123 18,553

EBITDA margin, % 18.3% 20.5% 19.0% 18.3% 19.8% 20.5%

Net interest income / (expense) (1,617) (1,969) (1,974) (1,822) (1,672) (1,572)

Rate, % 7.3% 8.0% 0.0% 6.5% 6.5% 6.5%

Profit Before Tax 9,412 8,178 11,516 8,114 10,443 11,878

Underlying PBT 9,237 11,302 12,236 8,914 10,243 11,678

Tax (2,469) (2,318) (3,409) (2,150) (2,715) (3,207)

Effective rate, % 26.2% 28.3% 29.6% 26.5% 26.0% 27.0%

Reported profit after tax 6,943 5,860 8,107 5,964 7,728 8,671

Minority interest (309) (363) (2) 0 0 0

Reported Net Income 6,634 5,497 8,105 5,964 7,728 8,671

CS Adjustments (131) 2,343 540 600 (150) (150)

Operating Net Income 6,503 9,402 9,005 6,964 7,478 8,421

Net income margin, % 7.9% 10.0% 9.1% 8.1% 8.6% 9.3%

CS operating EPS 5.5 7.9 7.2 5.6 6.0 6.7

EPS growth, % nm 45% -9% -23% 7% 13%

DPS, SEK 3.0 3.3 3.5 3.5 3.8 4.3

DPS growth, % 200.0% 8.3% 7.7% 0.0% 7.1% 13.3%

Dividend Cover (X) 1.9 1.4 1.8 1.4 1.6 1.6

Ordinary shares in issue 1,186 1,186 1,254 1,254 1,254 1,254ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 8,154 9,653 10,144 8,038 8,965 9,818

Invested Capital 70,260 75,577 74,232 71,958 70,704 70,253

ROIC 11.6% 12.8% 13.7% 11.2% 12.7% 14.0%

ROIC (average) 11.4% 13.2% 13.5% 11.0% 12.6% 13.9%

Operating Net Income 6,503 9,402 9,005 6,964 7,478 8,421

Equity 33,813 33,891 32,536 28,309 31,646 35,613

ROE 19.2% 27.7% 27.7% 24.6% 23.6% 23.6%

ROE (average) 20.4% 27.8% 27.1% 22.9% 24.9% 25.0%

EBITDA 15,092 19,294 18,732 15,680 17,123 18,553

Total debt (27,203) (30,715) (34,961) (34,961) (34,961) (34,961)

Net debt (22,420) (25,123) (21,132) (23,085) (18,494) (14,076)

Total debt / EBITDA 1.8 1.6 1.9 2.2 2.0 1.9

Net debt / EBITDA 1.5 1.3 1.1 1.5 1.1 0.8

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 38,445 37,509 36,939 36,136 35,454 35,052

Other f ixed assets 6,023 6,835 6,268 6,268 6,268 6,268

Fixed assets 44,468 45,091 43,207 42,404 41,722 41,320

Inventories 21,420 26,077 25,508 23,986 23,791 23,960

Trade and other receivables 19,328 21,979 21,511 19,703 19,898 20,795

Trade and other payables (14,956) (17,570) (15,994) (14,135) (14,707) (15,822)

Working capital 25,792 30,486 31,025 29,554 28,982 28,933

Working capital days 114 118 115 126 122 117

WC as % of sales 31.2% 32.4% 31.5% 34.5% 33.5% 32.0%

Cash 4,783 5,592 13,829 11,876 16,467 20,885

Short-term debt (3,783) (5,948) (2,698) (6,992) (6,992) (6,992)

Long-term debt (23,420) (24,767) (32,263) (27,969) (27,969) (27,969)

(Net debt) / cash (22,420) (25,123) (21,132) (23,085) (18,494) (14,076)

Pension deficit (2,264) (2,358) (6,037) (6,037) (6,037) (6,037)

Other liabilities (11,763) (14,097) (14,527) (14,527) (14,527) (14,527)

Net assets 33,813 33,891 32,536 28,309 31,646 35,613

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Operating Profit 11,054 13,471 14,410 10,936 12,115 13,450

Depreciation & amortisation 4,038 5,823 4,322 4,744 5,008 5,103

Tax paid (1,056) (2,587) (3,056) (7,950) (2,715) (3,207)

Financing Cost (1,617) (1,969) (1,974) (1,822) (1,672) (1,572)

Other (155) (1,965) (669) (1,000) 0 0

Gross cash flow 12,264 12,773 13,033 4,907 12,735 13,774

Working capital change 48 (4,730) (592) 1,471 572 49

Operating cash flow 12,312 8,043 12,441 6,378 13,307 13,823

Operating cash / Operating profit 1.1 0.6 0.9 0.6 1.1 1.0

Net Capex (3,327) (5,122) (4,441) (3,941) (4,326) (4,702)

Free cash flow 8,985 2,921 8,000 2,438 8,982 9,122

FCF / Net income 1.4 0.3 0.9 0.4 1.2 1.1

Acquisitions (1,223) (361) (39) 0 0 0

Disposals 0 0 0 0 0 0

Borrow ings raised / (repaid) (9,257) 2,153 4,571 0 0 0

Redemption of Shares 0 0 0 0 0 0

Dividends paid (1,188) (3,807) (4,082) (4,390) (4,390) (4,704)

Other 0 0 0 0 0 0

Exchange rate differences (81) (98) (213) 0 0 0

Net cash flow (2,764) 808 8,237 (1,953) 4,591 4,418

Source: Company data, Credit Suisse estimates

157

Sandvik – Company Summary

Operating profit split Sales Mix End Market Mix

Management

Chairman Anders Nyren

CEO Olof Faxander

CFO Ola Salmen

IR Jan Lissaker

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Sandvik Mining

FY 2012 Sales SEK 37.76 Bn

16.8% YoY organic growth

FY 2012 EBIT SEK 6.17 Bn

16.3% Margin

Equipment, tools and service for the mining

industries: Rock tools and systems, drill rigs

and rock drills, load and haul machines,

continuous mining and tunneling machines,

mobile and stationary crushers, bulk material

handling equipment, breakers and demolition

tools.

Equipment 37%, Customer Services 33%,

Mining Systems 19% and Rock Tools 11%.

Atlas Copco, Boart Longyear, Caterpillar,FLS

Minerals, Joy Global, Metso Minerals

Australia 23%, Middle East/Africa 22%, Asia

18%, South America 15%, North America

13%, Europe 9%

Demand for base metal, coal; Infrastructure

investments in mining industry; Growth of EM

Sandvik Machining

FY 2012 Sales SEK 29.71 Bn

1.2% YoY organic growth

FY 2012 EBIT SEK 6.45 Bn

21.7% Margin

Tools and tooling systems for the metal

cutting industry. Products are manufactured in

cemented carbide and other hard materials

such as diamond, cubic boron nitride and

special ceramics.

Engineering 48%, Automotive 28%,

Aerospace 11%, Energy 11% and Mining 2%

Iscar, Kennametal, Kyocera, Mitsubishi,

OSG, Sumitiomo

Europe 54%, North America 21%, Asia 20%,

South America 3%, Middle East/Africa 1%,

Australia 1%

Economic growth in developed countries &

China; demand in the engineering sector

Sandvik Material Technology

FY 2012 Sales SEK 15.37 Bn

-6.3% YoY organic growth

FY 2012 EBIT SEK 1.26 Bn

8.2% Margin

Advanced stainless materials, special alloys,

metallic, ceramic resistance materials and

process systems: Tube, Strip, Kanthal,

Process Systems and MedTec

Energy 33%, General Engineering 16%,

Consumer Electronics 15%, Chemical 12%,

Construction 7%, Mining 6%, Automotive 6%,

Aerospace 3% and Medical 2%

Böhler Uddeholm,Hitachi,Salzgitter

Mannesmann, Sumitomo, Tubacex ,Ugitech,

VDM

Europe 48%, North America 26%, Asia 16%,

Australia 7%, South America 2%, Middle

East/Africa 1%

Shift of business mix towards higher-end,

bespoke products and away from commodity

Sandvik Construction

FY 2012 Sales SEK 9.68 Bn

1.6% YoY organic growth

FY 2012 EBIT SEK 0.75 Bn

7.7% Margin

Rock tools, drilling rigs, breakers, bulk-

materials handling and crushing and screening

machinery

Aggregate and Cement Quarrying 30%,

Breaking,Crushing and Screening 30%,

Underground Civil Engineering 20% and

Surfaced Drilling and Blast Contracting 20%

Atlas Copco, Astec, Caterpillar, Furukawa,

Metso Minerals

Europe 37%, Asia 20%, North America 15%,

South America 11%,Middle East/Africa 9%,

Australia 8%

Economic growth in EM; Population growth;

Urbanization; Infrastructure investment

Sandvik Venture

FY 2012 Sales SEK 5.96 Bn

-5.5% YoY organic growth

FY 2012 EBIT SEK 1.12 Bn

18.8% Margin

Product areas which are too small to be

categorized as separate Business units:

Sandvik Hard Materials, Wolfarm and Dormer,

Process systems and Diamond Innovations.

Engineering 35%, Energy 15%, Mining 10%,

Chemical 10%, Construction 5%, Automotive

5%, Consumer Related 5%, Aerospace 5%

and Others 10%

Berndorf (process systems), Zapp (medtech)

Europe 50%, North America 21%, Asia 19%,

South America 5%, Middle East/Africa 3%,

Australia 2%,

Development of new product; Investment in

R&D

SANDVIK (SAND.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic MixShareholding Structure

Free Float: 88%

Top 5 shareholders

AB Industrivarden 11%, JPM Chase

5%,Swedbank Robur Funds 5%,

Handelsbanken's Pension Foundation 4%,

SSB CL Omnibus 4%.

Ownership by country

Sweden 64%, USA 15%, UK 12%,

Luxembourg 2%, Denmark 1% and others

Sandvik Mining

39%

SandvikMachining

41%

Sandvik Material Technology

8%

Sandvik Construction

5%

Sandvik Venture7%

Sandvik Mining38%

Sandvik Machining

30%

Sandvik Material

Technology16%

Sandvik Construction

10%

Sandvik Venture6%

Aerospace4%

Energy9%

Mining40%

Engineering 19%

Automotive10%

Construction11%

Consumer Related

3%

Others4%

NAFTA18%

South America

9%

Europe34%

Asia18%

Middle East/Africa

10%

Australia11%

Source: Company data

158

Schindler – Outperform, TP CHF 150 Investment summary: Attractive entry point opportunity with temporary margin pressure resulting from

investment for future growth through multiple new product introductions and manufacturing reset.

Bull Case Scope for continuing well-above market growth rate in China as Schindler is playing

catch up to its ‘fair share’ of the market by fully penetrating Tier 2 cities and building

presence in Tier 3/4s as well as by introduction of a China low-end specific product

(Schindler 3600) that is yet to make an impact;

Scope for further market share gains globally with Schindler 5500;

Innovative PORT technology for the high-end high-rise applications where

Schindler is the pioneer (destination control and people flow solutions);

As a result of above, potential for continuing high-single digit orders and top line

growth in mid-term;

Strong balance sheet post only 1/3 of fixed price share repurchase offer taken up

by shareholders (offer at CHF 129 / 129.9 for N/P shares) leaving scope for further

cash returns to shareholders.

Bear Case Margins came under pressure in mid-2013 and are likely to remain depressed

throughout 2014 as new factories continue to come online and new products

continue to ramp up;

Relatively weak current presence / positioning in China poses a risk of losing out on

the maintenance market opportunity, especially if the new regulation make an impact

as early as 2014;

Risk of Brazil cooling down and FX fluctuations;

Risk of failing to execute on LEAP cost-savings plan.

0

20

40

60

80

100

120

140

160

0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0%

2%

4%

6%

8%

10%

12%

14%

Margins % (LHS) Sales Growth ex-currency(RHS)

0%

20%

40%

60%

80%

100%

120%

10%

15%

20%

25%

SCHP ROIC (LHS) Sector ROIC (LHS)

SCHP Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

159

Schindler – Valuation

5.5% 6.0% 6.5% 7.0% 7.5%

9.5% 6.9% 124 126 129 132 135

10.0% 7.3% 129 131 134 137 140

10.5% 7.6% 133 136 139 142 146

11.0% 8.0% 138 141 145 148 151

11.5% 8.3% 143 146 150 153 157

12.0% 8.7% 148 151 155 158 162

12.5% 9.1% 153 157 160 164 168

13.0% 9.4% 158 162 165 169 173

13.5% 9.8% 163 167 170 174 178

14.0% 10.2% 168 172 176 180 184

EBITA

margin

NOPAT

margin

Grow th (years 4 to 10) 6.5%

EBIT margin (years 4+) 11.5%

NOPAT margin 8.3%

Invested capital 1,906

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 8.2%

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 77.1 68.0 64.2 96.0 103.2 113.7 123.8 123.8 123.8

High 84.5 86.8 78.5 116.8 113.6 130.4

Low 67.0 45.4 47.1 77.7 81.0 104.6

Year end 73.0 47.1 78.4 111.9 109.1 129.8

P/E average 18.3 13.2 12.4 16.9 17.8 18.9 21.3 18.9 16.8

P/E high 20.0 16.9 15.1 20.6 19.6 21.6

P/E low 15.9 8.8 9.1 13.7 14.0 17.3

EV:sales average 0.66 0.52 0.74 1.16 1.27 1.37 1.50 1.27 1.13

EV:sales high 0.72 0.67 0.93 1.45 1.47 1.62

EV:sales low 0.56 0.32 0.48 0.88 0.98 1.25

Group operating margin 5.8% 6.3% 11.4% 11.9% 11.8% 11.2% 10.4% 10.5% 11.0%

EV:EBITDA average 9.8 7.1 5.8 8.5 9.6 10.2 12.3 10.3 8.9

EV:EBITDA high 10.7 9.3 7.3 10.8 11.1 12.0

EV:EBITDA low 8.4 4.4 3.7 6.5 7.4 9.3

EV:EBIT average 11.4 8.2 6.5 9.7 10.8 11.4 14.5 12.1 10.2

EV:EBIT high 12.4 10.6 8.2 12.2 12.5 13.5

EV:EBIT low 9.8 5.1 4.2 7.4 8.3 10.4

FCF yield average 5.2% 11.7% 11.9% 8.0% 4.6% 4.8% 4.0% 5.1% 6.3%

FCF yield high 4.7% 9.1% 9.7% 6.5% 4.2% 4.2%

FCF yield low 6.0% 17.4% 16.2% 9.8% 5.8% 5.2%

Dividend yield average 2.1% 2.9% 3.1% 3.1% 1.9% 1.9% 1.7% 2.0% 2.2%

Dividend yield high 1.9% 2.3% 2.5% 2.6% 1.8% 1.7%

Dividend yield low 2.4% 4.4% 4.3% 3.9% 2.5% 2.1%

EV/IC average 3.5 3.8 3.5 6.8 5.0 5.3 5.9 5.2 5.0

EV/IC high 3.8 5.0 4.4 8.6

EV/IC low 3.0 2.4 2.2 5.2

P/BV average 4.54 4.03 3.03 4.07 4.34 4.71 6.57 5.07 4.22

P/BV high 4.97 5.15 3.71 4.95

P/BV low 3.94 2.69 2.22 3.29

ROIC 16.8% 33.8% 36.8% 50.9% 33.9% 34.3% 30.0% 31.6% 35.7%

ROE 20.9% 31.8% 25.8% 25.0% 23.9% 26.1% 30.8% 27.2% 25.5%

ROCE 28.0% 65.4% 85.0% 106.8% 71.5% 78.1% 64.0% 65.6% 74.6%

DCF

Source: Company data, Credit Suisse estimates

160

Schindler – Financials PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 8,187 7,854 8,258 8,753 9,322 10,069

Growth, % -1.1% -4.1% 5.1% 6.0% 6.5% 8.0%

Material Cost (2,302) (2,329) (2,442) (2,626) (2,797) (3,021)

Personnel Cost (3,162) (2,965) (3,074) (3,151) (3,356) (3,575)

Other Operating Cost (1,641) (1,570) (1,557) (2,032) (2,019) (2,201)

Depreciation & Amortisation (132) (119) (119) (156) (171) (165)

Total Cost (7,237) (7,064) (7,268) (8,016) (8,344) (8,962)

Reported EBIT 950 790 990 738 979 1,108

Reported EBIT margin, % 11.6% 10.1% 12.0% 8.4% 10.5% 11.0%

Exceptionals / one-offs (25) (135) - (173) - -

Operating profit 975 925 990 910 979 1,108

Operating profit margin, % 11.9% 11.8% 12.0% 10.4% 10.5% 11.0%

Depreciation & Amortisation (132) (119) (119) (156) (171) (165)

EBITDA 1,107 1,044 1,109 1,066 1,150 1,273

EBITDA margin, % 13.5% 13.3% 13.4% 12.2% 12.3% 12.6%

Net inc/exp from investing & financing (12) - (7) 16 18 21

Profit Before Tax 938 790 983 754 997 1,128

Underlying PBT 963 925 983 927 997 1,128

Tax (259) (214) (253) (241) (264) (305)

Effective rate, % 27.6% 27.1% 25.7% 26.5% 26.5% 27.0%

Reported profit after tax 679 576 730 513 733 824

Minority interest 25 23 28 21 29 33

Reported Net Income 677 588 702 498 709 796

Operating Net Income 679 688 702 670 709 796

Net income margin, % 8.3% 8.8% 8.5% 7.7% 7.6% 7.9%

CS operating EPS 5.7 5.8 6.0 5.8 6.5 7.4

EPS growth, % 9.3% 2.1% 3.9% -3.7% 12.7% 12.3%

DPS, CHF 3.0 2.0 2.2 2.2 2.4 2.7

DPS growth, % 50.0% -33.3% 10.0% -2.2% 12.7% 12.3%

Dividend Cover (X) 1.9 2.9 2.7 2.7 2.7 2.7

Shares & BPC in issue 120 120 118 117 110 110

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 706 674 735 669 719 809

Invested Capital 1,387 1,992 2,143 2,227 2,279 2,265

ROIC 50.9% 33.9% 34.3% 30.0% 31.6% 35.7%

ROIC (average) 44.8% 39.9% 35.6% 30.6% 31.9% 35.6%

Operating Net Income 706 674 735 669 719 809

Equity 2,819 2,817 2,813 2,173 2,644 3,173

ROE 25.0% 23.9% 26.1% 30.8% 27.2% 25.5%

ROE (average) 26.4% 23.9% 26.1% 26.8% 29.9% 27.8%

EBITDA 1,107 1,044 1,109 1,066 1,150 1,273

Total debt 277 788 754 754 754 754

Net debt (2,158) (1,874) (1,872) (1,127) (1,546) (2,089)

Total debt / EBITDA 0.3 0.8 0.7 0.7 0.7 0.6

Net debt / EBITDA (1.9) (1.8) (1.7) (1.1) (1.3) (1.6)

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 1,224 1,325 1,326 1,375 1,379 1,318

Other f ixed assets 804 1,221 1,326 1,356 1,386 1,416

Fixed assets 2,028 2,546 2,652 2,731 2,765 2,734

Inventories 359 407 395 408 485 552

Production orders in progress 1,721 1,857 1,939 2,086 2,222 2,400

Advances against production orders (2,157) (2,283) (2,436) (2,566) (2,733) (2,952)

Trade and other receivables 1,463 1,552 1,656 1,751 1,839 2,014

Trade and other payables (2,027) (2,087) (2,063) (2,182) (2,299) (2,483)

Working capital (641) (554) (509) (504) (485) (469)

Working capital days (29) (26) (22) (21) (19) (17)

WC as % of sales -7.8% -7.1% -6.2% -5.8% -5.2% -4.7%

Cash and cash equivalents 2,435 2,662 2,626 1,881 2,300 2,843

Short-term debt (145) (169) (133) (133) (133) (133)

Long-term debt (132) (619) (621) (621) (621) (621)

Net debt / (cash) (2,158) (1,874) (1,872) (1,127) (1,546) (2,089)

Provisions (788) (875) (1,092) (1,072) (1,072) (1,072)

Other liabilities (164) (183) (124) (124) (124) (124)

Other assets 736 9 14 14 14 14

Net assets 3,329 2,817 2,813 2,173 2,644 3,173

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Operating Net Income 679 688 702 670 709 796

Minority interest 34 23 28 21 29 33

Exceptional costs (25) (100) - (18) - -

Depreciation & amortisation 139 119 119 156 171 165

Change of provisions 11 81 (76) (20) - -

Other non cash items 34 4 76 - - -

Contributions to pension fund (23) (47) (51) (30) (30) (30)

Gross cash flow 849 768 798 779 879 964

Working capital change 242 (78) (16) (5) (18) (16)

Operating cash flows 1,091 690 782 774 861 948

Operating cash / Operating profit 1.1 0.7 0.8 0.9 0.9 0.9

Net capex (179) (131) (148) (205) (175) (105)

Free Cash Flow 912 559 634 569 686 843

FCF / Net income 1.3 0.8 0.9 0.8 1.0 1.1

Acquisitions/disposals (167) (277) (38) - - -

Loans raised / paid back (13) 509 (80) - - -

Shares issue / purchase (59) (233) (124) (1,061) - -

Dividends Paid (267) (378) (255) (252) (267) (300)

Investments (15) (56) (346) - - -

Net Cash Flow 391 124 (209) (745) 419 543

Source: Company data, Credit Suisse estimates

161

Schindler – Company Summary

Order BacklogEmployee Mix End Market Mix

Management

Chairman Alfred N. Schindler

CEO Jurgen Tinggren

CFO Erich Ammann

IR Barbara Zach

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Elevators & Escalators

FY 2012 Sales CHF 8.26 Bn

5.0% YoY Growth EX-FX

FY 2012 EBIT CHF 0.99 Bn

12.0% Margin

Elevators, Escalators, Moving walks,

Destination technology

Residential Construction 60%, Commercial

Construction 20% and Government

Construction 20%

OTIS, ThyssenKrupp, KoneEurope 46%, Americas 29%,

Asia/Australia/Africa 25%

Urbanisation; Wealth creation in EM;

Development in energy efficiency;

Demographic change

SCHINDLER (SCHP.VX) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic MixShareholding Structure

Free Float:60%

Top 5 shareholders

Sunlife Financials 2.9%, FMR LLC 2.9%,

Credit Suisse Asset Management 2.7%,

Norges banks 2.4%, Franklin Resources 1.9%

Ownership by country

US 37%, Switzerland 24%, Luxembourg 17%,

Canada 9%,

Europe32%

Americas32%

Asia/Australia/Africa

36%

Americas28%

Sw itzerland 10%

Rest of Europe

33%

Asia/Australia/Africa

29%

Europe46%

Americas29%

Asia/Australia/Africa

25%

Residential Construction

60%

Commercial Construction

20%

Government Construction

20%

Source: Company data

162

Schneider – Neutral, TP €58

Bull Case Short-cycle recovery potential in Europe and the US could provide better

than expected organic top-line growth particularly in Industry and Partner

Return improvement following Invensys and integration focus meaning

limited M&A activity medium term

Stronger sales synergy potential in Industry from Invensys acquisition

Combination of less FX weakness in emerging markets than expected and

pricing increases / changing manufacturing can lead to margin surprise

Bear Case Prolonged volume weakness in Europe and France in particular

On-going FX weakness in emerging markets with limited success to raise

prices and shifting production to soft currency countries

Focus away from integration and towards more deals despite Invensys

On-going customer de-stocking such as recently see in Russia and Europe

Investment summary: High-quality Electrical company with recovering organic growth potential particularly in

the short-cycle divisions (Industry, Partner) in FY14 with strong cash flow conversion and less M&A risk in FY14

yet margin risk potential from FX weakness in EM, less pricing power and cost savings initiatives.

0

10

20

30

40

50

60

70

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

10%

11%

12%

13%

14%

15%

16%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

120%

6%

8%

10%

12%

14%

16%

18%

SCHN ROIC (LHS) Sector ROIC (LHS)SCHN Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

163

Schneider – Valuation 2007A 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E

Share Price:

Average 48.0 34.2 26.0 45.0 50.4 48.0 59.4 59.4 59.4

High 55.1 46.3 28.7 59.6 61.6 56.0

Low 41.5 20.2 20.9 36.1 35.7 40.1

Year End 46.3 26.5 41.0 57.2 40.7 54.8

PE:

Average 14.0 9.1 11.9 12.9 13.8 11.9 15.1 13.4 12.3

High 16.1 12.3 13.2 17.1 16.9

Low 12.2 5.3 9.6 10.4 9.8

Year End 13.6 7.0 18.8 16.4 11.2

EV/Sales:

Average 1.66 1.25 1.05 1.39 1.50 1.32 1.56 1.46 1.35

High 1.86 1.51 1.14 1.78 1.77

Low 1.42 0.86 0.89 1.15 1.14

Year End 1.57 1.00 1.53 1.72 1.27

Recurring EBITA margin 14.2% 15.1% 12.6% 14.4% 13.5% 13.8% 13.6% 13.9% 14.4%

EV/EBITA:

Average 11.6 8.7 9.1 9.1 10.9 9.5 11.4 10.7 9.6

High 13.0 10.4 9.9 11.6 12.8

Low 9.9 6.0 7.7 7.5 8.3

Year End 10.6 6.6 13.2 11.2 9.2

EV/Recurring EBITA:

Average 11.7 8.3 8.4 9.6 11.1 9.5 11.5 10.5 9.4

High 13.1 10.0 9.1 12.3 13.0

Low 10.0 5.7 7.1 8.0 8.5

Year End 11.1 6.6 12.1 11.9 9.3

EV/EBITDA:

Average 9.5 7.2 7.2 7.8 9.2 8.1 10.2 9.6 8.7

High 10.7 8.6 7.8 10.0 10.8

Low 8.2 4.9 6.1 6.5 7.0

Year End 9.0 5.7 10.4 9.7 7.8

EV/IC:

Average 1.8 1.4 1.1 1.5 1.5 1.4 1.6 1.6 1.7

High 2.0 1.7 1.2 1.9 1.8

Low 1.6 0.9 0.9 1.2 1.1

Year End 1.7 1.1 1.5 1.8 1.3

Dividend Yield

Average 3.4% 5.0% 3.9% 3.6% 3.4% 3.9% 3.3% 3.5% 3.8%

High 3.0% 3.7% 3.6% 2.7% 2.8%

Low 4.0% 8.6% 4.9% 4.4% 4.8%

Year End 3.6% 6.5% 2.5% 2.8% 4.2%

FCF Yield (based on EV)

Average 6.3% 8.9% 14.1% 7.6% 5.7% 7.9% 6.2% 6.5% 7.2%

High 5.6% 7.4% 13.1% 6.0% 4.9%

Low 7.3% 13.0% 16.7% 9.2% 7.5%

Year End 6.6% 11.2% 9.8% 6.2% 6.8%

Source: Company data, Credit Suisse estimates

164

Schneider – Financials P&L 2010A 2011A 2012A 2013E 2014E 2015E

Group Sales 19,580 22,387 23,946 23,638 26,396 27,589

Cost of Sales -11,842 -13,958 -14,889 -14,703 -16,405 -17,083

Gross Margin 40% 38% 38% 38% 38% 38%

Research and Development -450 -539 -507 -591 -660 -690

% of sales -2% -2% -2% -3% -3% -3%

Selling, General and Admin Expenses -4,269 -4,658 -5,035 -4,926 -5,464 -5,656

% of sales -22% -21% -21% -21% -21% -21%

EBITDA 3,477 3,650 3,921 3,609 3,998 4,294

PPA effects -228 -226 -475 -475 -475 -475

Other Income and Development -88 -153 -174 -179 -254 -253

Group EBITA 2,931 3,079 3,341 3,239 3,613 3,907

Margin 15.0% 13.8% 14.0% 13.7% 13.7% 14.2%

Restructuring -96 -145 -164 -160 -160 -159

Group EBITA ex restructuring 3,027 3,224 3,505 3,399 3,773 4,066

Margin ex restructuring 15.5% 14.4% 14.6% 14.4% 14.3% 14.7%

Other adjustments 8 -8 -10 -19 -94 -94

Margin 15.4% 14.4% 14.7% 14.5% 14.7% 15.1%

Recurring EBIT 2,829 3,032 3,315 3,218 3,667 3,960

Margin 14.4% 13.5% 13.8% 13.6% 13.9% 14.4%

Group EBIT 2,703 2,853 2,866 2,764 3,138 3,432

Margin 13.8% 12.7% 12.0% 11.7% 11.9% 12.4%

Net Financials -347 -415 -405 -347 -317 -316

Reported Pre-tax Profit 2,362 2,466 2,495 2,417 2,821 3,116

Tax -566 -562 -568 -550 -642 -709

tax rate (%) 24% 23% 23% 23% 23% 23%

Net Profit to Total shareholders 1,796 1,904 1,927 1,867 2,179 2,407

Minority Interests -76 -84 -87 -84 -98 -109

Net Income to Equity Shareholders 1,720 1,820 1,840 1,783 2,080 2,298

CS Net Income 1,816 1,958 2,187 2,133 2,489 2,706

Reported EPS - Ordinary 3.30 3.39 3.39 3.28 3.71 4.10

CS EPS 3.48 3.64 4.03 3.93 4.44 4.83

Reported EPS - Dilued 3.28 3.35 3.36 3.25 3.68 4.07

Reported EPS pre goodwill - Ordinary 3.30 3.39 3.39 3.28 3.71 4.10

Dividend per share 1.60 1.70 1.87 1.94 2.10 2.25

Cash flow 2010A 2011A 2012A 2013E 2014E 2015E

Net income before minorities 1,796 1,904 1,927 1,867 2,179 2,407

Group share of (income)/loss of equity accounted cos net of divs recd-6 -28 -34 -34 -34 -34

Depreciation of property, plant and equipment 358 386 394 415 420 421

Amortisation of Intangible Assets (ex goodwill) 387 380 420 430 440 441

Impairment of assets 29 31 241 - - -

Increase (decrease) in provisions -51 -89 -77 -30 -30 -30

Change in deferred taxes -50 -65 -122 - - -

Losses (gains) on disposal of assets - net -21 12 -16 - - -

Other non-cash items 26 48 69 - - -

Net cash provided by operating activities pre working capital2,468 2,579 2,802 2,648 2,975 3,205

Net change in working capital requirement -206 -327 -1 -1 -1 -1

Cash Flow from operations 2,262 2,252 2,801 2,647 2,974 3,204

Net investment in operating assets -528 -746 -719 -688 -777 -815

Dividends paid -241 -925 -991 -1,015 -1,054 -1,177Net cash flow from ordinary operations 1,493 581 1,091 943 1,144 1,212

Financial Investments- net (Acquisitions) -1,754 -2,873 -242 - 1,800- -

Other long term investments 5 -54 107 - - -

Long term pension assets 0 -64 -79 - - -

Total of Acquisitions and change in LT invest -1,749 -2,991 -214 - 1,800- -

Cash Flow before financing -256 -2,410 877 943 -656 1,212

Opening Borrowings -2,851 -2,736 -5,266 -4,203 -3,260 -3,917

Share repurchases 249 - - - - -

Shares issued 305 210 221 - - -

Cash flow before financing -256 -2,410 877 943 -656 1,212

Effect of foreign exchange movements /acquired debt or cash 6 -166 -51 - - -

Other -189 -164 16 - - -

Closing Borrowings -2,736 -5,266 -4,203 -3,260 -3,917 -2,704

Source: Company data, Credit Suisse estimates

165

Schneider – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman Henri Lachmann

CEO Jean-Pascal Tricoire

CFO Emmanuel Babeau

IR Anthony Song

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Power

FY 2012 Sales EUR 8.74 Bn

0.5% YoY organic growth

FY 2012 EBIT EUR 1.81 Bn

20.7% Margin

Low Voltage and Renewable Energies

products and solutionsUtilities, Marine, Residential and Oil & Gas. ABB, Siemens, Eaton, Legrand.

Residential & commercial construction;

Emphasis on power-saving in buildings

Infrastructure

FY 2012 Sales EUR 5.37 Bn

-1.5% YoY organic growth

FY 2012 EBIT EUR 0.58 Bn

10.7% Margin

Medium Voltage and Grid especially for

infrastructure and electrical utilities. The

product offering includes disconnectors, circuit

breakers and transformers.

Utilities, Building, Industries and Oil & Gas. ABB & SiemensUtility capex (distribution network

refurbisment)

Industry

FY 2012 Sales EUR 4.48 Bn

-3.8% YoY organic growth

FY 2012 EBIT EUR 0.82 Bn

18.4% Margin

Control systems and Process AutomationOEMs, Water Treatment and Mining, Minerals

& MetalsSiemens & Rockwell

Emerging market wage inflation; Increasing

automation of production processes; General

industrial capex

IT

FY 2012 Sales EUR 3.68 Bn

2.7% YoY organic growth

FY 2012 EBIT EUR 0.70 Bn

19.0% Margin

Critical Power & Cooling Services Data Centers and Financial Services Emerson & EatonData centre investment; Lower energy cost for

companies

Buildings

FY 2012 Sales EUR 1.68 Bn

-3.1% YoY organic growth

FY 2012 EBIT EUR 0.10 Bn

6.4% Margin

Critical Power, Security and Supply

Management.

Hotels, Hospitals, Office Buildings and Retail

BuildiSiemens, JCI & Rockwell

Regulations on building energy consumption;

Increasing building automation to lower energy

consumption

SCHNEIDER (SCHN.PA) - SIMON TOENNESSEN +44 20 7883 6893/ simon.toennessen@credit-suisse.comGeographic Mix Shareholding Structure

Free Float:100%

Top 5 shareholders

Capital Group Companies 9.8%, Amundi

4.9%, AXA Investment Managers 4.6%,

Caisse Des Depots 3.7%, Norges Bank 2.4%

Ownership by country

USA 49%, France 31%, Luxembourg 7%, UK

4% and others

Western Europe 30%, Asia Pacific 27%,

North America 25%, Others 18%

Pow er45%

ConsumerLifestyle

25%

Industry20%

IT17%

Buildings3%

Pow er37%

Infrastructure22%

Industry19%

IT15%

Buildings7% Western

Europe 30%Asia

Pacif ic 27%

North America 25%

Others 18%

Buildings29%

Utilities & Infrastructure

25%

Industrial & Machines

22%Data Centers &

Netw ork

15%

Residential9%

Source: Company data

166

Senior – Outperform, 315p

Bull Case Top Quartile Cash Conversion: Senior cash conversion amongst the highest

in the sector (98% cumulative 2006A-2012A). We see no change to this

trend.

Above secular average ROIC and well ahead of WACC.

Attractive valuation: Senior trades at a >10% discount to its peer group

weighted SOTP.

Balance Sheet Optionality: Low gearing of net debt /EBITDA of 0.2x in

2014E allows plenty of scope for further acquisitions / cash returns.

Robust Equity story: Civil Aerospace, Truck emission control, Oil & Gas

exposure.

Bear Case

Pricing headwinds from large Aerospace OEM’s leading to margin

contraction at Aerospace.

Lack of an obvious catalyst to cause a valuation multiple re-rating and

closure of the valuation gap vs. peers.

Investment summary: Senior offers top quartile sector cash conversion combined with healthy ROIC at a

compelling valuation. Add in a robust equity story based on its civil aerospace exposure, truck emission control

and oil & gas exposure and we rate the shares at Outperform.

-20%

-10%

0%

10%

20%

30%

0%

4%

8%

12%

16%

20%

Margins % (LHS) Organic Growth (RHS)

0

50

100

150

200

250

300

350

0

5

10

15

20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

0%

20%

40%

60%

80%

100%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

SNR ROIC (LHS) Sector ROIC (LHS)

SNR Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

167

Senior – Valuation Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 130.25 119.5 75 152.4 190.6 213 287.2 287.2 287.2

Share price - year low 64 27 24.25 74.5 132.6 171 287.2 287.2 287.2

Share price - year average 96.25 87.49 44.73 118.3 157.7 195.39 287.2 287.2 287.2

Enterprise value - high 586.71 690.56 446.65 708.91 889.14 964.26 1278.65 1246.94 1191.55

Enterprise value - low 354.97 330.73 246.19 398.63 657.37 795.42 1278.65 1246.94 1191.55

Enterprise value - average 467.78 566.04 327.08 573.09 757.67 893.47 1278.65 1246.94 1191.55

EBITA 45.0 64.5 59.4 75.4 88.3 100.7 109.9 117.7 123.7

EV/EBITA - High 13.0 10.7 7.5 9.4 10.1 9.6 11.6 10.6 9.6

EV/EBITA - Low 7.9 5.1 4.1 5.3 7.4 7.9 11.6 10.6 9.6

EV/EBITA - Average 10.4 8.8 5.5 7.6 8.6 8.9 11.6 10.6 9.6

EBITDA 59.1 82.6 79.5 94.8 106.3 120.8 131.9 140.7 147.7

EV/EBITDA - high 9.9 8.4 5.6 7.5 8.4 8.0 9.7 8.9 8.1

EV/EBITDA - low 6.0 4.0 3.1 4.2 6.2 6.6 9.7 8.9 8.1

EV/EBITDA - average 7.9 6.9 4.1 6.0 7.1 7.4 9.7 8.9 8.1

Sales 470.7 562.4 540.1 566.9 640.7 712 771 806 843

EV/Sales - high 1.25 1.23 0.83 1.25 1.39 1.35 1.66 1.55 1.41

EV/Sales - low 0.75 0.59 0.46 0.70 1.03 1.12 1.66 1.55 1.41

EV/Sales - average 0.99 1.01 0.61 1.01 1.18 1.25 1.66 1.55 1.41

CS EPS Adjusted (p) 7.53 10.47 8.74 11.61 14.05 17.31 18.54 20.23 21.21

PER - high 17.30 11.41 8.58 13.13 13.56 12.30 15.49 14.20 13.54

PER - low 8.50 2.58 2.77 6.42 9.44 9.88 15.49 14.20 13.54

PER - average 12.79 8.35 5.12 10.19 11.22 11.29 15.49 14.20 13.54

NAV 38.5 44.6 46.4 56.5 68.7 76.6 73.5 86.0 100.4

PBV - high 3.4 2.7 1.6 2.7 2.8 2.8 3.9 3.3 2.9

PBV - low 1.7 0.6 0.5 1.3 1.9 2.2 3.9 3.3 2.9

PBV - average 2.5 2.0 1.0 2.1 2.3 2.6 3.9 3.3 2.9

Dividend Yield 2.40 2.60 2.60 3.12 3.80 4.65 5.12 5.73 6.42

Dividend Yield - high 2% 2% 3% 2% 2% 2% 2% 2% 2%

Dividend Yield - low 4% 10% 11% 4% 3% 3% 2% 2% 2%

Dividend Yield - average 2% 3% 6% 3% 2% 2% 2% 2% 2%

FCF before distributions 19 53 60 60 57 58 56 71 80

FCF/Sales 4% 9% 11% 10% 9% 8% 7% 9% 9%

FCF per share 4.77 13.24 14.83 14.39 13.60 13.94 13.30 17.01 19.08

FCF/EBITDA 32% 64% 76% 63% 53% 48% 42% 51% 54%

100%

94%- 6%

2%

- 5%

2%

8%

- 7%

70%

80%

90%

100%

110%

120%

130%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

&D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (

Def

erre

d ta

x, P

ensi

on,

Min

ority

etc

)

Fre

e C

ash

Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

168

Senior – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 338.6 387.9 470.7 562.4 540.1 566.9 640.7 712.0 771.0 806.0 843.0

Change yoy, % 14.6% 21.3% 19.5% -4.0% 5.0% 13.0% 11.1% 8.3% 4.5% 4.6%

EBITDA 31.3 38.3 59.1 82.6 79.5 94.8 106.3 120.8 131.9 140.7 147.7

Margin, % 9.2% 9.9% 12.6% 14.7% 14.7% 16.7% 16.6% 17.0% 17.1% 17.5% 17.5%

EBITA 19.8 26.2 45.0 64.5 59.4 75.4 88.3 100.7 109.9 117.7 123.7

Margin, % 5.8% 6.8% 9.6% 11.5% 11.0% 13.3% 13.8% 14.1% 14.3% 14.6% 14.7%

Restructuring Costs (recurring) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CS PBT 14.8 19.8 37.8 56.0 48.0 65.3 78.0 90.3 98.4 106.7 113.4

Income Tax (2.5) (2.3) (5.0) (10.2) (8.8) (6.1) (15.9) (15.0) (20.6) (22.4) (24.8)

Exceptional - Tax 0.0 (0.6) (1.4) (1.9) (1.8) (5.6) (1.8) (1.8) 0.0 0.0 0.0

CS EPS (Diluted) 3.9 4.6 7.5 10.5 8.7 11.6 14.1 17.3 18.5 20.1 21.1

Reported EPS (Diluted) 4.5 4.2 7.0 9.8 9.6 9.8 13.2 16.7 15.3 19.0 20.0

DPS, p 2.0 2.0 2.4 2.6 2.6 3.1 3.8 4.7 5.1 5.7 6.4

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 31.3 38.3 59.1 82.6 79.5 94.8 106.3 120.8 131.9 140.7 147.7

Working Capital Change (9.5) 1.1 (10.3) 12.2 29.9 2.5 (4.7) (10.2) (10.4) (11.0) (13.0)

Operating Cash Flow 22.3 31.5 48.5 91.9 89.7 87.1 96.3 99.8 112.7 120.5 125.2

Net Financing Cost (3.5) (5.3) (6.2) (6.8) (6.1) (7.6) (8.2) (7.6) (9.0) (9.0) (8.6)

Tax Paid (0.9) (2.6) (6.2) (8.8) (11.2) (8.6) (10.7) (8.6) (10.3) (11.2) (12.4)

Net Operating Cash Flow 17.9 23.6 36.1 76.3 72.4 70.9 77.4 83.6 93.3 100.4 104.2

Net Capex (15.4) (17.9) (17.1) (23.2) (12.0) (11.4) (20.8) (25.2) (37.5) (29.5) (24.5)

Free Cash Flow 2.5 5.7 19.0 53.1 60.4 59.5 56.6 58.4 55.8 70.9 79.7

Acquisitions (0.1) (79.8) (8.2) (43.7) 0.0 (8.3) (68.6) (28.1) (30.7) 0.0 0.0

Disposals 0.0 0.1 0.1 0.1 0.0 0.0 0.0 4.5 0.0 0.0 0.0

Pre Financing Cash Flow 2.1 (74.6) 10.4 8.8 60.6 50.5 (13.0) 33.1 24.3 70.9 79.7

Dividend Paid (6.1) (6.5) (8.1) (10.3) (10.4) (10.8) (13.1) (16.4) (19.7) (22.7) (24.7)

Net Cash / (Debt) Year End (62.4) (96.7) (94.8) (174.5) (102.3) (63.7) (93.0) (70.9) (75.1) (27.0) 28.0

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 76 88 94 138 118 114 126 135 124 124 124

Goodwill 77 111 114 184 169 170 210 220 220 220 220

Inangible Assets 1 15 12 18 11 7 17 19 14 10 5

Working capital 68 85 102 134 94 101 124 126 136 147 160

Total assets 195 261 281 402 335 328 404 421 410 413 417

Shareholders' funds 92 127 150 176 185 226 276 313 305 356 415

Minorities 0 0 0 0 0 0 0 0 0 0 0

Total Borrowings 71 104 104 186 123 120 122 115 120 71 16

Cash and equivalents (9) (7) (9) (12) (20) (56) (29) (45) (45) (45) (45)

Net Debt / (Cash) 62 97 95 175 102 64 93 71 75 27 (28)

Pension Deficit 40 38 36 51 48 38 35 37 30 30 30

Total liabilities 195 261 281 402 335 328 404 421 410 413 417

Source: Company data, Credit Suisse estimates

169

Senior – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Aerospace

FY2012 Sales - £470m,

6.3% org. growth

FY2012 EBITA - £72m,

15.3% margin

Low pressure ducting and other

composites, Helicopter machined parts,

Engine structures and mountings,

High pressure ducting,

Airframe structural parts,

Low pressure ducting and other

composites, Fluid control systems

(medical, power, semi-con)

Large Commercial (33%), Military / Defence

Aerospace (16%), Regional & Business

Jets (9%), Space & Non Military Helicopter

(2%), Other Aerospace (6%)

Precision Castparts, Spirit AeroSystems,

Triumph Group, BE Aerospace, Transdigm

Large commercial build rates. Boeing

10% of group sales, Rolls Royce 10%

and UTC 7%

Flexonics

FY2012 Sales - £242m,

(2.4)% org. growth

FY2012 EBITA - £37.3m,

15.4% margin

Emission control (LV)

Exhaust flexes (LV) ,

Fuel distribution (LV)

Expansion joints, bellows, hoses (Ind)

Truck & Off-Highway (10%), Passenger

Vehicles (8%), Power & Energy (6%),

Petrochemical (4%), Heating, Ventilation &

Solar (2%), Other Industrial (4%)

Global No.1 in expansion joints. Market

leading position in common rail and EGR

emission technology. Exhaust flexes are

more commoditised products.

Rotork, Spirax-sarco (Pathway), Faurecia

(emission control), Benteler (exhaust

systems), TRW (engine-components),

Cummins (engines), BorgWarner (emission

systems)

Emission legislation. Cummins (heavy

truck) is 7% of group sales

SENIOR (SNR.L / SNR LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

USA - £342m (53%)

UK - £69m (11%)

RoW - £230m (36%)

Aerospace

65%

Flexonics

35%

Aerospace

65%

Flexonics

35%

Aerospace

60%

Heating,

Ventilation & Solar5%

Passenger

Vehicles12%

Truck

9%

Power & Energy

7%

Petrochemical

3%

Other Industrial

4%

North America,

66%

Rest of Europe,

13%

UK, 14%

RoW, 7%

Shareholding structure

Free float: 97%

Top 5 shareholders: Blackrock - 13%,

Henderson Global Investors Ltd - 8%,

Scottish Widows - 7%, Lloyds Banking

Group Plc - 6%, Legal & General - 5%

Ownership by Country: UK - 60%,

USA - 29%, Norway - 3%, Luxembourg -

2%, Ireland - 2%

Management

Chairman -Martin Clark

CEO -Mark Rollins

CFO -Derek Harding

CS -Andrew Bodenham

Source: Company data

170

Siemens – Outperform, TP €105

Bull Case Strong margin improvement potential from better project risk management, cost

savings feeding through from restructuring initiatives taken in FY13 (e.g. overhead

cost reduction) as well as operational leverage potential

Further portfolio adjustments by either divesting more margin dilutive businesses or

buying margin enhancing business such as in Process Automation

Limited risk for disappointment given very conservative management targets and

potential upside surprise in case of a strong short-cycle volume recovery (low

customer inventory levels)

Better operational result boosting free cash flow performance allowing more

inorganic growth opportunities or further capital allocation

Bear Case Recent CEO change has positively increased the sentiment around Siemens and

changes that come with that. Any discrepancies between management team and

supervisory board would be taken negatively given uncertainty around change and

management support.

Unexpected project charges flipping positive sentiment around changes

Management only meeting company targets on the back of weaker end markets

Limited amount of cost savings from restructuring efforts seen in FY13

Profit risk from potential decline high margin power gen service business

Investment summary: Attractive restructuring story with significant margin improvement potential from better

project execution, strong operational gearing in short-cycle Industry division and improving free cash flow

generation allowing either inorganic growth initiatives or further capital allocation measures.

0

20

40

60

80

100

120

0

2

4

6

8

10

12

14

16

2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-12%

-8%

-4%

0%

4%

8%

12%

7%

8%

9%

10%

11%

12%

13%

2007 2008 2009 2010 2011 2012 2013E2014E2015E

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

6%

8%

10%

12%

14%

16%

18%

SIE ROIC (LHS) Sector ROIC (LHS)

SIE Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

171

Siemens – Valuation

SOTP valuation Nature of Value of Target Fair % per Comments

metric metric multiple value of EV Share

Industrial Automation EBITA 1,630 10.3 16,784 18% 20.6 Competitor multiples

Drive Technologies EBITA 1,062 10.5 11,152 12% 13.7 Competitor multiples

Fossil Power EBITA 1,839 9.3 17,107 18% 21.0 Competitor multiples

Renewable EBITA 528 9.5 5,017 5% 6.2 Competitor multiples

Oil and Gas EBITA 654 9.8 6,438 7% 7.9 Competitor multiples

Power Transmission EBITA 393 8.0 3,146 3% 3.9 Competitor multiples

Diagnostics EBITA 648 11.3 7,322 8% 9.0 Competitor multiples

Other Healthcare EBITA 1,779 11.0 19,565 21% 24.1 Competitor multiples

Transport and Logistics EBITA 487 8.5 4,141 4% 5.1 Competitor multiples

Power Grid Solutions EBITA 612 9.9 6,059 6% 7.5 Competitor multiples

Building Technologies EBITA 621 9.8 6,085 6% 7.5 Competitor multiples

Unallocated costs EBITA -811 9.5 -7,705 -8% -9.5 SRE, CMPS, Corp. and Pension, Elim, C + T

Restructuring costs EBITA -498 9.5 -4,728 -5% -5.8 Modestly lower than group average multiple

Operations 8,945 10.1 90,383 96% 111.2

Financial Assets 4,230 4% 5.2 Equity Investments, SFS

Group EV 94,613 100% 116.4

Net Debt (2013) -9,818

Pension & Other -5,475

SFS debt 14,500

Minority interest -132 13.0 -1,720 13x earnings inline with Siemens valuation at our TP

Liabilities -2,513

Equity Fair Value 92,099

S-O-P value per share (€) 105 discounted back by 10 month

Multiple analysis 2007 2008 2009 2010 2011 2012 2013 2014E 2015E

Share Price:

Average 85.4 82.6 54.3 75.5 84.4 72.5 79.3 94.7 94.7

High 111.3 108.6 68.8 94.8 99.0 79.5 90.0

Low 66.9 64.5 38.0 54.1 64.5 63.1 73.7

Year End 96.3 66.3 64.4 93.2 73.8 77.9 89.2

PE:

Average 15.7 13.1 10.4 11.2 11.5 9.4 10.6 12.9 11.2

High 12.3 10.2 13.2 14.0 13.5 10.3 12.0

Low 20.5 17.2 7.3 8.0 8.8 8.2 9.8

Year End 17.7 10.5 12.3 13.8 10.1 10.1 11.9

EV/Sales:

Average 1.24 1.13 0.71 0.96 1.13 0.97 1.00 1.16 1.05

High 1.56 1.44 0.85 1.18 1.30 1.05 1.11

Low 1.01 0.92 0.63 0.71 0.89 0.87 0.93

Year End 1.37 0.94 0.71 1.16 1.00 1.03 1.11

EV/EBIT:

Average 17.2 28.8 12.4 12.5 9.3 8.3 9.4 11.5 9.5

High 21.6 36.6 14.7 15.4 10.7 9.0 10.5

Low 14.0 23.4 10.9 9.3 7.3 7.5 8.8

Year End 19.1 23.9 12.4 15.2 8.2 8.9 10.4

Recurring EV/EBIT:

Average 13.8 10.6 8.0 9.4 9.3 8.1 8.7 10.7 9.0

High 17.3 13.6 9.5 11.5 10.7 8.8 9.7

Low 11.2 8.6 7.0 7.0 7.3 7.3 8.1

Year End 15.3 8.8 8.0 11.4 8.2 8.6 9.6

Recurring EBIT margin 9.0% 10.6% 8.9% 10.2% 12.2% 11.9% 11.5% 10.8% 11.7%

EV/EBITDA:

Average 10.0 14.0 7.4 7.3 7.1 6.4 6.9 8.3 7.2

High 12.6 17.8 8.9 9.0 8.2 6.9 7.7

Low 8.1 11.3 6.6 5.5 5.6 5.7 6.5

Year End 11.1 11.6 7.4 8.9 6.3 6.8 7.7

Dividend Yield

Average 1.9% 1.9% 2.9% 3.6% 3.6% 4.1% 3.8% 3.3% 3.5%

High 2.4% 2.5% 2.3% 5.0% 4.7% 4.8% 4.1%

Low 1.4% 1.5% 4.2% 2.8% 3.0% 3.8% 3.3%

Year End 1.7% 2.4% 2.5% 2.9% 4.1% 3.9% 3.4%

FCF Yield (based on EV)

Average -4.6% 9.2% 4.4% 8.9% 6.2% 6.4% 7.0% 6.6% 7.6%

High -3.7% 7.2% 3.7% 12.0% 7.9% 7.1% 7.5%

Low -5.7% 11.4% 5.0% 7.3% 5.4% 5.9% 6.3%

Year End -4.2% 11.1% 4.4% 7.4% 7.0% 6.0% 6.3%

SOTP

Source: Company data, Credit Suisse estimates

172

Siemens – Financials P&L 2010R 2011 2012 2013 2014E 2015E

Sales 75,979 73,514 77,197 75,882 78,236 82,946

Sales Growth -0.9% -3.2% 5.0% -1.7% 3.1% 6.0%

Cost of Sales -54,331 -51,388 -56,092 -55,053 -55,485 -58,062

Gross Profit 21,648 22,126 21,105 20,829 22,751 24,884

Gross Margin 28.5% 30.1% 27.3% 27.4% 29.1% 30.0%

S,G&A -11,130 -10,297 -11,162 -11,286 -10,825 -11,198

% of sales -14.6% -14.0% -14.5% -14.9% -13.8% -13.5%

R&D -3,846 -3,925 -4,238 -4,291 -4,321 -4,581

% of sales -5.1% -5.3% -5.5% -5.7% -5.5% -5.5%

Operating Income 6,672 7,904 5,705 5,252 7,604 9,105

Margin 8.8% 10.8% 7.4% 6.9% 9.7% 11.0%

Equity Investments -40 147 -266 510 314 205

Other Income (Expense) -755 699 240 76 150 150

Interest Income(expense) -65 231 501 5 300 300

EBIT 5,811 8,981 8,980 8,049 7,897 9,137

Net financial Income (Expense) 0 260 -5 -154 -100 -100

Other Interest Income (expense) -65 491 506 159 400 400

CS EBIT 5,811 8,981 8,980 8,049 7,897 9,137

Clean PBT 7,972 9,206 9,215 8,564 8,511 9,642

PBT 5,811 9,241 7,261 5,843 8,368 9,760

Income Tax -1,699 -2,231 -2,094 -1,630 -2,264 -2,673

Clean Tax -2,175 -2,645 -2,318 -2,137 -2,290 -2,643

Exceptional Tax 476 414 224 507 26 -29

Effective tax rate 29% 24% 29% 28% 29% 29%

Clean Tax rate 27% 29% 25% 25% 27% 27%

Extraordinary Items (post tax) -44 -690 -595 197 -100 -100

Net Income cont (pre Min) 4,112 7,010 5,167 4,213 6,104 7,087

Minority -169 -176 -132 -126 -132 -139

Net Income from continuing ops 3,943 6,834 5,035 4,087 5,972 6,948

Net Income (Loss) 3,899 6,144 4,440 4,284 5,872 6,848

CS Net Income 5,628 6,385 6,765 6,301 6,088 6,860

Headline EPS (Euro) 4.49 7.04 5.07 5.09 7.06 8.42

Continuing EPS 4.54 7.82 5.75 4.85 7.18 8.54

Restated EPS (Euro) 6.48 7.31 7.72 7.48 7.32 8.44

Net dividend (Euro) 2.70 3.00 3.00 3.00 3.15 3.31

Weighted Average Shares (m) 868 874 876 843 832 813

Cash flow 2010R 2011 2012 2013 2014E 2015E

Net income 3,899 6,144 4,440 4,284 5,872 6,848

Minority interest 169 176 132 126 132 139

Amortization of Acquisition related intangibles 358 340 354 424 424 380

Depreciation & amortization 3,760 2,298 2,390 2,464 2,538 2,614

Total Depreciation & amortization 4,118 2,638 2,744 2,888 2,962 2,994

Loss (gain) on disposal of assets -306 -1,229

Income from investments -72 21

Others 82 315

Decrease (increase) in inventories -75 -1,135 -85 -218 -400 -600

Decrease (increase) in receivables -51 -609 157 -293 -600 -800

Increase (decrease) in payables 112 668 197 -217 200 400

Change in other current assets/liabilities 1,473 376 -2,218 576 0 0

Net cash provided by operating activities 9,349 7,365 6,979 7,340 8,166 8,981

Net cash provided by operating activities - continuing 9,447 7,767

Capital expenditures -2,336 -2,471 -2,195 -1,869 -2,100 -2,300

Proceeds from disposal of fixed assets 589 2,221 0

Acquisition of investments -907 -889 -1,547

Proceeds from disposal of investments 93 0

Decrease (increase) in receivables from financing activities -192 -1,770

Proceeds/Purchase of Marketable securities -94 0

Net cash used by investing activities -2,847 -2,909 -5,685 -5,076 -2,100 -2,300

Net cash used by investing activities - Continuing -2,768 -4,044

Free cash flow 6,502 4,894 4,784 5,471 6,066 6,681

Dividends paid -1,388 -2,356 -2,629 -2,528 -2,462 -2,522

Dividends paid to minority shareholders -199 -158 -155 -152 -160 -168

Capital increase (buyback) and minority interests 147 -764 -1,424 -1,409 -2,000

Change in net debt -766 -1,706 1,833

Other/ Interest -440 -1,883

Net cash provided (used) by financing activities -2,646 -6,867 -3,590 -3,396 -5,621 -5,690

Effect of exchange rates and others 167 5

Net increase (decrease) in cash 4,023 -1,968 1,262 1,491 445 992

FCFps 7.49 5.61 5.46 6.50 7.29 8.22

Source: Company data, Credit Suisse estimates

173

Siemens – Company Summary

Operating Profit Split Sales Mix End Market Mix

Management

Chairman Gerhard Cromme

CEO Joe Kaeser

CFO Ralf P.Thomas

IR Mariel von Drathe

Division Products End Markets / Channels Main Competitors External Revenue Split by Geo Key Drivers/ Themes

Industry

FY 2013 Sales EUR 18.59 Bn

-4.0% YoY organic growth

FY 2013 EBIT EUR 2.22 Bn

11.9% Margin

Automation, Drive Technology and ServicesDrive Technology 50% and Industry

Automation 50%Rockwell , General Electric, Schneider, ABB

Europe , CIS, Africa, ME 55% (there in

:Germany 25%), Asia/Australia 26%,

Americas 19% (there in US: 12%)

General industrial capex; General industrial

production

Energy

FY 2013 Sales EUR 26.64 Bn

-4.0% YoY organic growth

FY 2013 EBIT EUR 2.56 Bn

9.6% Margin

Products, services and solutions for power

generation and transmission.

Fossil power generation 40%, Power

Transmission 24%, Oil & Gas 18% and

Renewable Energy 18%.

ABB, Alstom, Prymian, General Electric,

Emersons

Europe , CIS, Africa, ME 54% (there in

:Germany 8%), Asia/Australia 19%, Americas

27% (there in US: 14%)

Gas turbines- increasing electricity demand;

Reducing emission from coal; Power plant

utilization

Healthcare

FY 2013 Sales EUR 13.62 Bn

2.0% YoY organic growth

FY 2013 EBIT EUR 2.33 Bn

17.1% Margin

Imaging systems, laboratory diagnostics,

healthcare IT, and hearing aidsDiagnostics 29% and Others 71% General Electric, Philips, Mindray

Europe , CIS, Africa, ME 34% (there in

:Germany 7%), Asia/Australia 25%, Americas

41% (there in US: 35%)

Ageing population in EM; Increasing emphasis

on quality of life; Increasing access to

healthcare; Urbanization

Infrastructure & Cities

FY 2013 Sales EUR 17.88 Bn

1.0% YoY organic growth

FY 2013 EBIT EUR 1.16 Bn

6.5% Margin

Integrated mobility solutions, building and

security systems, power distribution

equipment, smart grid applications, and low-

and medium-voltage products

Power Grid Solutions & Products 34%,

Transportation Logistics 33% and Building

Technologies 33%

Emerson, Rockwell, Schneider

Europe , CIS, Africa, ME 61% (there in

:Germany 15%), Asia/Australia 14%,

Americas 25% (there in US: 19%)

Urbanization; Reducing energy cost in

buildings; Increasing demand for security

SIEMENS (SIEGn.DE) - SIMON TOENNESSEN +44 20 7883 6893/ simon.toennessen@credit-suisse.comGeographic Mix Shareholding Structure

Free Float:100%

Top 5 shareholders

Siemens Family 6.0%, BlackRock 5.2%,

Qatar Holdings 3.0%, Siemens AG 3.0%,

Norges Bank 2.4%.

Ownership by country

Germany 29%, US 16%, UK 8%, France 6%,

Switzerland 6% and Others.

Industry25% Energy

36%

Healthcare26%

Infrastructure & Cities13%

Industry24%

Energy35%

Healthcare18%

Infrastructure & Cities

23%Europe (ex

Germany), CIS,

Africa, ME38%

Germany14%

Americas(ex US)

9%

US19%

Asia/Australia (ex China)

12%

China8%

GI Prod3%

GI Capex10%

GI Aftermarket3%

Commercial construction

10%

Construction Government

5%Pow er T&D

13%

Pow er Gen.19%

Transportation11%Medical

17%

Oil&Gas6%

Mining OE3%

Source: Company data

174

SKF – Underperform, TP SEK 150 Investment summary: We see a meaningful risk to SKF earnings in the near- and mid-term from Japanese and

Chinese competition while the market already discounts a full end-markets recovery scenario and cost-savings.

Bear Case Japanese competition threat – we see a meaningful threat to SKF from

Japanese competitors taking share using the JPY depreciation advantage.

NSK, NTN and JTEKT have c30% combined market share with strong presence

overseas combined with substantial domestic industrial base of at least ½ of

total;

Increasing risk of Chinese competitive threat – our recent detailed study of

China local bearings market suggest SKF share has declined recently, pricing

has been tough for domestic and more recently imported products and there is

now a number of credible local mid-market competitors who target specifically

high-end and import-replacing product segments;

Limited further balance sheet capacity post Kaydon – on our estimates 2014

Net Debt / EBITDA is 1.2x vs 0.7x last 10-yr and 1x 5-yr averages.

Valuation full – on 2014E EV/EBITA of 11x and P/E of 13.7x, the stock is

trading already c15% above its mid-cycle valuation.

Bull Case Gearing to early cycle recovery. We already discount SKF top line to grow 6%

organic in 2014 and 5% in 2015 while feedback from our recent US Industrials

conference suggest still anaemic general industrial environment;

Substantial cost-cutting effort with SEK 3bn of savings targeted for 2015

(cSEK 300m in 2013). We already discount full savings in our estimates.

0

50

100

150

200

250

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-30%

-20%

-10%

0%

10%

20%

5%

7%

9%

11%

13%

15%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

8%

10%

12%

14%

16%

18%

20%

SKF ROIC (LHS) Sector ROIC (LHS)

SKF Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

175

SKF – Valuation

EBITA NOPAT

margin margin 4.0% 4.5% 5.0% 5.5% 6.0%

12.0% 8.4% 116 117 118 119 120

12.5% 8.8% 124 125 126 127 128

13.0% 9.1% 131 133 134 135 137

13.5% 9.5% 139 140 142 144 145

14.0% 9.8% 146 148 150 152 153

14.5% 10.2% 154 156 158 160 162

15.0% 10.5% 161 163 166 168 170

15.5% 10.9% 169 171 174 176 179

16.0% 11.2% 176 179 182 184 187

16.5% 11.6% 183 186 189 192 195

Grow th (years 4 to 10) 5.0%

EBIT margin (years 10+) 14.0%

NOPAT margin 9.8%

Invested capital 47,051

Invested capital grow th (years 4+) 2.0%

Terminal grow th rate 2.0%

10-year average FCF yield 6.4%

WACC 9.0%

December y/e 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

Average/Current 126.1 95.2 96.8 145.2 162.4 151.2 174.3 174.3 174.3

High 145.0 119.9 125.5 196.2 195.9 174.2

Low 99.5 56.8 64.8 109.3 120.0 128.1

Year end 104.8 77.3 123.6 191.6 145.6 163.2

P/E average 12.5 9.3 16.9 12.6 12.6 14.8 17.7 13.6 12.4

P/E high 14.4 11.7 21.8 17.0 15.2 17.0

P/E low 9.9 5.6 11.3 9.5 9.3 12.5

P/E year-end 10.4 7.6 21.5 16.6 11.3 16.0

EV/Sales average 1.17 0.96 1.04 1.38 1.40 1.35 1.66 1.48 1.36

EV/Sales high 1.31 1.14 1.27 1.76 1.63 1.51

EV/Sales low 0.96 0.68 0.78 1.11 1.10 1.19

EV/Sales year-end 1.00 0.83 1.26 1.72 1.28 1.44

Operating profit margin 12.9% 12.2% 7.4% 13.7% 14.2% 11.3% 11.7% 13.4% 13.9%

EV/EBITDA average 7.3 6.3 9.2 8.1 8.2 9.6 11.3 8.6 7.9

EV/EBITDA high 8.3 7.4 11.3 10.4 9.6 10.7

EV/EBITDA low 6.0 4.5 6.9 6.5 6.5 8.4

EV/EBITDA year-end 6.3 5.4 11.1 10.2 7.6 10.2

EV/EBIT average 9.1 7.8 14.0 10.1 9.8 12.0 14.2 11.0 9.8

EV/EBIT high 10.2 9.3 17.1 12.9 11.4 13.4

EV/EBIT low 7.5 5.6 10.5 8.1 7.8 10.5

EV/EBIT year-end 7.8 6.8 16.9 12.6 9.0 12.7

FCF yield average 5.4% 2.8% 13.6% 5.9% 5.2% 5.1% 4.9% 6.4% 8.3%

FCF yield high 6.8% 4.7% 20.3% 7.9% 7.0% 6.1%

FCF yield low 4.7% 2.2% 10.5% 4.4% 4.3% 4.5%

FCF yield year-end 6.5% 3.4% 10.6% 4.5% 5.8% 4.8%

Dividend yield average 4.0% 3.7% 3.6% 3.4% 3.4% 3.6% 3.2% 3.9% 4.0%

Dividend yield high 3.4% 2.9% 2.8% 2.5% 2.8% 3.2%

Dividend yield low 5.0% 6.2% 5.4% 4.6% 4.6% 4.3%

Dividend yield year-end 4.8% 4.5% 2.8% 2.6% 3.8% 3.4%

EV/IC average 2.5 1.7 2.0 2.3 2.4 2.3 2.2 2.2 2.1

EV/IC high 2.8 2.0 2.4 2.9 2.8 2.6

EV/IC low 2.1 1.2 1.5 1.9 1.9 2.0

EV/IC year-end 2.2 1.5 2.4 2.9 2.2 2.5

P/BV average 3.3 2.2 2.5 3.5 3.4 3.2 3.5 3.1 2.8

P/BV high 3.8 2.8 3.3 4.7 4.2 3.7

P/BV low 2.6 1.3 1.7 2.6 2.5 2.7

P/BV year-end 2.7 1.8 3.2 4.6 3.1 3.5

ROIC 18.5% 15.1% 10.4% 16.1% 16.9% 13.6% 11.1% 13.9% 15.2%

ROE 26.1% 23.7% 15.0% 27.7% 27.3% 21.8% 19.5% 23.0% 22.6%

ROCE 22.1% 17.5% 12.9% 20.4% 21.8% 17.8% 13.7% 17.3% 19.0%

DCF

Source: Company data, Credit Suisse estimates

176

SKF – Financials

ANALYSIS 2010 2011 2012 2013E 2014E 2015E

NOPAT 5,846.8 6,602.2 5,125.6 5,203.2 6,605.3 7,194.1

Invested Capital 36,385 39,112 37,719 47,051 47,509 47,298

ROIC 16% 17% 14% 11% 14% 15%

ROIC (average) 18% 17% 13% 12% 14% 15%

Operating Net Income 5,246.0 5,851.0 4,655.0 4,477.0 5,825.7 6,405.6

Equity 18,935 21,436 21,340 22,987 25,317 28,291

ROE 28% 27% 22% 19% 23% 23%

ROE (average) 29% 29% 22% 20% 24% 24%

EBITDA 10,327.0 11,202.0 9,138.0 9,304.5 12,047.9 12,773.2

Total debt 12,175 13,613 15,675 15,675 15,675 15,675

Net debt 9,780 8,788 7,431 14,978 12,923 9,529

Total debt / EBITDA 1.2 1.2 1.7 1.7 1.3 1.2

Net debt / EBITDA 0.9 0.8 0.8 1.6 1.1 0.7

PROFIT & LOSS 2010 2011 2012 2013E 2014E 2015E

Revenue 61,029 66,215 64,575 63,399 70,109 73,832

Growth, % 8.5% 8.5% -2.5% -1.8% 10.6% 5.3%

COGS (44,216) (47,644) (48,121) (47,245) (52,245) (55,019)

Gross Profit 16,813 18,571 16,454 16,154 17,864 18,813

Gross margin, % 27.5% 28.0% 25.5% 25.5% 25.5% 25.5%

SG&A (8,222) (8,980) (9,087) (8,886) (8,697) (8,606)

Other operating income/(Expenses) (139) 36 (51) (51) (51) (51)

Reported EBIT 8,452 9,611 7,314 7,218 9,116 10,156

Reported EBIT margin, % 13.8% 14.5% 11.3% 11.4% 13.0% 13.8%

Exceptionals / one-offs (185) (100) (314) (500) (600) (400)

Operating profit 8,635 9,712 7,607 7,718 9,716 10,556

Operating profit margin, % 14.1% 14.7% 11.8% 12.2% 13.9% 14.3%

Restructuring classed as ongoing (300) (300) (300) (300) (300) (300)

CS Operating Profit 8,335 9,412 7,307 7,418 9,416 10,256

CS Operating margin, % 13.7% 14.2% 11.3% 11.7% 13.4% 13.9%

Depreciation & Amortisation (1,992) (1,790) (1,831) (1,887) (2,631) (2,517)

EBITDA 10,327 11,202 9,138 9,304 12,048 12,773

EBITDA margin, % 16.9% 16.9% 14.2% 14.7% 17.2% 17.3%

Net interest income / (expense) (903) (680) (906) (906) (962) (850)

Profit Before Tax 7,547 8,932 6,408 6,312 8,155 9,306

CS Underlying PBT 7,657 8,732 6,401 6,512 8,455 9,406

Tax (2,253) (2,708) (1,592) (1,894) (2,446) (2,792)

Effective rate, % 29.9% 29.9% 29.9% 29.9% 29.9% 29.9%

Reported profit after tax 5,294 6,224 4,816 4,418 5,708 6,514

Minority interest 158 173 154 141 183 208

Reported Net Income 5,136 6,051 4,662 4,277 5,526 6,306

Operating Net Income 5,246 5,851 4,655 4,477 5,826 6,406

Net income margin, % 8.6% 8.8% 7.2% 7.1% 8.3% 8.7%

CS operating EPS, SEK 11.5 12.8 10.2 9.8 12.8 14.1

EPS growth, % 100.5% 11.5% -20.4% -3.8% 30.1% 10.0%

DPS, SEK 5.0 5.5 5.5 5.5 6.7 7.0

Dividend growth, % 42.9% 10.0% 0.0% 0.0% 22.4% 4.5%

Dividend Cover (x) 2.30 2.34 1.86 1.79 1.90 2.00

Ordinary shares in issue 455.4 455.4 455.5 455.5 455.5 455.5

BALANCE SHEET 2010 2011 2012 2013E 2014E 2015E

PPE and Intangibles 23,116 23,233 22,886 31,622 30,990 30,473

Deferred tax assets 1,151.0 1,299.0 1,835.0 1,835.0 1,835.0 1,835.0

Other 1,411.0 1,494.0 1,188.0 1,188.0 1,188.0 1,188.0

Fixed assets 25,678 26,026 25,909 34,645 34,013 33,496

Inventories 12,879.0 14,191.0 12,856.0 12,996.9 14,021.9 14,397.3

Trade and other receivables 12,698.0 13,820.0 12,935.0 13,374.7 14,598.1 15,171.0

Trade and other payables (12,308) (12,132) (10,958) (10,943) (12,101) (12,744)

Other current liabilities - - - - - -

Working capital 13,269 15,879 14,833 15,429 16,519 16,825

Working capital days 79 88 84 89 86 83

WC as % of sales 21.7% 24.0% 23.0% 24.3% 23.6% 22.8%

Cash 2,395.0 4,825.0 8,244.0 697.4 2,751.8 6,145.7

Short-term debt (1,325) (1,113) (2,945) (2,351) (2,351) (2,351)

Long-term debt (10,850) (12,500) (12,730) (13,324) (13,324) (13,324)

Net (debt) / cash 9,780 8,788 7,431 14,978 12,923 9,529

Other investments 818 594 916 916 916 916

Other liabilities (2,931) (2,540) (1,775) (1,775) (1,775) (1,775)

Net assets 46,614 48,747 47,314 64,192 62,597 58,991

CASH FLOW 2010 2011 2012 2013E 2014E 2015E

Profit before Tax 8,450 9,612 7,314 7,218 9,116 10,156

Depreciation & amortisation 1,992 1,790 1,831 1,887 2,631 2,517

Tax paid (1,722) (2,858) (2,839) (1,894) (2,446) (2,792)

Contribution and payment to post employment benefit plans(466) - - - - -

Share of profit from associates and JV (2) - - - - -

Other (non-cash gains/losses) - - (129) (129) (129) (129)

Gross cash flow 6,765 7,981 5,527 6,176 8,211 8,902

Working capital (1,216) (2,395) 657 (596) (1,090) (306)

Operating cash flow 5,549 5,586 6,184 5,581 7,121 8,597

Operating cash / Operating profit 66.6% 59.3% 84.6% 75.2% 75.6% 83.8%

Net Capex (1,625) (1,738) (2,648) (1,700) (2,000) (2,000)

Free cash flow 3,924 3,848 3,536 3,881 5,121 6,597

FCF / Net income 75% 66% 76% 87% 88% 103%

Disposals - - - - - -

Acquisitions (6,764) - - (8,923) - -

Sales / (Purchase) of investments 208 22 (208) - - -

Borrow ings raised / (repaid) 2,270 865 2,687 - - -

Shares issue / (purchase) - - - - - -

Dividends paid (1,622) (2,307) (2,551) (2,504) (3,066) (3,203)

Others - - - - - -

Net cash flow (1,984) 2,428 3,464 (7,547) 2,054 3,394

Source: Company data, Credit Suisse estimates

177

SKF – Company Summary

Operating Profit Split Sales MixEnd Market Mix

Management

Chairman Leif Ostling

CEO Tom Johnstone

CFO Tore Bertilsson

IR Marita Bjork

Division Products End Markets / Channels Main Competitors Revenue Split by Geo Key Drivers/ Themes

Strategic Industries

FY 2012 Sales SEK 20.20 Bn

-3.00% YoY organic growth

FY 2012 EBIT SEK 3.14 Bn

15.5% Margin

7 business units that provides products,

solutions and services to both OEMs and end-

users: Aerospace, Renewable energy,

Traditional energy, Industrial drives, Precision,

Railway and Off-highway and Lubrication

Accelerated R&D Spending; Expansion of

footprint in emerging markets.

Regional Sales and Service

FY 2012 Sales SEK 25.33 Bn

-1.8% YoY organic growth

FY 2012 EBIT SEK 3.22 Bn

12.7% Margin

It is divided into seven geographical areas. It

offers and delivers a full range of products,

solutions and services to both OEMs and end-

users within different industries. Its focused

industries’ are: Metals, Pulp and Paper,

Mining and Cement, Food and Beverage and

Marine.

Accelerated R&D Spending; Expansion of

footprint in emerging markets.

Automotive

FY 2012 Sales SEK 17.12 Bn

-3.4% YoY organic growth

FY 2012 EBIT SEK0.47 Bn

2.7% Margin

It sells to automotive OEMs and related

aftermarket (VSM). Wheel hub bearing units,

tapered roller and small-deep groove ball

bearings, seals, specialist automotive

products and complete repair kits for the

vehicle service.

Cars & Light Trucks 46%, Vehicle Service

market 28%, Trucks 15%, Two Wheelers &

Electricals 7% and others 4%.

Europe 46%, North America 22%, Asia

Pacific 19%, Latin America 12%, Middle

East/Africa 1%

Accelerated R&D Spending;Expansion of

footprint in emerging markets; Development of

the Automotive industry.

SKF (SKFb.ST) - ANDRE KUKHNIN, CFA +44 20 7883 0350/ andre.kukhnin@credit-suisse.com

Geographic Mix

Industrial distribution 39%, Industry General

15%, Industry Heavy and Special 12%,

Aerospace 8%, Energy 8%, railway 6%, Off

highway 5% and others 7%.

Europe 43%, Asia Pacific 26%, North

America 20%, Latin America 7%, Middle

East/Africa 4%.

Bearings & Units: INA/FAG brands (German

Schaeffer Group), Parker Hannifin, Timken

(USA), NTN, JTEKK(Japan), Freudenberg

Group, Trelleborg, Federal Mogul, Dana,

Bruss, Elring Klinger, Lord;

Polymer Seals: Paulstra;

Actuation Montion Control: Linak, THK;

Lubrication: Lincoln Industrial Corp (USA),

Nevada unit (GE)

Shareholding Structure

Free Float: 71%

Top 5 shareholders

Foundation Asset Management

12.9%,Swedbank Robur Funds 4.7%, Alecta

3.5%, AMF Pension 2.8%, Handelsbanken

Funds 1.2%

Ownership by country

Sweden 56%, Rest of Europe 22%, USA 18%

and others 4%

Strategic Industries46%

Regional Sales & Service

47%

Automotive7%

Strategic Industries

32%

Regional Sales & Service

41%

Automotive27%

WesternEurope

35%

Middle East/Africa

3%

Asia Pacif ic

24%

NorthAmerica

22%

Latin America

8%

EasternEurope

5%

Sw eden3%

Industrial Distribution

29%

Cars &Light Trucks

13%

General Industry

12%

Energy6%

Industry Heavy & Special

9%

Vehicle service market

10%Aerospace

6%

Others15%

Source: Company data

178

Smiths Group – Outperform, TP 1460p Investment summary: We see Smiths as an attractively valued self-help story in the sector with additional

optionality from possible portfolio rationalisation or M&A.

Bull Case Self-help – management recently identified further £50m of savings to be

achieved over 3-4 years at a cost of £100m (equivalent of 150bps of margin

with current level of c18%).

Scope for a more active portfolio management – we expect management to

undertake a more active approach to Smiths’ portfolio management over the

next 12-18 months through acquisitions and possible disposals with pension

deficit issue now becoming less significant.

Potential for new targets to rebuild confidence in future performance –

management expect to issue new divisional growth and margin targets in March

2014 at H1 FY14 results.

Scope for turn-around in Detection with cost-cutting, new product launches

and a conscious build up of the service business.

Favourable exposure to Aerospace and US housing in Flex Tek.

Attractive valuation relative to UK peers or vs global SOTP.

Bear Case Government or quasi-government exposure (c4-% of sales) to continue to drag

earnings performance – Medical, Detection and parts of Interconnect. We

believe we reflect this in our estimates with limited growth in FY2014.

Poor recent larger acquisitions track record.

Questioning of portfolio rationalisation potential with management / Board

passing on now two opportunities for sale of Medical.

0

200

400

600

800

1000

1200

1400

1600

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-30%

-20%

-10%

0%

10%

20%

5%

7%

9%

11%

13%

15%

17%

19%

21%

Margins % (LHS) Nominal Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

8%

10%

12%

14%

16%

18%

SMIN ROIC (LHS) Sector ROIC (LHS)

SMIN Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

179

Smiths Group – Valuation July Y/E 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Average/Current 1,022 1,019 860 967 1,240 1,290 1,170 1,371 1,371 1,371

High 1,056 1,063 923 1,010 1,429 1,040 1,209

Low 985 972 798 924 1,089 941 1,130

Year end 1,047 1,047 720 1,116 1,135 1,067 1,385

P/E average 17.8 13.8 10.2 11.7 14.5 14.0 12.8 14.5 13.6 13.1

P/E high 18.4 14.4 11.0 12.2 16.7 11.3 13.2

P/E low 17.1 13.2 9.5 11.2 12.7 10.2 12.3

P/E year-end 18.2 14.2 8.5 13.5 13.2 11.6 15.1

EV/Sales average 2.06 2.10 1.77 1.83 2.10 2.21 1.88 2.06 1.96 1.86

EV/Sales high 2.12 2.18 1.87 1.89 2.36 1.89 1.93

EV/Sales low 1.99 2.02 1.68 1.77 1.89 1.76 1.83

EV/Sales year-end 2.11 2.15 1.57 2.04 1.95 1.92 2.15

Operating profit margin 16.1% 16.4% 15.7% 17.8% 18.2% 18.3% 18.0% 18.5% 18.8% 18.9%

EV/EBITDA average 10.9 11.2 9.8 9.1 10.3 10.9 9.5 10.2 9.6 9.0

EV/EBITDA high 11.2 11.6 10.3 9.4 11.6 9.3 9.8

EV/EBITDA low 10.6 10.8 9.3 8.8 9.3 8.7 9.3

EV/EBITDA year-end 11.2 11.5 8.6 10.1 9.6 9.5 10.9

EV/EBIT average 12.8 12.8 11.3 10.3 11.5 12.1 10.4 11.2 10.4 9.8

EV/EBIT high 13.2 13.3 11.9 10.6 13.0 10.3 10.7

EV/EBIT low 12.4 12.3 10.7 10.0 10.4 9.6 10.1

EV/EBIT year-end 13.1 13.1 10.0 11.5 10.7 10.5 12.0

FCF yield average 0.9% 2.3% 8.1% 9.4% 4.8% 4.7% 5.6% 3.1% 4.0% 4.6%

FCF yield high 0.9% 2.4% 8.7% 9.8% 5.5% 6.5% 5.8%

FCF yield low 0.9% 2.2% 7.5% 9.0% 4.2% 5.9% 5.4%

FCF yield year-end 0.9% 2.2% 9.6% 8.1% 5.3% 5.7% 4.7%

Dividend yield average 3.3% 3.3% 4.0% 3.5% 2.9% 2.9% 3.4% 3.0% 2.9% 3.1%

Dividend yield high 3.2% 3.2% 3.7% 3.4% 2.5% 3.7% 3.3%

Dividend yield low 3.4% 3.5% 4.3% 3.7% 3.3% 4.0% 3.5%

Dividend yield year-end 3.2% 3.2% 4.7% 3.0% 3.2% 3.6% 2.9%

EV/IC average 2.8 2.4 1.9 1.9 2.2 2.4 2.0 2.2 2.1 2.1

EV/IC high 2.9 2.5 2.0 2.0 2.5 2.0 2.0

EV/IC low 2.7 2.3 1.8 1.8 2.0 1.9 1.9

EV/IC year-end 2.9 2.5 1.7 2.1 2.1 2.0 2.3

P/BV average 2.5 2.0 1.4 1.4 1.8 1.8 1.6 1.8 1.8 1.8

P/BV high 2.6 2.1 1.5 1.5 2.1 1.4 1.6

P/BV low 2.4 1.9 1.3 1.4 1.6 1.3 1.5

P/BV year-end 2.6 2.0 1.1 1.6 1.7 1.5 1.9

ROIC 15.8% 16.1% 15.4% 13.9% 14.1% 14.3% 14.0% 14.2% 14.9% 15.5%

ROE 24.8% 31.5% 38.3% 29.6% 24.5% 37.0% 24.4% 25.0% 23.9% 22.4%

ROCE 16.8% 19.2% 21.6% 19.2% 18.0% 22.9% 18.4% 17.8% 17.8% 17.7%

Per share Proportion Sales EBITA CY 2014E CY 2014E

pence % CY 2014E CY 2014E Valuation EV/sales EV/EBITA

Detection 194 11% 548 76 763 1.39 10.0

Medical 629 36% 853 190 2,473 2.90 13.0

John Crane 694 40% 1,045 242 2,730 2.61 11.3

Interconnect 175 10% 452 69 688 1.52 10.0

Flex Tek 127 7% 268 47 498 1.86 10.5

Central costs (89) -5% (35) (350) 10.0

Enterprise value 1,729 100% 3,167 589 6,802 2.15 11.5

Net debt (202) (793)

Pensions deficit (25) (100)

Litigation provisions (38) (150)

Equity value 1,464 5,760

Number of shares 393

Valuation per share 1,464

SOTP

Source: Company data, Credit Suisse estimates

180

Smiths Group – Financials PROFIT & LOSS 2011 2012 2013 2014E 2015E 2016E

Revenue 2,842 3,030 3,109 3,109 3,248 3,384

Growth, % 2.6% 6.6% 2.6% 0.0% 4.5% 4.2%

Organic growth, % 1.0% 4.6% 2.4% 1.0% 4.5% 4.2%

Operating Profit (EBITA) 516.9 553.7 559.7 574.0 611.0 640.6

Margin, % 18.2% 18.3% 18.0% 18.5% 18.8% 18.9%

EBITDA 580.3 612.7 612.0 626.3 665.6 697.5

EBITDA margin, % 20.4% 20.2% 19.7% 20.1% 20.5% 20.6%

Net interest income / (expense) (58.5) (62.6) (61.7) (60.0) (55.0) (55.0)

Underlying PBT 462.7 496.8 498.0 514.0 556.0 585.6

Amortisation (72.3) (83.1) (81.1) (81.1) (81.1) (81.1)

Exceptional items (15.3) (69.3) (102.8) (50.0) (30.0) (20.0)

Profit before Tax 397.9 365.9 441.8 409.0 466.0 505.6

Tax (91.8) (107.6) (83.6) (110.4) (128.1) (141.6)

Effective rate, % 23.1% 29.4% 18.9% 27.0% 27.5% 28.0%

Reported profit after tax 306.1 258.3 358.2 298.5 337.8 364.0

Reported Net Income 383.8 256.6 356.6 297.5 336.8 363.0

Operating Net Income 338.7 363.3 364.4 376.8 402.1 420.6

Net income margin, % 11.9% 12.0% 11.7% 12.1% 12.4% 12.4%

CS operating EPS 85.7 91.9 91.7 94.6 100.7 105.0

EPS growth, % 3.5% 7.2% -0.2% 3.1% 6.5% 4.4%

DPS 36.3 38.0 39.5 41.0 40.3 42.0

DPS growth, % 6.6% 4.8% 3.9% 3.8% -1.8% 4.4%

Dividend Cover (X) 2.4 2.4 2.3 2.3 2.5 2.5

Ordinary shares in issue 391.7 392.6 393.3 394.3 396.3 398.3

ANALYSIS 2011 2012 2013 2014E 2015E 2016E

NOPAT 379.8 406.7 411.3 421.9 442.9 461.2

Invested Capital 2,689.8 2,842.8 2,948.7 2,965.9 2,971.7 2,970.6

ROIC 14.1% 14.3% 14.0% 14.2% 14.9% 15.5%

ROIC (average) 14.2% 14.7% 14.2% 14.3% 14.9% 15.5%

Operating Net Income 338.7 363.3 364.4 376.8 402.1 420.6

Equity 1,379.9 980.8 1,493.6 1,509.1 1,684.4 1,878.4

ROE 24.5% 37.0% 24.4% 25.0% 23.9% 22.4%

ROE (average) 27.3% 30.8% 29.5% 25.1% 25.2% 23.6%

EBITDA 580.3 612.7 612.0 626.3 665.6 697.5

Total debt (990.1) (997.0) (1,138.2) (1,138.2) (1,138.2) (1,138.2)

Net debt (729.0) (791.4) (744.4) (860.1) (804.7) (723.4)

Total debt / EBITDA 1.7 1.6 1.9 1.8 1.7 1.6

Net debt / EBITDA 1.3 1.3 1.2 1.4 1.2 1.0

BALANCE SHEET 2011 2012 2013 2014E 2015E 2016E

PPE 283 271 280 350 409 461

Intangibles 1,610 1,717 1,746 1,665 1,584 1,503

Long term investments 50 61 86 86 86 86

Other f ixed assets 215 248 226 226 226 226

Fixed assets 2,158 2,296 2,338 2,327 2,304 2,275

Inventories 433 439 476 511 534 556

Trade receivables 613 634 696 681 712 742

Other receivables 22 23 42 0 0 0

Trade and other payables (536) (550) (602) (554) (578) (603)

Working capital 532 546 611 639 667 695

Working capital turn 5.3 5.5 5.1 4.9 4.9 4.9

WC as % of sales 18.7% 18.0% 19.6% 20.5% 20.5% 20.5%

Cash 261 206 394 278 334 415

Short-term debt (12) (175) (187) (11) (11) (11)

Long-term debt (978) (822) (951) (1,127) (1,127) (1,127)

Net debt / (cash) (729) (791) (744) (860) (805) (723)

Pension deficit (199) (620) (254) (140) (26) 88

Provisions (326) (401) (409) (409) (409) (409)

Other liabilities (56) (49) (48) (48) (48) (48)

Net assets 1,380 981 1,494 1,509 1,684 1,878

CASH FLOW 2011 2012 2013 2014E 2015E 2016E

Operating profit 510.3 489.7 574.3 574.0 611.0 640.6

Exceptional items 5.5 10.7 0.0 (50.0) (30.0) (20.0)

Depreciation 63.4 59.0 52.3 78.4 75.7 78.0

Tax paid (90.9) (93.7) (114.1) (110.4) (128.1) (141.6)

Net interest (66.8) (64.5) (59.6) (60.0) (55.0) (55.0)

Other (63.7) (59.5) (80.7) (114.0) (114.0) (114.0)

Gross cash flow 357.8 341.7 372.2 317.9 359.6 388.0

Working capital change (36.1) (10.2) (18.8) (28.1) (28.6) (27.9)

Operating cash flow 321.7 331.5 353.4 289.8 331.0 360.1

Operating cash / Operating profit 0.6 0.6 0.6 0.5 0.5 0.6

Net Capex (44.8) (49.4) (52.6) (94.1) (83.3) (78.0)

Intangibles capitalisation (10.2) (13.5) (11.1) 0.0 0.0 0.0

R&D capitalisation (30.6) (27.6) (28.4) (28.4) (29.7) (30.9)

Free cash flow 236.1 241.0 261.3 167.4 218.0 251.2

FCF / Net income 0.5 0.7 0.6 0.4 0.5 0.6

Disposals (2.3) 47.3 0.3 0.0 0.0 0.0

Acquisitions (18.5) (167.5) (0.5) 0.0 0.0 0.0

Borrow ings raised / (repaid) 0.4 1.3 88.1 0.0 0.0 0.0

Shares issue / (purchase) 5.8 (6.7) (1.7) (1.7) (1.7) (1.7)

Dividends paid (136.4) (144.4) (152.7) (281.4) (160.8) (168.2)

Others 3.4 (28.0) (12.0) 0.0 0.0 0.0

Net cash flow 88.5 (57.0) 182.8 (115.7) 55.5 81.2

Source: Company data, Credit Suisse estimates

181

Smiths Group – Company Summary

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

John Crane

FY2013 Sales - £986m,

2.0% org. growth

FY2013 EBITA - £231m,

23.4% margin

Mechanical seals and systems (76% of sales),

transmission couplings (5%), engineered

bearings (5%), filtration systems (4%), artificial

lift (10%).

37% OEM. Aftermarket - 38% O&G,

petrochem, 9% gen industry, 9% Chemical

& pharma, 7% Distributors

Flowserve, EagleBurgmann Industries

(mech seals) Kingsbury, Waukesha (eng

bearings), Pall and Hydac (filtration sys),

Rexnord and Emerson (couplings),

Weatherfird & Norris (upstream)

N. America - £321m

Europe - £341m

RoW - £311m Installed-base driven aftermarket growth. Drill

rig count. Oil & Gas prices. Targeting

expansion in adjacent markets to seals

(bearings, filtration)

Medical

FY2013 Sales - £850m,

0.1% org. growth

FY2013 EBITA - £189m,

22.2% margin

Medical devices and equipment for medication

delivery, vital care and safety devices (syringe)

markets. 75% hospitals, 20% surgery centres,

5% OEM.

28% Medication delivery (drug delivery,

acute + chronic pain, chermo), 41% Vital

care (airways, pre/post surgery, aid

breathing, monitor vital signs), 31% Safety

devices (needlestick injuries)

Covidien, Teleflex, B Braun, Becton

Dickinson, Hospira, C R Bard, CareFusion

and Vital Signs, among many others.

North America - £461m

Europe - £281m

RoW - £311mUS and European medical spend

Detection

FY2013 Sales - £559m,

7.7% org. growth

FY2013 EBITA - £58m,

10.4% margin

Products that detect + ID explosives, narcotics,

weapons, biohazards & contraband. Products -

cargo inspection, chem & bio sensors,

onventional x-ray, explosive detection, mm-

wave, trace, radiation & nuclear products & sys.

47% Air transportation, 16% Ports &

borders, 11% Military, 4% Emergency

responders, 21% Critical Infrastructure, 1%

Non security

Air transport - Morpho (20% shr), L3 (16%),

Rapiscan (8%), Reveal (6%), NucTech

(3%). Ports & Borders - AS&E (13%), SAIC

(10%), Nuctech (7%), Rapiscan (6%), L3

(4%). Military - Chemring, Bruker, Thermo

Fisher

North America - £202m

Europe - £130m

RoW - £187m Homeland Security, Airport Security,

Container/Port Security

Interconnect

FY2013 Sales - £461m,

-1.1% org. growth

FY2013 EBITA - £69m,

14.9% margin

Components which connect, protect and control

critical electronic systems. Split into 3 areas; 1)

connectors (35%), 2) microwave - defence

(25%) & telecoms (20%) and 3) power

management (20%)

44% Military and aero, 25% Wireless

Telco, 31% Medical, rail and automation

Connectors - Amphenol, Deutsch (TE),

Everett Charles (Dover), Glenair, ODU &

Harting. Microwave Anaren, Power Wave,

KMW, Dover, Commscope, Cobham, EMS

(Honeywell), Teledyne. Others - Emerson,

Cynerex (ABB), Eaton, Starline.

North America - £274m

Europe - £85m

RoW - £90m

Defence spending, Telecom capex

Flex-Tek

FY2013 Sales - £253m,

7.7% org. growth

FY2013 EBITA - £43m,

17.1% margin

Flexible housing and rigid tubing to move fluids

and gases.

35% Fluid mgmt - aero, military, 24% Heat

sol - appliance & HVAC, 26% Construction

products - HVAC, US construction, 15%

Flexible solutions - industrial, floor care,

medical

General - Parker, Eaton, Kongsberg. Heat

sol - Zoppas, Nibe, Watlow and Chromalox,

Kawai and Dongfang. Construction - Hitachi,

Atco, Omega Flex, Hart & Cooley and

Goodman.

North America - £163m

Europe - £35m

RoW - £35m Military spend, Non residential construction

particularly in North America

SMITHS GROUP (SMIN.L / SMINLN) - ANDRE KUKHNIN, CFA +44 20 7883 0350 /andre.kukhnin@credit-suisse.com

John Crane

32%

Medical

27%

Detection

18%

Interconnect

15%

Flex-Tek

8%

N America,

50%

UK, 4%

Europe,

20%

RoW, 26%

John Crane

39%

Medical

32%

Detection

10%

Interconnect

12%

Flex-Tek

7%

Geographic Split Operating Profit Mix Sales Mix End Market Split Shareholding structure

Free float: 100%

Top 5 shareholders:Harris

Associates - 5%, Prudential PLC - 4%,

Blackrock - 4%, Threadneedle Asset

Mngmnt. - 4%, Legal & General - 4%

Ownership by Country: UK - 46%,

USA - 30%, Germany - 6%, France -

3%, Norway - 2%

Management

Chairman - Donald Brydon

CEO - Philip Bowman

CFO - Peter Turner

IR - Peter Durman

Oil, gas,

petrochemicals19%

Chemical and

Pharma 4%

Healthcare

29%Homeland Security

16%

Industrial

12%

Defence

6%

Aerospace

4%

Telecoms

3%

Semiconductors

3%

Others

4%

Source: Company data

182

Spectris – Outperform, TP 2560p

Bull Case Upper sector quartile cash conversion combined with healthy CS adjusted

ROIC

c28% of group sales come from automation (on our estimates) making

Spectris amongst the best ways to gain exposure to this ongoing theme

Significant balance Sheet optionality with FY13E net debt / EBITDA of just

0.3x

As previously argued it would make a good fit with Danaher (Report: 19th

August: Analytical & Life Sciences – Attractive Market Dynamics: M&A Likely

to set up).

Peer group weighted SOTP equates to c2900p or c20% potential upside to

the current price.

Bear Case

No signs yet of a turning point in key end markets including Academic,

Electronics and Mining.

Q1 2013 profit warning shows Spectris has not lost all its cyclical

tendencies.

Lack of acquisition opportunities – competition for assets from global peers.

Investment summary: Attractive valuation vs. global Instrumentation peer group combined with good through

cycle cash generation, balance sheet optionality and potential M&A target.

0

500

1000

1500

2000

2500

3000

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-30%

-20%

-10%

0%

10%

20%

10%

12%

14%

16%

18%

20%

Margins % (LHS) Organic Growth (RHS)

0%

20%

40%

60%

80%

100%

120%

6%

8%

10%

12%

14%

16%

18%

20%

SXS ROIC (LHS) Sector ROIC (LHS)

SXS Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

183

Spectris – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 988.5 830.5 759.0 1326.0 1679.0 2050.0 2370.0 2370.0 2370.0

Share price - year low 657.0 400.0 382.5 735.0 1039.0 1289.0 2370.0 2370.0 2370.0

Share price - year average 852.4 677.3 580.2 932.7 1375.7 1700.2 2370.0 2370.0 2370.0

Enterprise value - high 1317.1 1180.5 1023.3 1630.5 2313.6 2640.3 2882.0 2808.4 2712.5

Enterprise value - low 905.1 657.0 588.8 948.5 1572.5 1756.0 2882.0 2808.4 2712.5

Enterprise value - average 1147.9 994.2 816.9 1176.7 1962.4 2233.8 2882.0 2808.4 2712.5

EBITA 105.7 119.9 93.2 142.9 201.5 228.9 214.4 220.7 234.4

EV/EBITA - High 12.5 9.8 11.0 11.4 11.5 11.5 13.4 12.7 11.6

EV/EBITA - Low 8.6 5.5 6.3 6.6 7.8 7.7 13.4 12.7 11.6

EV/EBITA - Average 10.9 8.3 8.8 8.2 9.7 9.8 13.4 12.7 11.6

EBITDA 118.8 130.3 107.5 157.3 216.4 246.4 232.4 238.7 252.4

EV/EBITDA - high 11.1 9.1 9.5 10.4 10.7 10.7 12.4 11.8 10.7

EV/EBITDA - low 7.6 5.0 5.5 6.0 7.3 7.1 12.4 11.8 10.7

EV/EBITDA - average 9.7 7.6 7.6 7.5 9.1 9.1 12.4 11.8 10.7

Sales 668.4 787.1 787.3 901.9 1106.2 1230.8 1222.0 1271.5 1316.0

EV/Sales - high 2.0 1.5 1.3 1.8 2.1 2.1 2.4 2.2 2.1

EV/Sales - low 1.4 0.8 0.7 1.1 1.4 1.4 2.4 2.2 2.1

EV/Sales - average 1.7 1.3 1.0 1.3 1.8 1.8 2.4 2.2 2.1

CS EPS Adjusted (p) 58.2 72.3 45.3 85.1 122.0 135.9 128.7 132.8 142.3

PER - high 17.0 11.5 16.8 15.6 13.8 15.1 18.4 17.9 16.7

PER - low 11.3 5.5 8.5 8.6 8.5 9.5 18.4 17.9 16.7

PER - average 14.6 9.4 12.8 11.0 11.3 12.5 18.4 17.9 16.7

NAV 249.0 384.1 373.4 443.5 520.0 590.2 704.1 770.5 842.6

PBV - high 4.0 2.2 2.0 3.0 3.2 3.5 3.4 3.1 2.8

PBV - low 2.6 1.0 1.0 1.7 2.0 2.2 3.4 3.1 2.8

PBV - average 3.4 1.8 1.6 2.1 2.6 2.9 3.4 3.1 2.8

Dividend Yield 21.0 23.4 24.3 28.0 33.6 39.0 43.3 48.1 53.3

Dividend Yield - high 2% 3% 3% 2% 2% 2% 2% 2% 2%

Dividend Yield - low 3% 6% 6% 4% 3% 3% 2% 2% 2%

Dividend Yield - average 2% 3% 4% 3% 2% 2% 2% 2% 2%

FCF before distributions 73.6 69.6 78.0 126.8 128.4 160.8 119.5 143.6 154.7

FCF/Sales 11% 9% 10% 14% 12% 13% 10% 11% 12%

FCF per share 60.3 59.9 67.4 107.5 108.7 135.7 100.2 120.4 129.8

FCF/EBITDA 62% 53% 73% 81% 59% 65% 51% 60% 61%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%111%

- 9%

0%

- 5%

2%11%

13%

0%

20%

40%

60%

80%

100%

120%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

&D

eper

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tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

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Am

ort.

PP

A

Oth

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Def

erre

d ta

x, P

ensi

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Min

ority

etc

)

Fre

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ash

Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

184

Spectris – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 655.9 684.5 668.4 787.1 787.3 901.9 1,106.2 1,230.8 1,222.0 1,271.5 1,316.0

Change yoy, % 4.4% -2.4% 17.8% 0.0% 14.6% 22.7% 11.3% -0.7% 4.1% 3.5%

EBITDA 88.6 106.6 118.8 130.3 107.5 157.3 216.4 246.4 232.4 238.7 252.4

Margin, % 13.5% 15.6% 17.8% 16.6% 13.7% 17.4% 19.6% 20.0% 19.0% 18.8% 19.2%

EBITA 76.0 93.4 105.7 119.9 93.2 142.9 201.5 228.9 214.4 220.7 234.4

Margin, % 11.6% 13.6% 15.8% 15.2% 11.8% 15.8% 18.2% 18.6% 17.5% 17.4% 17.8%

CS PBT 64.7 84.0 98.9 110.1 68.2 132.3 191.6 217.3 201.9 211.0 226.2

Income Tax (14.1) (20.8) (27.8) (23.9) (7.4) (15.4) (31.9) (34.6) (48.4) (52.8) (56.6)

Exceptional - Tax (1.5) (3.4) (4.1) (1.1) (4.2) (8.3) (7.8) (10.8) 0.0 0.0 0.0

CS EPS (Diluted) 41.3 50.7 58.2 72.3 45.3 85.1 122.0 135.9 128.7 132.8 142.3

Reported EPS (Diluted) 28.8 49.2 70.6 69.8 36.8 81.6 106.9 119.2 105.2 109.3 118.8

DPS, p 15.8 17.5 21.0 23.4 24.3 28.0 33.6 39.0 43.3 48.1 53.3

DPS growth yoy, % 11% 20% 11% 4% 15% 20% 16% 11% 11% 11%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 88.6 106.6 118.8 130.3 107.5 157.3 216.4 246.4 232.4 238.7 252.4

Working Capital Change 4.5 (5.5) 1.2 (3.7) 26.2 22.3 (22.0) (8.4) (13.8) (14.7) (15.2)

Operating Cash Flow 90.6 102.0 115.0 123.1 118.2 175.4 204.0 239.8 208.6 224.0 237.2

Net Financing Cost (12.7) (11.2) (6.3) (8.5) (10.8) (10.1) (12.1) (11.5) (12.0) (9.5) (8.1)

Tax Paid (15.8) (21.5) (23.8) (24.0) (16.7) (21.0) (35.1) (40.9) (43.6) (47.5) (50.9)

Net Operating Cash Flow 62.1 69.3 84.9 90.6 90.7 144.3 156.8 187.4 153.0 167.1 178.2

Net Capex (12.2) (10.5) (11.3) (21.0) (12.7) (17.5) (28.4) (26.6) (33.5) (23.5) (23.5)

Free Cash Flow 49.9 58.8 73.6 69.6 78.0 126.8 128.4 160.8 119.5 143.6 154.7

Acquisitions 0.0 (13.6) (6.0) (87.8) (28.7) (62.6) (369.0) (15.5) 0.0 0.0 0.0

Disposals (2.3) 13.3 29.8 1.5 0.1 0.0 0.1 0.0 90.9 0.0 0.0

Pre Financing Cash Flow 49.4 58.5 97.4 (16.7) 49.4 64.2 (240.5) 145.8 210.4 143.6 154.7

Dividend Paid (18.1) (20.2) (22.2) (25.0) (27.0) (28.9) (33.8) (45.6) (47.2) (53.4) (58.8)

Net Cash / (Debt) Year End (119.9) (71.7) (77.3) (162.1) (123.9) (86.2) (356.2) (254.1) (91.0) (0.9) 95.1

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 93 83 88 118 108 111 153 153 158 165 172

Goodwill 210 207 223 343 325 355 545 527 527 527 527

Inangible Assets 4 8 12 44 70 97 206 192 159 131 103

Working capital 169 165 169 245 194 205 271 255 269 284 299

Total assets 398 385 391 614 578 614 974 949 936 924 913

Shareholders' funds 256 294 303 443 431 514 604 691 829 908 993

Minorities 0 0 0 0 0 0 0 0 0 0 0

Total Borrowings 197 123 129 227 161 151 398 283 132 42 (54)

Cash and equivalents (77) (51) (51) (64) (37) (65) (42) (41) (41) (41) (41)

Net Debt / (Cash) 120 72 77 162 124 86 356 242 91 1 (95)

Pension Deficit 23 19 11 9 24 14 13 16 16 16 16

Total liabilities 398 385 391 614 578 614 974 949 936 924 913

Source: Company data, Credit Suisse estimates

185

Spectris – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Material Analysis

FY2012 Sales - £348m,

5.5% org. growth

FY2012 EBITA - £63m,

18.1% margin

Material characterisation, contamination

detection, quality

Metals, Minerals and Mining 33%,

Pharmaceuticals 22%, R&D 17%,

Electronics

10%, Other 18%

Mettler Toledo, Perkin Elmer, Thermo

Fisher, Danaher

North America - £72m (21%)

Europe - £102m (30%)

Asia - £130m (38%)

RoW- £33m (10%)

Laboratory / Off-line. Real time production

monitoring in mining, pharmaceuticals

Test & Measurement

FY2012 Sales - 345m,

3.5% org. growth

FY2012 EBITA - £56m,

16.1% margin

Measurement, data acquisition and

processing, simulation

Auto 20%, aero 13%, environ 12%,

consumer

elec 9%, power 6%, machine building 21%

Mettler Toledo, Perkin Elmer, Thermo

Fisher, Danaher

North America - £57m (17%)

Europe - £162m (47%)

Asia - £108m (31%)

RoW- £20m (6%)

Laboratory / Off-line. R&D in aerospace and

automotive. Academia

In-line instrumentation

FY2012 Sales - £320m,

4.1% org. growth

FY2012 EBITA - £64m,

20.0% margin

Quality Control, metrology, process

technology, safety

Pulp&Paper 38%, Converting 25%,

Energy 15%, machine OEM's 17%,

machine builders 5%

Danaher, Roper, Ametek, Teledyne,

Hexagon, Siemens, ABB, Emerson,

North America - £84m (27%)

Europe - £98m (32%)

Asia - £107m (34%)

RoW- £20m (7%)

Process / Manufacturing. Paper (particurlalrly

tissue) and machine building. High % of

aftermarket vs. other divisions

Industrial Controls

FY2012 Sales - £217m,

(3.5)% org. growth

FY2012 EBITA - £46m,

21.3% margin

Product tracking, machine interface,

industrial networking

Distributors 82%, Electronics 7%, Pharma

4%, Other 7%

Danaher, Roper, Ametek, Teledyne,

Hexagon, Siemens, ABB, Emerson,

North America - £75m (66%)

Europe - £19m (17%)

Asia - £17m (15%)

RoW- £2m (2%)

Discrete / Factory Automation.

SPECTRIS (SXS.L / SXS LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Automotive &

Aerospace12%

Metals, minerals,

mining11%

Pharmaceuticals,

fine chemicals10%

Academic

research9%Machine building

9%

Pulp and paper

9%

Semicon,

telecoms, electronics

9%

Energy & utiliites

8%

Web, print,

packaging5%

Environment

4%

Other, incl.

distribution14%

Material Analysis

30%

Test &

Measurement29%

In-line

Instrumentation22%

Industrial Controls

19%

North America,

32%

Europe, 30%

Asia, 32%

RoW, 6%

Material Analysis

28%

Test &

Measurement24%

In-line

Instrumentation26%

Industrial Controls

22%

Shareholding structure

Free float: 100%

Top 5 shareholders: Blackrock - 9%,

F&C Asset Mnmgnt. - 5%, Standard Life

Investments - 4%, Sun Life Financial -

4%, Legal & General - 4%

Ownership by Country: UK - 47%,

USA - 30%, Luxembourg - 6%, France -

3%, Germany - 3%

Management

Chairman -John Hughes CBE

CEO -John O' Higgins

CFO -Clive Watson

CS -Roger Stephens

Source: Company data

186

Spirax Sarco – Neutral, TP 3030p

Bull Case

Further margin expansion: Driven by

(i) % of group sales from AsiaPac (highest steam business margin)

continuing to grow - recently added headcount in region (from 2011 onwards)

still to materially contribute

(ii) Further expansion of Watson Marlow (29% margin) particularly into Asia

which is currently only 20% of revenue.

Market leading position. No competitor has replicated Spirax’s value added

routes to market. SPX continues to add sales headcount to expand further.

Special dividend distribution could happen every 2-3 years based on cash

profile, on our estimates.

Higher quality UK Engineer but at this juncture we prefer ROR / HLMA

Bear Case

Valuation - stock has rerated relative to UK Cap Goods structural peer

group

Trading at a 10% premium to its peer group weighted SOTP

Investment summary: High quality UK engineer with sector leading route to market. One of the few sector names

offering significant margin upside. However, potential discounted in current valuation in our view.

0

500

1000

1500

2000

2500

3000

3500

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-10%

-5%

0%

5%

10%

15%

12%

14%

16%

18%

20%

22%

24%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

8%

10%

12%

14%

16%

18%

20%

22%

SPX ROIC (LHS) Sector ROIC (LHS)

SPX Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

187

Spirax Sarco – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 1081.0 1199.0 1309.0 1987.0 2063.0 2334.0 2872.0 2872.0 2872.0

Share price - year low 870.0 742.5 758.0 1224.0 1649.0 1858.0 2872.0 2872.0 2872.0

Share price - year average 992.8 987.0 939.3 1547.2 1876.1 2066.1 2872.0 2872.0 2872.0

Enterprise value - high 823.0 957.5 1053.2 1533.3 1638.0 1824.3 2282.7 2226.9 2178.8

Enterprise value - low 662.3 611.1 633.7 952.5 1319.7 1455.1 2282.7 2226.9 2178.8

Enterprise value - average 755.8 796.7 771.7 1198.5 1494.3 1616.5 2282.7 2226.9 2178.8

EBITA 68.7 85.7 89.9 118.3 135.2 136.2 152.4 157.2 168.4

EV/EBITA - High 12.0 11.2 11.7 13.0 12.1 13.4 15.0 14.2 12.9

EV/EBITA - Low 9.6 7.1 7.0 8.0 9.8 10.7 15.0 14.2 12.9

EV/EBITA - Average 11.0 9.3 8.6 10.1 11.1 11.9 15.0 14.2 12.9

EBITDA 80.5 100.4 106.5 135.2 151.6 157.2 175.4 180.2 192.4

EV/EBITDA - high 10.2 9.5 9.9 11.3 10.8 11.6 13.0 12.4 11.3

EV/EBITDA - low 8.2 6.1 6.0 7.0 8.7 9.3 13.0 12.4 11.3

EV/EBITDA - average 9.4 7.9 7.2 8.9 9.9 10.3 13.0 12.4 11.3

Sales 417.3 502.3 518.7 589.7 650.0 661.7 693.5 705.5 761.9

EV/Sales - high 2.0 1.9 2.0 2.6 2.5 2.8 3.3 3.2 2.9

EV/Sales - low 1.6 1.2 1.2 1.6 2.0 2.2 3.3 3.2 2.9

EV/Sales - average 1.8 1.6 1.5 2.0 2.3 2.4 3.3 3.2 2.9

CS EPS Adjusted (p) 65.3 83.3 82.1 107.2 123.2 124.1 135.0 139.3 150.3

PER - high 16.5 14.4 15.9 18.5 16.8 18.8 21.3 20.6 19.1

PER - low 13.3 8.9 9.2 11.4 13.4 15.0 21.3 20.6 19.1

PER - average 15.2 11.8 11.4 14.4 15.2 16.6 21.3 20.6 19.1

NAV 320.2 387.6 403.7 493.7 515.9 560.4 537.5 608.3 677.1

PBV - high 3.4 3.1 3.2 4.0 4.0 4.2 5.3 4.7 4.2

PBV - low 2.7 1.9 1.9 2.5 3.2 3.3 5.3 4.7 4.2

PBV - average 3.1 2.5 2.3 3.1 3.6 3.7 5.3 4.7 4.2

Dividend Yield 29.9 33.3 35.0 68.0 49.0 153.0 58.3 64.1 70.5

Dividend Yield - high 3% 3% 3% 3% 2% 7% 2% 2% 2%

Dividend Yield - low 3% 4% 5% 6% 3% 8% 2% 2% 2%

Dividend Yield - average 3% 3% 4% 4% 3% 7% 2% 2% 2%

FCF before distributions 42.3 43.5 40.8 52.6 37.8 88.1 85.4 98.8 104.9

FCF/Sales 10% 9% 8% 9% 6% 13% 12% 14% 14%

FCF per share 55.5 56.8 53.4 67.6 48.1 111.8 109.1 126.2 134.0

FCF/EBITDA 53% 43% 38% 39% 25% 56% 49% 55% 55%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

63%

- 4%- 11%

- 15%

4% 3%

- 13%

0%

20%

40%

60%

80%

100%

120%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

&D

eper

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tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

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Def

erre

d ta

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Min

ority

etc

)

Fre

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ash

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Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

188

Spirax Sarco – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 349.1 384.2 417.3 502.3 518.7 589.7 650.0 661.7 693.5 705.5 739.0

Change yoy, % 10.1% 8.6% 20.4% 3.3% 13.7% 10.2% 1.8% 4.8% 1.7% 4.7%

EBITDA 66.5 73.2 80.5 100.4 106.5 135.2 151.6 157.2 175.4 180.2 190.2

Margin, % 19.1% 19.1% 19.3% 20.0% 20.5% 22.9% 23.3% 23.8% 25.3% 25.5% 25.7%

EBITA 55.3 62.3 68.7 85.7 89.9 118.3 135.2 136.2 152.4 157.2 166.2

Margin, % 16% 16.2% 16.5% 17.1% 17.3% 20.1% 20.8% 20.6% 22.0% 22.3% 22.5%

CS PBT 57.1 65.7 72.8 90.1 90.2 120.8 138.4 138.5 149.5 157.3 167.3

Income Tax (18.8) (21.3) (23.0) (25.4) (23.3) (36.8) (39.1) (37.4) (43.2) (44.8) (47.5)

CS EPS (Diluted) 50.0 57.8 65.3 83.3 82.1 107.2 123.2 124.1 135.0 139.3 147.3

DPS, p 23.8 26.5 29.9 33.3 35.0 68.0 49.0 153.0 58.3 64.1 70.5

DPS growth yoy, % 11% 13% 11% 5% 94% -28% 212% -62% 10% 10%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 66.5 73.2 80.5 100.4 106.5 135.2 151.6 157.2 175.4 180.2 190.2

Working Capital Change (4.7) (13.7) (3.6) (11.4) 3.9 (13.4) (43.9) 0.4 (15.7) (10.8) (16.2)

Operating Cash Flow 60.4 46.9 74.5 87.8 102.9 113.2 108.9 147.0 149.7 159.4 164.0

Net Financing Cost 0.2 (0.2) (0.8) (0.2) (0.7) (0.3) (0.3) (0.2) (1.4) (1.3) (1.3)

Tax Paid (16.8) (16.5) (18.2) (22.1) (29.9) (30.4) (33.4) (37.9) (38.9) (40.3) (42.7)

Net Operating Cash Flow 43.8 30.3 55.6 65.5 72.3 82.5 75.1 108.8 109.4 117.8 119.9

Net Capex (11.7) (17.9) (13.8) (22.9) (33.4) (33.3) (42.8) (23.4) (25.0) (20.0) (20.0)

Free Cash Flow 32.1 12.3 41.7 42.7 38.9 49.1 32.3 85.4 84.4 97.8 99.9

Acquisitions (5.9) (4.0) (1.2) (13.9) (27.2) (3.5) (3.4) (4.5) (4.0) (2.0) (2.0)

Disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Pre Financing Cash Flow 24.3 6.2 37.8 25.2 10.1 44.4 24.2 73.4 82.2 97.6 99.7

Dividend Paid (16.8) (18.8) (20.8) (24.3) (25.8) (29.8) (53.2) (39.3) (120.5) (47.8) (51.5)

Net Cash / (Debt) Year End 19.0 (6.6) 15.8 17.4 8.0 34.4 12.3 51.7 12.1 63.0 112.2

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 86 89 94 123 135 156 175 175 177 174 170

Goodwill 15 18 19 30 38 44 45 46 46 46 46

Intangible Assets 8 9 10 23 35 42 40 44 39 35 30

Working capital 130 138 150 198 180 204 229 222 238 248 265

Total assets 225 236 250 352 373 409 460 458 470 474 481

Shareholders' funds 198 199 242 295 307 379 399 436 417 472 528

Minorities 1 1 1 1 1 1 1 1 1 1 1

Total Borrowings 38 29 23 37 54 40 48 48 88 37 (12)

Cash and equivalents (57) (22) (39) (54) (62) (74) (60) (100) (100) (100) (100)

Net Debt / (Cash) (19) 7 (16) (17) (8) (34) (12) (52) (12) (63) (112)

Pension Deficit 46 30 23 74 74 63 72 73 64 64 64

Total liabilities 225 236 250 352 373 409 460 458 470 474 481

Source: Company data, Credit Suisse estimates

189

Spirax Sarco – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Steam Specialities

FY2012 Sales - £586m,

3.2% org. growth

FY2012 EBITA - £107m,

18.2% margin

Products and services for the control and

efficient use of steam and other industrial

fluids. Products include steam traps,

isolation valves, safety valves, control

valves, regulators, flow meters, boiler

controls, systems and testing equip. Typical

order £2k, large £10-30k.

Combined heat and power, oil refining, ind

and agrichems, fine chems, pharma,

explosives, autos and aircraft, ship, boilers,

electronics, HVAC, textiles and fibres,

leather, food and bev.

Addressable Spirax Steam Market £3.8bn

and 85% of Spirax's total addressable

market. Spirax has a 14% global share. 28%

(of the 85%) is Condensate Management

(traditional mechanical markets, steam

traps) with SPX global share in this segment

at 25%; 22% of total addressable market is

Controls (boiler house, valves, instruments,

temp pressure electronic control) - SPX

global market share at 12%; 35% of total

addressable market is Energy Management

(heat exchange packages, metering) - SPX

global market share at 7%.

Gestra (Flowserve - Germany), Armstrong

(Private - US), ARI Armaturen (Private -

Germany), TLV (Private - Japan),

Spence/Nicholson (US). Products sold into

steam cycle but not specifically designed

for: Pentair, Fisher Controls (USA,

Emerson), Valtek (US, Flowserve)

Americas - £142m (24%)

EMEA - £291m (50%)

Asia Pacific - £153m (26%)Business is split 50% replacement, 40% upgrade

and 10% capex

Watson-Marlow

FY2012 Sales - £125m,

7.7% org. growth

FY2012 EBITA - £37m,

29.4% margin

Manufactures and suppliers peristaltic

pumps, which drive sensitive or

valuable media safely, accurately, without

contamination and with little

maintenance.

Agriculture, brewing, ceramics, chems,

contact lenses, gen eng, food and bev,

mining, OEM, paint and pigments, pharma

Addressable Peristaltic Pump Market £0.7bn

and 15% of Spirax's total addressable

market (incl. MasoSine Pump). Spirax has

a 18% global share.

Verder (Netherlands, private), Cole Parmer

(USA, Thermo Fisher), Abaque, Boyser and

PCM Delasco. Competing pump types; (i)

Industrial Lobe Pumps - Johnson,

Waukesha (US, SPX), Alfa-Laval;

Progressive Cavity Pumps - Moyno (US,

Dover), Allweiler. Comp in food & beverage,

water treatment, mining; (ii) Air Operated

Diaphragm Pumps - Wilden and Warren

Rupp. comp in Industrial & Printing; (iii)

Peristaltic Metering and OEM Pumps -

Masterflex,Verder. Comps in Laboratory and

Industrial; (iv) Mechanical Diaphragm

Pumps - Pulsafeeder, Bran+Luebber. comp

in Chemical dosing. (V) Solenoid Diaphragm

Pumps - Prominent, Alldos, Grundfos, LMI.

Comps mainly in water treatment; (vi)

Sanitary Lobe Pumps - Waukesha, ITT

Jabsco, Fristam. Comps mainly food &

beverage, Pharmaceuticals, Cosmetics.

Americas - £49m (51%)

EMEA - £21m (38%)

Asia Pacific - £3m (11%)

Replacement of the traditional Rotary Lobe pump

with a Peristaltic Pump. Higher initial price but

lower through life cost. Aftermarket for Peristaltic

Pump materialises after c6 moths +

SPIRAX-SARCO (SPX.L / SPX LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Steam

Specialities75%

Watson-Marlow

25%

Steam

Specialities82%

Watson-Marlow

18%

Americas, 29%

EMEA, 44%

Asia Pacific, 27%

Foods

12%Brewing /

Distilling3%

HVAC

11%

OEM Machinery

11%

Refining &

Petrochem9%

Pharma

8%

Healthcare

5%

Precious Metal

Process3%

Water Treatment

2%

Chemicals

1%

Textiles

1%

Rubber & Plastic

1%

Other

33%

Shareholding structure

Free float: 96%

Top 5 shareholders: Blackrock - 10%,

Allianz Asset Mngmgnt. - 5%,

Sprucegrove Investment Mgmt Ltd - 5%,

Schroders Plc - 4%, Legal & General -

3%

Ownership by Country: UK - 46%,

USA - 29%, Canada - 6%, Luxembourg -

3%, Norway - 3%

Management

Chairman -Bill Whiteley

CEO -Nick Anderson

CFO -David Meredith

CS -WG Stebbings

Source: Company data

190

Vesuvius – Underperform, TP 405p

Bear Case

Poor track record of EVA creation (CS ROIC < WACC), we expect this to

continue in 2014.

With steel production growth (ex-China) only c4% in 2014 on CS forecasts

we see little scope for volume induced operational gearing to drive NOPAT

margins higher.

Unhelpful traits including ongoing pricing pressure in Foundry and China

representing only 11% of group sales.

Expensive valuation with our peer group weighted SOTP implying a fair

value for Vesuvius 10% below the current price.

Bull Case Vesuvius manages to return to peak margins offering c300bp upside to

current levels.

Outperformance vs. UK cyclical peers on cash conversion

Continued self help through portfolio optimization and increased vale based

selling.

Small chance of M&A within the Steel and Foundry market with Vesuvius a

possible M&A candidate, in our view

.

Investment summary: Trading at a premium to peer group with little potential for upside surprise to earnings

based on CS steel forecasts. Our favored cyclical names in the sector include Bodycote and GKN.

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

-10%

0%

10%

20%

30%

40%

0%

2%

4%

6%

8%

10%

12%

14%

2009 2010 2011 2012 2013E 2014E 2015E

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

VSVS ROIC (LHS) Sector ROIC (LHS)

VSVS Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

191

Vesuvius – Valuation

2012 2013 2014 2015

Share price - year high 352 477.7 477.7 477.7

Share price - year low 324 477.7 477.7 477.7

Share price - year average 344.7 477.7 477.7 477.7

Enterprise value - high 1342.36 1663.35 1614.69 1557.62

Enterprise value - low 1265.17 1663.35 1614.69 1557.62

Enterprise value - average 1322.24 1663.35 1614.69 1557.62

EBITA 133.0 136.9 147.0 160.1

EV/EBITA - High 10.1 12.2 11.0 9.7

EV/EBITA - Low 9.5 12.2 11.0 9.7

EV/EBITA - Average 9.9 12.2 11.0 9.7

EBITDA 176.1 176.9 187 200.1

EV/EBITDA - high 7.6 9.4 8.6 7.8

EV/EBITDA - low 7.2 9.4 8.6 7.8

EV/EBITDA - average 7.5 9.4 8.6 7.8

Sales 1547.5 1510 1527 1585

EV/Sales - high 0.87 1.10 1.06 0.98

EV/Sales - low 0.82 1.10 1.06 0.98

EV/Sales - average 0.85 1.10 1.06 0.98

CS EPS Adjusted (p) 29.31 32.48 35.63 39.34

PER - high 12.01 14.71 13.41 12.14

PER - low 11.06 14.71 13.41 12.14

PER - average 11.76 14.71 13.41 12.14

NAV 312.8 322.0 334.4 349.1

PBV - high 1.1 1.5 1.4 1.4

PBV - low 1.0 1.5 1.4 1.4

PBV - average 1.1 1.5 1.4 1.4

Dividend Yield 17.00 14.96 15.71 16.50

Dividend Yield - high 5% 3% 3% 3%

Dividend Yield - low 5% 3% 3% 3%

Dividend Yield - average 5% 3% 3% 3%

FCF before distributions 10 71 91 100

FCF/Sales 0.6% 4.7% 6.0% 6.3%

FCF per share 3.50 25.43 32.82 36.04

FCF/EBITDA 5.6% 40.0% 48.8% 50.1%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

60%-48%

- 38%

- 19%

0%

17%

48%

-20%

0%

20%

40%

60%

80%

100%

120%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

&D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (

Def

erre

d ta

x, P

ensi

on,

Min

ority

etc

)

Fre

e C

ash

Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

192

Vesuvius – Financials PROFIT & LOSS 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY

Revenue 1,263.6 1,629.2 1,818.1 1,547.5 1,510.0 1,527.0 1,585.0

Change yoy, % 28.9% 11.6% -14.9% -2.4% 1.1% 3.8%

EBITDA 114.8 230.5 237.8 176.1 176.9 187.0 200.1

Margin, % 9.1% 14.1% 13.1% 11.4% 11.7% 12.2% 12.6%

EBITA 70.5 185.1 190.1 133.0 136.9 147.0 160.1

Margin, % 5.6% 11.4% 10.5% 8.6% 9.1% 9.6% 10.1%

CS PBT 36.4 156.7 162.8 110.9 122.6 135.5 149.6

Income Tax (19.8) (38.7) (44.6) (29.6) (32.4) (36.6) (40.4)

Exceptional - Tax 7.5 8.8 5.7 (2.0) 0.0 2.0 2.0

CS EPS (Diluted) 5.1 40.1 40.0 29.0 32.4 35.6 39.3

Reported EPS (Diluted) -19.5 33.1 25.5 212.3 28.5 28.0 31.7

DPS, p 0.0 11.5 21.8 17.0 15.0 15.7 16.5

DPS growth yoy, % - - 89% -22% -12% 5% 5%

CASH FLOW 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 114.8 230.5 237.8 176.1 176.9 187.0 200.1

Working Capital Change 110.3 (68.1) (60.1) 11.2 (2.8) (4.0) (5.6)

Operating Cash Flow 178.7 139.2 156.9 165.3 158.1 173.0 184.5

Net Financing Cost (34.7) (17.9) (16.6) (18.7) (15.1) (12.6) (11.7)

Tax Paid (31.1) (34.1) (40.8) (60.1) (29.2) (31.1) (34.6)

Net Operating Cash Flow 112.9 87.2 99.5 86.5 113.8 129.3 138.3

Net Capex (29.2) (45.1) (66.7) (76.7) (43.0) (38.0) (38.0)

Free Cash Flow 83.7 42.1 32.8 9.8 70.8 91.3 100.3

Acquisitions (5.5) (3.2) (10.6) (26.1) 0.0 0.0 0.0

Disposals 6.2 0.1 (2.5) (46.2) 46.8 0.0 0.0

Pre Financing Cash Flow 79.4 31.0 15.1 (64.6) 117.0 92.3 101.3

Dividend Paid 0.0 0.0 (51.8) (61.2) (39.5) (42.7) (44.2)

Net Cash / (Debt) Year End (431.8) (393.7) (363.9) (295.3) (240.4) (190.8) (133.7)

BALANCE SHEET 2009 2010 2011 2012 2013e 2014e 2015e

PPE 327 342 324 278 283 283 283

Goodwill 586 608 599 599 599 599 599

Intangible Assets 242 228 207 165 147 129 111

Working capital 304 388 399 349 352 356 361

Total assets 1218 1314 1325 1232 1224 1209 1193

Shareholders' funds 675 834 874 841 867 901 942

Minorities 0 0 0 27 27 27 27

Total Borrowings 541 519 550 425 370 320 263

Cash and equivalents (109) (125) (132) (130) (130) (130) (130)

Net Debt / (Cash) 432 394 419 295 240 191 134

Pension Deficit 111 87 32 69 90 90 90

Total liabilities 1218 1314 1325 1232 1224 1209 1193

Source: Company data, Credit Suisse estimates

193

Vesuvius – Company Summary

Geographic Split Operating Profit Mix Sales Mix Split by Business Area

Division Products End Markets / Channels Main Competitors / Positioning Revenue Split by Geo Key Drivers / Themes

Steel

FY2012 Sales - £990m,

(10%)% org. growth

FY2012 EBITA - £96m,

9.7% margin

Vesuvius supplies the global steel industry

with consumable ceramic “flow control”

products used to contain and control the

flow of molten steel in the enclosed

continuous casting process. Vesuvius also

supplies the steel industry and other hot

process industries with advanced refractory

materials used for lining vessels such as

blast furnaces, ladles and tundishes to

enable them to withstand heat / molten

metal

Steel industry

RHI (Austria), TYK (Japan), Krosaki (Japan),

IFGL (India), Magnesita (Brazil), Shinagawa

(Japan) and Sinoref (China).

Competition for the Advanced Refractories

business is much more fragmented and

varies by region. Vesuvius is a regional

leader in the UK, NAFTA and South Africa.

Competitors and their headquarter locations

include RHI (Austria), Magnesita (Brazil),

Imerys (France) and Minerals Technologies

(USA).

Asia Pacific - 254mn

Europe - 305mn

NAFTA - 315mn

RoW - 142mn

Increasing use of continuous casting steel

making in China as it modernises and

demand for higher grade flat steel products

(white goods, automotive) increases relative

to long steel products (used in Construction).

Foundry

FY2012 Sales - £530m,

(13)% org. growth

FY2012 EBITA - £48m,

9.1% margin

Vesuvius supplies ceramic consumables,

such as filters and feeding systems, and

chemical coatings and binders to foundries

which use these products in the production

of metal castings. Foseco, the foundry

technologies business, is focussed on the

global foundry industry which produces

castings used in a variety of engineering

products.

Foundry casting industry

Competition for the Foundry Technologies

business is very fragmented, with

Vesuvius being a recognised global leader.

Global competitors include ASK and

Huttenes Albertus.

Asia Pacific - 186mn

Europe - 207mn

NAFTA - 74mn

RoW - 64mn

Automotive and Truck volumes. Construction,

Agriculture and Mining. Opportunities for

secular growth in Ductile and Aluminium

foundry castings.

VESUVIUS (VSVS.L / VSVS LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

Steel

60%

Foundry

40%

USA, 19%

Germany, 14%

China, 6%

UK, 5%France, 4%Brazil, 6%

India, 6%

Spain, 3%

RoW, 37%

Steel flow control

32%

Advanced

Refractories32%

Foundry

Technologies31%

Fused Silica

5%

Steel

67%

Foundry

33%

Shareholding structure

Free float: 75%

Top 5 shareholders: Cevian Capital -

20%, Artisan Partners Holdings - 6%,

Pelham Capital Long/ Sh - 6%, Fmr

Llc - 6%, Morgan Stanley Securitities -

5%

Ownership by Country: UK - 45%,

USA - 40%, France - 4%, Switzerland -

2%, Norway - 2%

Management

Chairman -John McDonough CBE

CEO -Francois Wanecq

CFO -Chris O'Shea

CS -Rachel Fell

Source: Company data

194

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500

1000

1500

2000

2500

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Yr Forward EPS (LHS) Share Price (RHS)

Weir – Neutral, 2210p

Bull Case Continues to ride out the Mining downturn with Book-to-Bill for OE declining

just 11% in Q3 while Aftermarket was +3%

Margin upside at Minerals from a greater aftermarket sales mix and at

Power & Industrial as through put / efficiency increases.

CS view capacity utilisation in upstream Oil & Gas as tighter than some may

think potentially implying upside surprise to 2014 upstream spares /

equipment demand.

In our view, Weir remains an attractive M&A candidate for US peers

wanting to expand Oil & Gas and possibly Mining exposure.

Bear Case

Valuation – little upside with the stock trading broadly inline with its peer

group weighted SOTP.

Weir’s later cycle position in the Minerals supply chain potentially means it

is yet to see the full impact of the OE capex cuts.

With US Gas <$4 extraction will focus on less aggressive shales resulting in

greater sales of legacy lower margin pumps / fluid ends.

Lower margin upstream Oil & Gas OE vs. spares means any pick up in OE

demand will create a margin drag.

Investment summary: Having de-rated vs. the UK Cap Goods sector Weir is now trading at a more attractive

valuation. However, versus its Global peer group it looks fairly valued while end market concerns still persist.

Against this backdrop we rate the stock Neutral with Fenner our preferred mining play for now.

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

Margins % (LHS) Organic Growth (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

6%

8%

10%

12%

14%

16%

18%

WEIR ROIC (LHS) Sector ROIC (LHS)

WEIR Cash conversion (RHS) Sector Cash conversion (RHS)

Source: Thomson Reuters, Company data, Credit Suisse estimates

195

Weir – Valuation

2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

Share price - year high 909.5 969 761 1861 2218 2236 2052 2052 2052

Share price - year low 530 271.5 310 717.5 1375 1397 2052 2052 2052

Share price - year average 703.26 705.67 540.72 1184.79 1839.71 1764.29 2052 2052 2052

Enterprise value - high 2063.97 2280.03 1787.74 4262.68 5431.11 5504.93 5192.85 5070.35 4942.51

Enterprise value - low 1278.03 825.05 841.09 1857.90 3655.75 3732.96 5192.85 5070.35 4942.51

Enterprise value - average 1636.85 1730.73 1325.37 2840.61 4634.43 4508.68 5192.85 5070.35 4942.51

EBITA 118.7 180.6 200.1 316.0 424.5 488.5 460.2 469.3 485.6

EV/EBITA - High 17.4 12.6 8.9 13.5 12.8 11.3 11.3 10.8 10.2

EV/EBITA - Low 10.8 4.6 4.2 5.9 8.6 7.6 11.3 10.8 10.2

EV/EBITA - Average 13.8 9.6 6.6 9.0 10.9 9.2 11.3 10.8 10.2

EBITDA 136.3 201.2 228.3 350.1 461.8 537.9 520.2 529.3 545.6

EV/EBITDA - high 15.1 11.3 7.8 12.2 11.8 10.2 10.0 9.6 9.1

EV/EBITDA - low 9.4 4.1 3.7 5.3 7.9 6.9 10.0 9.6 9.1

EV/EBITDA - average 12.0 8.6 5.8 8.1 10.0 8.4 10.0 9.6 9.1

Sales 1060.6 1353.6 1390.2 1635 2292 2538.3 2480 2505 2572

EV/Sales - high 1.95 1.68 1.29 2.61 2.37 2.17 2.09 2.02 1.92

EV/Sales - low 1.21 0.61 0.61 1.14 1.60 1.47 2.09 2.02 1.92

EV/Sales - average 1.54 1.28 0.95 1.74 2.02 1.78 2.09 2.02 1.92

CS EPS Adjusted (p) 40.87 58.96 63.58 104.18 139.97 153.44 143.85 147.34 153.85

PER - high 22.25 16.44 11.97 17.86 15.85 14.57 14.26 13.93 13.34

PER - low 12.97 4.61 4.88 6.89 9.82 9.10 14.26 13.93 13.34

PER - average 17.21 11.97 8.50 11.37 13.14 11.50 14.26 13.93 13.34

NAV 261.4 337.2 353.0 437.7 529.4 617.5 671.9 737.2 803.8

PBV - high 3.5 2.9 2.2 4.3 4.2 3.6 3.1 2.8 2.6

PBV - low 2.0 0.8 0.9 1.6 2.6 2.3 3.1 2.8 2.6

PBV - average 2.7 2.1 1.5 2.7 3.5 2.9 3.1 2.8 2.6

Dividend Yield 16.50 18.50 21.00 27.00 33.00 38.00 42.18 46.82 51.97

Dividend Yield - high 2% 2% 3% 1% 1% 2% 2% 2% 3%

Dividend Yield - low 3% 7% 7% 4% 2% 3% 2% 2% 3%

Dividend Yield - average 2% 3% 4% 2% 2% 2% 2% 2% 3%

FCF before distributions 67 97 192 136 94 142 238 252 265

FCF/Sales 6% 7% 14% 8% 4% 6% 10% 10% 10%

FCF per share 31.53 45.83 90.66 63.82 44.00 66.32 111.51 118.01 124.35

FCF/EBITDA 49% 48% 84% 39% 20% 26% 46% 48% 49%

Valuation Multiples Cumulative Cash Conversion Bridge

CFROI expectations: Market (dot) vs. Consensus (bar)

100%

70%

5%

- 18%

- 15%

4%5%

- 11%

0%

20%

40%

60%

80%

100%

120%

Cle

an n

et in

com

e

Rep

orte

d ne

t inc

ome

Wor

king

cap

ital

Del

ta b

/w C

apex

& D

eper

ecia

tion

Del

ta b

/w R

&D

Cap

italis

ed &

Inta

ngib

les

Am

ort.

PP

A

Oth

er (

Def

erre

d ta

x, P

ensi

on,

Min

ority

etc

)

Fre

e C

ash

Flo

w

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

196

Weir – Financials PROFIT & LOSS 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

FY FY FY FY FY FY FY FY FY FY FY

Revenue 789.4 940.9 1,060.6 1,353.6 1,390.2 1,635.0 2,292.0 2,538.3 2,480.0 2,505.0 2,572.0

Change yoy, % 19.2% 12.7% 27.6% 2.7% 17.6% 40.2% 10.7% -2.3% 1.0% 2.7%

EBITDA 71.2 92.9 136.3 201.2 228.3 350.1 461.8 537.9 520.2 529.3 545.6

Margin, % 9.0% 9.9% 12.9% 14.9% 16.4% 21.4% 20.1% 21.2% 21.0% 21.1% 21.2%

EBITA 57.1 77.2 118.7 180.6 200.1 316.0 424.5 488.5 460.2 469.3 485.6

Margin, % 7.2% 8.2% 11.2% 13.3% 14.4% 19.3% 18.5% 19.2% 18.6% 18.7% 18.9%

CS PBT 62.2 87.1 120.2 176.2 187.0 305.6 412.9 452.4 421.2 433.8 453.1

Income Tax (13.9) (19.9) (33.8) (51.8) (52.2) (82.8) (114.2) (124.2) (114.1) (119.2) (124.6)

Exceptional - Tax 0.0 (2.7) 2.1 5.3 5.4 5.4 1.7 12.6 0.0 0.0 0.0

CS EPS (Diluted) 23.3 32.0 40.9 59.0 63.6 104.2 140.0 153.4 143.9 147.3 153.9

Reported EPS (Diluted) 12.5 38.8 83.0 80.9 60.8 86.9 140.1 147.7 120.5 126.7 133.2

DPS, p 13.2 14.5 16.5 18.5 21.0 27.0 33.0 38.0 42.2 46.8 52.0

DPS growth yoy, % 10% 14% 12% 14% 29% 22% 15% 11% 11% 11%

CASH FLOW 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

EBITDA 71.2 92.9 136.3 201.2 228.3 350.1 461.8 537.9 520.2 529.3 545.6

Working Capital Change (5.4) 34.9 10.6 (9.0) 66.2 (67.4) (155.3) (116.9) 5.0 (13.9) (14.9)

Operating Cash Flow 44.8 121.7 145.0 207.9 291.1 265.6 296.0 391.1 504.7 497.8 513.1

Net Financing Cost (6.4) (4.9) (5.1) (10.1) (16.2) (9.2) (13.4) (28.3) (51.0) (42.5) (39.5)

Tax Paid (7.9) (14.6) (33.1) (49.0) (43.6) (72.4) (97.3) (104.9) (102.7) (107.3) (112.2)

Net Operating Cash Flow 30.4 102.2 106.8 148.8 231.3 184.0 185.3 257.9 351.1 348.0 361.5

Net Capex (25.4) (26.6) (40.3) (52.1) (39.1) (48.0) (91.4) (116.3) (113.0) (96.0) (96.0)

Free Cash Flow 5.1 75.6 66.5 96.7 192.2 136.0 93.9 141.6 238.1 252.0 265.5

FCF / Net Income 20% 93% 38% 57% 149% 73% 31% 45% 93% 93% 93%

Acquisitions (75.6) (2.1) (317.8) (140.9) (0.1) (203.4) (386.0) (123.3) (210.0) (40.0) (40.0)

Disposals 14.4 6.5 127.3 80.6 (1.5) (0.7) 0.0 22.9 (0.2) 0.0 0.0

Pre Financing Cash Flow (52.1) 81.5 (117.8) 39.9 196.5 (63.9) (288.0) 46.6 18.1 216.2 229.7

Dividend Paid (26.6) (27.7) (31.1) (35.7) (39.2) (46.7) (59.5) (71.7) (82.4) (93.7) (101.8)

Net Cash / (Debt) Year End (76.4) (7.1) (171.3) (239.9) (119.2) (283.6) (673.2) (688.9) (766.6) (644.1) (516.3)

BALANCE SHEET 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e

PPE 119 117 136 190 199 260 322 374 494 534 574

Goodwill 160 154 349 512 494 606 998 909 997 997 997

Inangible Assets 27 26 155 280 246 352 335 545 501 457 413

Working capital 206 161 248 338 272 387 566 643 638 651 666

Total assets 429 391 725 966 933 1270 1876 2090 2261 2277 2291

Shareholders' funds 291 372 545 708 742 921 1,116 1,307 1,423 1,561 1,703

Minorities 0 0 1 0 0 0 2 3 3 3 3

Total Borrowings 186 153 226 314 176 368 787 1,080 1,158 1,035 907

Cash and equivalents (110) (146) (54) (74) (57) (84) (114) (391) (391) (391) (391)

Net Debt / (Cash) 76 7 171 240 119 284 673 689 767 644 516

Pension Deficit 62 12 9 19 71 65 85 90 69 69 69

Total liabilities 429 391 725 966 933 1270 1876 2090 2261 2277 2291

Source: Company data, Credit Suisse estimates

197

Weir – Company Summary

Geographic Split Operating Profit Mix Sales Mix End Market Split

Division Products End Markets / Channels Main Competitors / Positioning Revenue (order input) Split by Geo Key Drivers / Themes

Minerals

FY2012 Sales - £1,334m,

12.5% org. growth

FY2012 EBITA - £260m,

19.5% margin

Slurry handling equipment and processing in

mining and mineral applications - products -

slurry pumps (70% of sales), mill liners,

cyclones, slurry valves, MRO, spares.

Minerals - 76%

Power - 6%

Industrial - 9%

O&G - 7%

Other - 2%

FL Smidth, Svedala, KSB, ITT , Metso

South America - £290m (23%)

North America - £278m (22%)

Australia - £240m (19%)

MEA - £189m (15%)

Europe/FSU - £139m (11%)

Asia Pacific - £126m (10%)

OE Brownfield is more profitable than

Greenfield. Service revenues from the

installed base.

Power & Industrial

FY2012 Sales - £323m,

3.1% org. growth

FY2012 EBITA - £33m,

10.1% margin

4 separate areas; 1) Highly engineered

valves (50% of sales), 2) Hydro turbine

retrofit (10%), 3) Speciality pumpins (10% -

mainly US water and waste), 4) Service

(30%, nuclear).

Minerals - 3%

Power - 57%

Industrial - 14%

O&G - 13%

Water 9%, Other 4%

Isolation valves - Flowserve, Tyco, Velan,

GE. Safety valve - Leser, Tyco, Flowserve,

GE. Control valves - IMI, Fisher

South America - £3m (1%)

North America - £106m (34%)

MEA - £16m (5%)

Europe/FSU - £106m (34%)

(9%)Asia Pacific - £81m (26%)

Increasing levels of nuclear maintenance

spend.

Oil & Gas

FY2012 Sales - £844m,

(11.9)% org. growth

FY2012 EBITA - £209m,

24.7% margin

47% SPM, Mesa, Novatech (shale pumps

and flow control), 10% Gabbioneta (pumps

for refining & petrochem mkts), Service

(field services, North Sea & Middle East),

18% Seaboard (surface wellheads,

service/repair and rental), Mathena

(pressure control rental equipment)

Industrial - 1%

O&G - 99%

SPM: Pumps FMC, Gardner Denver, CAT,

National Oilwell Varco. Well Stimulation

Valve market: Mission (National Oilwell

Varco), Novatech, Gardner Denver,

MacClatchie. Surface Equipment: Cameron,

FMC. Flow FMC (50%). Downstream:

Flowserve, Sulzer, ITT

South America - £9m (1%)

North America - £692m (80%)

MEA - £78m (9%)

Europe/FSU - £69m (8%)

Asia Pacific - £17m (2%)

Turning upstream Oil & Gas into a fully

fledged aftermarket business. Roll out of

international shale gas

WEIR (WEIR.L / WEIR LN) - JONATHAN HURN, CFA +44 20 7883 4532 / jonathan.hurn@credit-suisse.com

UK, 3%

USA, 31%

Canada, 10%

Europe&FSU, 9%

Asia Pacific, 11%

Australia, 9%

South America,

13%

Middle East &

Africa, 14%

Minerals

40%

Oil & Gas

38%

Power

11%

Industrial

7%

Other

4%

Minerals

54%

Power &

Industrial14%

Oil & Gas

32%

Minerals

55%

Power &

Industrial7%

Oil & Gas

38%

Shareholding structure

Free float: 93%

Top 5 shareholders: AXA - 10%,

Aberdeen - 5%, Legal & General - 5%,

Norges Bank - 4%, Fmr Llc - 3%

Ownership by Country: UK - 45%, USA -

27%, France - 7%, Norway - 5%, Canada -

3%

Management

Chairman -Lord Smith of Kelvin

CEO -Keith Cochrane

CFO -Jon Stanton

IR -Andrew Nielsen

Source: Company data

Date Company Event Key End Markets Country / Region

1-Jan-14 Omron Q3 FY 2013 Results Automation Japan

14-Jan-14 Geberit 1st Info on 2013 Construction Equip Europe

15-Jan-14 Fenner Q1 FY 2014 IMS Mining Equip Europe

15-Jan-14 Fenner AGM Mining Equip Europe

17-Jan-14 General Electric Q4 2013 Results Power, Healthcare US

21-Jan-14 Alstom Q3 FY 2014 Results Power, T&D, Rail Europe

21-Jan-14 Group SEB 2013 sales Appliances Europe

21-Jan-14 Halliburton Q4 2013 Results Oil & Gas North America

27-Jan-14 CAT Q4 2013 Results Mining Equip North America

28-Jan-14 Siemens Q1 2014 Results Automation, Power, T&D, GI, Healthcare Europe

28-Jan-14 Siemens AGM Automation, Power, T&D, GI, Healthcare Europe

28-Jan-14 SKF Q4 2013 Results GI Europe

28-Jan-14 Philips Q4 2013 Results Appliances, Healthcare, Lighting Europe

28-Jan-14 KONE Q4 2013 Results Elevators Europe

29-Jan-14 Wartsila Q4 2013 Results Marine Europe

30-Jan-14 Atlas Copco Q4 2013 Results Mining Equip, Compressors, Construction Equip Europe

31-Jan-14 Electrolux Q4 2013 Results Appliances Europe

3-Feb-14 Sandvik Q4 2013 Results Mining Equip, Construction Equip, Tooling, GI Europe

5-Feb-14 Alfa Laval Q4 2013 Results Marine, Oil & Gas Europe

6-Feb-14 Dassault Systems Q4 2013 Results Automation Europe

6-Feb-14 Valmet Q4 2013 Results Pulp and Paper Europe

6-Feb-14 Metso Q4 2013 Results Mining Equip, Construction Equip Europe

7-Feb-14 Assa Abloy Q4 2013 Results Security Europe

7-Feb-14 Volvo Q4 2013 Results Construction Equip Europe

7-Feb-14 Outotec Q4 2013 Results Mining Equip Europe

11-Feb-14 Nexans Q4 2013 Results Cables Europe

13-Feb-14 ABB Q4 2013 Results Automation, T&D Europe

13-Feb-14 Legrand Q4 2013 Results Construction Equip Europe

13-Feb-14 FL Smidth Q4 2013 Results Mining Equip, Cement Equipment Europe

13-Feb-14 Bombardier Q4 2013 Results Rail North America

13-Feb-14 Morgan Adv Mats H2 2013 Results GI UK

14-Feb-14 Schindler Q4 2013 Results Elevators Europe

14-Feb-14 Thyssenkrupp Q1 FY 2014 Results Elevators Europe

20-Feb-14 Schneider Q4 2013 Results Power, Automation Europe

25-Feb-14 Durr Q4 2013 Results Automation Europe

26-Feb-14 Weir Q4 2013 Results Oil & Gas UK

27-Feb-14 Spectris Q4 2013 Results Automation, GI UK

27-Feb-14 Group SEB Q4 2013 Results Appliances Europe

28-Feb-14 Andritz Q4 2013 Results Pulp and Paper Europe

Capital Goods Global Catalyst Calendar

Date Company Event Key End Markets Country / Region

4-Mar-14 Vesuvius Q4 2013 Results GI UK

6-Mar-14 Wartsila AGM Marine Europe

11-Mar-14 Geberit Q4 2013 Results Construction Equip Europe

12-Mar-14 Kaba H1 FY 2014 Results Security Switzerland

19-Mar-14 Smiths Group H1 FY 2014 Results Oil & Gas, Healthcare, Security UK

20-Mar-14 KION Q4 2013 Results GI Europe

20-Mar-14 Schaeffler Q4 2013 Results GI Europe

21-Mar-14 Andritz AGM Pulp and Paper Europe

26-Mar-14 Electrolux AGM Appliances Europe

26-Mar-14 Metso AGM Mining Equip, Construction Equip Europe

26-Mar-14 Kuka Q4 2013 Results Automation Europe

27-Mar-14 FL Smidth AGM Mining Equip, Cement Equipment Europe

28-Mar-14 SKF AGM GI Europe

2-Apr-14 Volvo AGM Construction Equip Europe

3-Apr-14 Geberit AGM Construction Equip Europe

17-Apr-14 SKF Q1 2014 Results GI Europe

22-Apr-14 Schindler Q1 2014 Results Elevators Europe

22-Apr-14 Philips Q1 2014 Results Appliances, Healthcare, Lighting Europe

23-Apr-14 KONE Q1 2014 Results Elevators Europe

23-Apr-14 Fenner H1 FY 2014 Results Mining Equip Europe

24-Apr-14 Schneider Q1 2014 Results Power, Automation Europe

24-Apr-14 Wartsila Q1 2014 Results Marine Europe

24-Apr-14 CAT Q1 2014 Results Mining Equip North America

24-Apr-14 Dassault Systems Q1 2014 Results Automation Europe

24-Apr-14 Group SEB Q1 2014 Results Appliances Europe

24-Apr-14 Metso Q1 2014 Results Mining Equip, Construction Equip Europe

25-Apr-14 Valmet Q1 2014 Results Pulp and Paper Europe

25-Apr-14 Spectris AGM Automation, GI UK

25-Apr-14 Volvo Q1 2014 Results Construction Equip Europe

25-Apr-14 Electrolux Q1 2014 Results Appliances Europe

25-Apr-14 Sandvik Q1 2014 Results Mining Equip, Construction Equip, Tooling, GI Europe

28-Apr-14 Alfa Laval Q1 2014 Results Marine, Oil & Gas Europe

28-Apr-14 Alfa Laval AGM Marine, Oil & Gas Europe

29-Apr-14 ABB Q1 2014 Results Automation, T&D Europe

29-Apr-14 Assa Abloy Q1 2014 Results Security Europe

29-Apr-14 Atlas Copco Q1 2014 Results Mining Equip, Compressors, Construction Equip Europe

29-Apr-14 Geberit Q1 2014 Results Construction Equip Europe

29-Apr-14 Outotec Q1 2014 Results Mining Equip Europe

30-Apr-14 ABB AGM Automation, T&D Europe

30-Apr-14 Durr AGM Automation Europe

30-Apr-14 Rational Q1 2014 Results Appliances Europe

30-Apr-14 Rational AGM Appliances Europe

CS Pan-Euro Capital Goods +44 207 888 0350

Julian Mitchell

(US Electrical Equipment / Multi Industry)

julian.m itchell@credit-suisse.com

+1 212 325 6668

Jam ie Cook

(US Engineering & Construction)

jam ie.cook@credit-suisse.com

+1 212 538 6098

Europe

Amish Shah (India Capital Goods)

shah.am ish@@credit-suisse.com

+ 91 22 6777 3743

Credit Suisse Global Capital Goods Research Team

Asia N. America

Japan

China

Singapore

India

Gerald Wong

(Singapore Capital Goods

/ China Industrial Machinery)

gerald.wong@credit-suisse.com

+ 65 6212 3037

Andre Kukhnin, CFA

(European Mechanicals)

andre.kukhnin@credit-suisse.com

+44 207 888 0350

Simon Toennessen

(European Electricals)

simon.toennessen@credit-suisse.com

+44 207 883 6893

Max Yates

(Cables)

max.yates@credit-suisse.com

+44 207 883 8501

Jonathan Hurn, CFA

(UK Small & Mid-Cap)

jonathan.hurn@credit-suisse.com

+44 207 883 4532

Tiantian Li

(European Mechanicals)

l iantian.li@credit-suisse.com

+44 207 883 1552

Patrick Laager

(Swiss Mid-Cap Engineering)

patrick.laager@credit-suisse.com

+41 44 334 6076

Vincent Chan (China Strategy)

vincent.chan@credit-suisse.com

+852 2101 6568

Edwin Pang (China Power Equipment)

edwin.pang@credit-suisse.com

+852 2101 6406

Shinji Kuroda (Japan Industrials)

shinji.kuroda@credit-suisse.com

+ 81 3 4550 9994

Slide 201

Disclosures

Companies Mentioned (Price as of 10-Dec-2013)

ABB (ABBN.VX, SFr22.3) Alfa Laval (ALFA.ST, Skr146.9) Alstom (ALSO.PA, €25.52) Assa Abloy (ASSAb.ST, Skr320.1) Atlas Copco (ATCOa.ST, Skr174.0) Bodycote Plc (BOY.L, 618.0p) Electrolux (ELUXb.ST, Skr158.2) Fenner (FENR.L, 454.7p) GKN (GKN.L, 358.8p) Geberit (GEBN.VX, SFr256.0) Halma (HLMA.L, 569.0p) IMI Plc (IMI.L, 1445.0p) Invensys (ISYS.L, 497.0p) KABA (KABN.S, SFr403.0) Kone Corporation (KNEBV.HE, €32.25) Laird (LRD.L, 257.5p) Legrand SA (LEGD.PA, €39.28) Melrose (MRON.L, 289.7p) Metso (MEO1V.HE, €28.24) Morgan Advanced Materials (MGAMM.L, 293.0p) Nexans (NEXS.PA, €34.64) Philips (PHG.AS, €25.22) Prysmian (PRY.MI, €18.57) Renishaw (RSW.L, 1887.0p) Rotork plc (ROR.L, 2672.0p) SKF (SKFb.ST, Skr174.9) Sandvik (SAND.ST, Skr86.75) Schindler-Holding AG (SCHP.VX, SFr123.8) Schneider (SCHN.PA, €59.19) Senior (SNR.L, 285.7p) Siemens (SIEGn.DE, €94.15) Smiths Group (SMIN.L, 1399.0p) Spectris (SXS.L, 2372.0p) Spirax Sarco (SPX.L, 2851.0p) Vesuvius (VSVS.L, 476.5p) Weir Group (WEIR.L, 2132.0p)

Disclosure Appendix

Important Global Disclosures

Simon Toennessen, Andre Kukhnin CFA, Max Yates, Jonathan Hurn, CFA and Tiantian Li each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Z ealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (54% banking clients)

Neutral/Hold* 40% (50% banking clients)

Underperform/Sell* 15% (42% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual factors.

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Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (ABBN.VX, ALSO.PA, WEIR.L, SCHN.PA, ASSAb.ST, SKFb.ST, HLMA.L, SMIN.L, ALFA.ST, ATCOa.ST, SIEGn.DE, IMI.L, MRON.L, MEO1V.HE) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (ABBN.VX, ASSAb.ST, SIEGn.DE) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (ABBN.VX, ALSO.PA, SKFb.ST, SMIN.L, ATCOa.ST, SIEGn.DE, IMI.L) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (SIEGn.DE) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (ABBN.VX, ASSAb.ST, SIEGn.DE) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ABBN.VX, GKN.L, WEIR.L, SCHN.PA, ASSAb.ST, HLMA.L, ALFA.ST, SIEGn.DE, IMI.L, MRON.L, MEO1V.HE, NEXS.PA, PRY.MI) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ABBN.VX, ALSO.PA, SKFb.ST, SMIN.L, ATCOa.ST, SIEGn.DE, IMI.L) within the past 12 months

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (ABBN.VX, WEIR.L, ISYS.L, PHG.AS, SIEGn.DE, PRY.MI).

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ABBN.VX, GKN.L, LRD.L, ALSO.PA, WEIR.L, SCHP.VX, SCHN.PA, ASSAb.ST, SKFb.ST, SXS.L, HLMA.L, ISYS.L, PHG.AS, SMIN.L, ROR.L, ALFA.ST, KNEBV.HE, SAND.ST, ATCOa.ST, SIEGn.DE, BOY.L, SPX.L, SNR.L, LEGD.PA, GEBN.VX, KABN.S, IMI.L, ELUXb.ST, MGAMM.L, FENR.L, MRON.L, RSW.L, VSVS.L, MEO1V.HE, NEXS.PA, PRY.MI) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

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Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (HLMA.L, SMIN.L, BOY.L, FENR.L).

The following disclosed European company/ies have estimates that comply with IFRS: (ABBN.VX, GKN.L, ALSO.PA, WEIR.L, SCHN.PA, ASSAb.ST, SKFb.ST, HLMA.L, ISYS.L, PHG.AS, SMIN.L, ALFA.ST, SAND.ST, ATCOa.ST, SIEGn.DE, BOY.L, SPX.L, LEGD.PA, IMI.L, ELUXb.ST, MGAMM.L, MEO1V.HE).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ABBN.VX, PHG.AS, SIEGn.DE) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only

Credit Suisse Securities (Europe) Limited...................Simon Toennessen ; Andre Kukhnin CFA ; Max Yates ; Jonathan Hurn, CFA ; Tiantian Li

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

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