Research report: IVU Traffic Technologies AG See disclaimer on last page

IVU is a german software company serving a growth market and also flying under the

radar of many institutional investors despite their leading market position in Europe

The company receives political support paving the foundation for their long growth runway

that lies ahead due to new investments into the public (local) passenger and train traffic

The business model has high barriers to entry (specific know-how, broad customer and

reference network, and very high switching costs for customers)

Benefiting from the three megatrends of urbanization, mobility, and digitization one can

see IVU as a Tech-ESG-company

Since the company does not have its own production facilities, the business model is very

asset-light. The management is investing 65 % of profits back into the business

Besides, long-term framework agreements such as the 15-year contract with DB

Fernverkehr (long-distance travel) give the company a better reputation, which should

also encourage further internationalization. With an increasing number of renowned

customers, an expansion into foreign markets with larger projects should be possible

The ownership structure, with Daimler holding 5.25 % and the founders 22 %, provides a

certain incentive for the latter in particular to further increase the share price and to

maintain a soundly managed company

With increasing market capitalization, the company will continue to attract the attention of

more/larger institutional investors, for whom IVU is currently not investable due to its

small-cap character. This is likely to result in further price increases

I would conclude that the interests of management and shareholders are largely aligned

IVU Traffic Technologies AG Debt-free Technology Company with a leading Market Position

could benefit greatly from Investments in the Mobility Revolution

over the next 10 years

03 December 2020

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Table of Contents

Introduction ...................................................................................................................... 3

Management Summary .................................................................................................... 7

1. Business Model ....................................................................................................... 10

2. Market ....................................................................................................................... 22

3. Financial Statements ............................................................................................... 33

3.1. Balance Sheet .................................................................................................... 33

3.2. Profit and Loss Statement .................................................................................. 34

3.3. Cash Flow Statement ......................................................................................... 38

4. Balance Sheet Analysis .......................................................................................... 40

5. Capital Allocation .................................................................................................... 42

6. Management / Shareholder Structure .................................................................... 45

7. SWOT ....................................................................................................................... 48

8. Valuation .................................................................................................................. 50

9. Appendix .................................................................................................................. 57

Disclaimer ....................................................................................................................... 59

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 3

Introduction

Dear Reader,

my Stock Market Research Report published today may divide my readers into two groups.

There will be one group that will directly reject my long-term investment idea because it

believes that public transport will no longer exist in the future. They will come up with

arguments like "individual transport will play an even greater role in the future" or "through

intelligent transport concepts, self-driving cars, and car-sharing, there will be no need for

buses and trains anymore".They will also say that COVID-19 accelerates this trend and then

they point to empty trains, busses, and streetcars (like in the picture below, which I

admittedly took at a late hour on a Tuesday shortly before the final stop).

Figure 1: Empty train in Stuttgart, Germany

But there will also be the second group, which expects exactly the opposite. Arguments are

therefore "public transport is much more efficient, more relaxing, faster and more sustainable

over long distances" or "buses and trains will have a right to exist also in the future, besides

self-driving cars, etc.”

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In the last 24 months, transport policy has been the subject of more political and media

debate than it has been for a long time.

The following slide from an investor presentation by IVU Traffic Technologies dated

November 2019 shows that something is happening:

Figure 2: Positive social environment 1

But this was not always the case.

The German rail network is aging

The Germans actually have a worldwide reputation for being very punctual and reliable

contemporaries. ACTUALLY.

I have traveled by rail a lot in my life. Sometimes everything runs smoothly, but sometimes

it’s an absolute nightmare. Delays, train cancellations, traffic jams on the tracks, technical

defects, just to name a few common problems you face when you decide to travel by

Deutsche Bahn. Remember that it is a scandal when the Japanese high-speed train

Shinkansen is a few seconds (!) late.

The German rail network is aging. Still, more than every fourth signal box in Germany is

controlled mechanically – and thus as in the 20th century. The German rail network currently

covers around 33,000 km. 25 years ago it was still over 40,000 km.

In a statistic comparing the per capita investment in the rail infrastructure in selected

European countries, Germany occupies one of the bottom places. In 2019 only 76 € per

capita were invested. At the top of the list are Austria, Switzerland and Luxembourg with

€ 226, € 404 and € 448 respectively – these countries are known for their reliable and

punctual train services. It is remarkable that the per capita investment in Germany in 2014

the figure was only € 49.

1 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2019, p. 2

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 5

Figure 3: Per capita investments in the railroad infrastructure 2

Are there profiteers?

At the same time, this circumstance brings with it an opportunity for companies that will

benefit massively from the increasing need for investment in public transport in the upcoming

years (if you fall into the second group I described in the beginning).

At the end of January 2020, before the outbreak of COVID-19, Deutsche Bahn announced

record investments of € 12.2 billion in railroad infrastructure. As part of the "strong rail"

program, 1,800 of the 33,400 km of the rail network in Germany, as well as 160 bridges,

1,900 switches, and 800 stations will be renewed and modernized this year. With around 83

million inhabitants, this amounts to € 145 per person. An increase of 90 % compared to

2019.3

While these are mainly investments in the physical infrastructure, Deutsche Bahn is not able

to avoid digitalization either.

As a train traveler, however, you don't even notice which logistical requirements are running

in the background to coordinate 40,000 trains that drive daily in Germany – which is quite a

lot! This applies to the small local bus company just as much as it does to Deutsche Bahn.

Have you ever thought about the following?

Trains and employees must be in the right place at the right time. The timetable should be

coordinated as well as possible with connecting services. Which train has to be maintained

when and how long and is therefore not available? What is the range of a bus before it has

to be refueled and therefore temporarily replaced by another bus? How can the timetable

2 https://www.allianz-pro-schiene.de/wp-content/uploads/2020/07/200720_prokopf-investitionen.pdf 3 https://www.deutschebahn.com/de/presse/suche_Medienpakete/2020-Rekordinvestitionen-von-12-2-Milliarden-Euro-in-die-Eisenbahninfrastruktur-3784910

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 6

be adjusted in the short-term if there is an unscheduled disruption or if a construction site

makes it impossible to keep to the regular bus timetable?

These are questions that every transport company must solve. In some cases, Excel is still

used for planning. Unimaginable!

I may have found a company that provides the public transport world with software solutions

to help better plan operations. Travelers usually don't get to see the IVU solutions

because it is running in the background.

IVU Traffic Technologies may be one of the greatest profiteers during the next

decade serving the increasing need for technological planning tools in public

transport

The Berlin-based software company IVU Traffic Technologies develops, installs, maintains,

and operates integrated IT solutions for buses and trains. The solutions cover the entire

spectrum of planning, operation, and quality assurance. IVU not only serves a growth market

driven by political tailwind (at least currently) but is also riding the wave of "ESG

investments". What SAP represents as an ERP system for common companies is IVU for

train and bus companies (the quote is not mine, but comes from the CEO's mouth). Once

an IVU system is installed, it is not changed overnight. A new customer usually remains loyal

to the company for years or decades. The high switching costs ensure a very low churn rate

or high "stickiness". Through maintenance/service/hosting IVU increases the share of

recurring revenues which makes the whole business more stable. Furthermore, these

recurring revenues have higher margins.

IVU's business model, market position, and figures still hold some interesting details that I

do not want to reveal to you now that your attention has perhaps reached its peak.

Okay, maybe a spoiler? IVU has probably been much more profitable in 2019 than the P&L

indicates – despite a return on equity of >20 %. What this means for shareholders will be

revealed in the course of this Stock Market Research Report.

I hope you enjoy reading today's Research Report.

If you have any questions, please don’t hesitate to contact me.

Best regards

Alexander Jagode

Stock-Market-Research.com

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Management Summary

IVU is a german software company serving a growth market and is also flying under the

radar of many institutional investors despite their leading market position in Europe.

The company with more than 40 years of experience develops, installs, maintains, and

operates integrated IT solutions for buses and trains. The standard products IVU.suite and

IVU.rail cover the whole spectrum of planning, operation, and quality assurance for public

transport and railway companies. IVU’s software and hardware systems create timetables,

plan and optimize the deployment of buses and trains, dispatch drivers and vehicles, control

and monitor the operation for vehicle fleets, sell tickets, inform passengers, cash up takings

and prepare statistics. Consequently, they increase efficiency and the quality of public

transport.4

Since per capita investments in the railroad sector were at a historical low during the last

years in Germany, thanks to the political support that emerged in the last months one can

assume that the investments in the rail sector (and furthermore in the whole public transport

system) will continue to grow over the coming years. In 2019 only € 76 per capita were

invested in the rail infrastructure, which is very low compared to other European countries.

For 2020 this figure will increase to almost € 150.

Industry experts expect digitization to become the #1 trend over the years to come. As IVU

serves this market from a very good market position, the future for IVU might be bright. The

business model of IVU has high barriers to entry because of their specific know-how and

their broad customer and reference network. What might be the most important thing to

consider is that the switching costs for clients are very high. Once IVU has contracted a new

client to implement at least one of the modules that comprise the IVU.suite (or IVU.rail), the

client will remain loyal for a very long time. The CEO recently compared IVU with SAP.

Once installed, always loyal.

Benefiting from the three megatrends of urbanization, mobility, and digitization one can see

IVU as a Tech-ESG-company with further potential to increase their margins due to

economies of scale. As I expect ESG-investing to become more important during this

decade, IVU might yet be too small (market cap approx. € 280 million) to be investable for

larger ESG funds. But imagine what this could look like in five years if IVU continues to grow

steadily until then. If IVU is suddenly perceived as a strongly sustainable company, this

change in perception could become another trigger for the share price.

Since the company does not have its own production facilities, the business model is very

asset-light. The management is investing 65 % of profits back into the business. The

management team makes main investments by hiring new employees which can be seen in

the following slide:

4 Annual Report 2019, p. 30

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Figure 4: IVU is hiring5

Long-term framework agreements such as the 15-year contract with DB Fernverkehr (long-

distance travel) give the company a better reputation, which should also encourage further

internationalization. With an increasing number of renowned customers, an expansion into

foreign markets with larger projects should be possible, but I expect management to expand

only if the risk/reward-ratio is outstanding.

The ownership structure, with Daimler holding 5.25 % and the founders 22 %, provides a

certain incentive for the latter in particular to further increase the share price and to maintain

a soundly managed company. I would conclude that the interests of management and

shareholders are largely aligned.

5 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2020, p.18

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IVU Traffic Technologies AG - key data

Closing Share price as of

December 2, 2020

€ 15.80

Listings / Ticker symbol Frankfurt Stock Exchange / IVU

ISIN DE0007448508

IPO July 7, 2000

Outstanding shares as of

September 30, 2020

17.719.160

Market capitalisation in Mio. €

Dividend Paid in 2018: € 0.00 per share

Paid in 2019: € 0.10 per share

Paid in 2020: € 0.12 per share

The company started to pay a small

dividend in 2019. EPS in 2019 came in at

€ 0,60 which results in a payout ratio of only

20 %. The management is reinvesting the

major share of the earnings into the

company which I like

Major shareholders6 Founders 22.1 %

Daimler Buses 5.2 %

Management (excluding Prof. Dr. Herbert

Sonntag) 1.5 %

Free float 71.2 %

Website German: www.ivu.de

English: www.ivu.com

6 https://www.ivu.com/investors/share.html

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1. Business Model

What is IVU doing?

IVU develops, installs, maintains, and operates integrated IT solutions for the Public

Transport segments. The software and hardware systems create timetables, plan and opti-

mize the use of buses and streetcars, schedule drivers and vehicles, control and monitor

the operation of vehicle fleets, sell tickets, inform passengers, calculate revenues and com-

pile statistics. More than 500 customers worldwide rely on IVU's solutions, which support

transport companies in offering optimum services and ensuring mobility in the future.7 IVU

supplies solutions for the global megatrends of urbanization, mobility, and digitalization,

which will provide a tailwind for future operational development. The intelligent IT systems

make public transport more efficient, more demand-oriented, and more environmen-

tally friendly. The smart IVU IT systems help to maintain an overview of the more complex

requirements and offer passengers optimum service.8

Figure 5: Some IVU-clients9

Besides, IVU operated in the insignificant (in terms of revenues) Logistics segment until

2018, which included products for optimizing operational processes in information and

transport logistics on the one hand and the election software IVU.elect, which supports the

preparation and correct conduct of political elections, on the other. The segment was dis-

solved on 1 January 2019. The promising and profitable products from the former segment

were taken over into the existing solutions for public transport and integrated accordingly

into the Public Transport segment, as a result of which there will only be one reportable

7 Annual Report 2019, p. 28 8 IVU brochure „Integrated IT Systems for Bus and Rail” 9 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2019, p.4

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segment from 2019. On 19 May 2020, IVU disclosed that IVU.elect GmbH has been sold.

The parties agreed not to disclose the purchase price.10

IVU is based in Berlin and was founded on August 4, 1998. IVU has offices in Berlin (head-

quarters), Aachen (Germany), Frankfurt am Main (Germany), Otten (Switzerland), Vienna

(Austria), Veenendaal (Netherlands), Paris (France), Rome (Italy), Birmingham (UK), Buda-

pest (Hungary), Istanbul (Turkey), New York (USA), Montreal (Canada), Santiago (Chile)

and Hanoi (Vietnam).

Long story short: The operation of a transportation company (especially buses and trains)

requires extremely precise planning in the background regarding schedules, vehicle mainte-

nance, staff planning, and much more. IVU offers the appropriate software for this from

a single source, enabling companies to carry out this enormous task more easily and

efficiently.

Product offering

The entire product range is based on the IVU.suite. The IVU.suite is also available for electric

buses, for rail vehicles (called IVU.rail), and the IVU.cloud on a SaaS-basis.

IVU.suite. IVU.suite is the company's main product. It covers all the work processes of a

transport company. Thanks to its modular structure, the customer can choose exactly the

solutions that meet his individual requirements, from offer and resource planning to dispatch-

ing, operations control and ticketing, passenger information, and the invoicing or preparing

of statistics.

The following screenshot provides you with an overview of their different modules:

Figure 6: IVU.suite – solution for public transport11

10 Ad-hoc-announcement from 19 May 2020 11 https://www.ivu.com/products-and-solutions/ivusuite.html

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With the following table I have created an overview, in which you can find more information

about the purposes of the different modules that customers can combine:

Process Module Description

Service Planning IVU.timetable administers all basic and infrastructure data, and supports the planning process from structuring the route network and creating timetables through to publishing information.

Service Planning IVU.pool consolidates timetable data from the entire range of dif-ferent planning systems across companies and standard-izes the data to create the basis for integrated passenger information.

Resource Planning IVU.run supports the entire schedule planning process, from daily deployment through to multi-day vehicle scheduling in-cluding maintenance and service times. Effective optimiza-tion ensures efficiency

Resource Planning IVU.duty creates efficient duty schedules for staff through smart optimization. A flexible rule system and numerous automated functions make workloads easier

Dispatching IVU.vehicle plans and controls the entire vehicle deployment process. The integrated depot management monitors mileages and service intervals, as well as supports parking space plan-ning.

Dispatching IVU.crew supports the entire personnel dispatch process and en-sures that all employees are where they need to be. Effec-tive optimization ensures efficient duty schedules.

Dispatching IVU.pad is the digital workplace for employees in the field. The web app contains all important information such as duty sched-ules and handbooks and improves communication with employees.

Fleet Management IVU.fleet helps operators to respond quickly and appropriately in every operations situation. The traffic control system con-tinuously monitors all aspects of a trip and suggests suita-ble actions.

Fleet Management IVU.cockpit runs on the IVU.box on-board computer. The software pro-vides driving instructions, communicates with the control center, and supplies passenger information.

Fleet Management IVU.box is the user-friendly onboard computer. It communicates with the control center and manages onboard systems. As IVU.ticket.box it also takes on ticketing tasks

Ticketing IVU.fare manages sales processes from setting fares through to set-tling ticket sales (paper or e-tickets) within networks and individual companies.

Ticketing IVU.ticket is the software used for sales and inspection terminals. It handles the ticketing process, from printing tickets through to selling and validating e-tickets.

Ticketing IVU.validator is the e-ticketing customer terminal. Whether it is used for boarding checks or as a stand-alone sales terminal, the in-tuitive user interface makes it easy to operate.

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Process Module Description

Passenger Informa-tion

IVU.realtime provides real-time information to passengers on all chan-nels. Directly linked to the control center, the system gen-erates a consistent flow of data from vehicles to passen-gers.

Passenger Informa-tion

IVU.journey computes the best route for passengers at all times. The travel planning system forms the basis for digital travel in-formation, including car- and bike-sharing initiatives.

Controlling IVU.control records planned and actual data, merges this data and pre-pares it for further processing, e.g. for transport contract settlement or for evaluations and analyses.

If you want to learn more about IVU's products and customers, I recommend that you take

a look at the IVU homepage. You will find some references and very interesting and helpful

case studies.

The following figure shows an extract of the customers that IVU has gained in the rail sector

in recent years:

Figure 7: Strong growth of IVU.rail12

IVU.suite for electric buses. IVU offers the IVU.suite for electric buses, which takes into

account the work processes associated with the use of electric buses, the operation of which

brings additional special requirements with it such as the planning and construction of charg-

ing stations, adaptation of the vehicle rotation to the range of the buses, integration of charg-

ing times and monitoring of the state of charge and infrastructure. The digital workflows are

12 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2020, p. 13

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even available for operators of mixed fleets (battery-powered electric bus, combustion en-

gine, fuel cell bus, etc.).

IVU.rail. As a counterpart to the IVU.suite, IVU.rail completely maps the work processes for

railroad companies. The modular structure of the product remains unchanged from the

IVU.suite but is geared to the specific tasks of a railroad company.

Process Module Description

Service Planning IVU.timetable manages all train path and route data and supports the en-tire planning process up to publishing, including ordering and managing train paths.

Service Planning IVU.pool consolidates timetable data from the entire range of dif-ferent planning systems across companies and standard-izes the data to create the basis for integrated passenger information.

Resource Planning IVU.run supports the entire run scheduling process, from daily de-ployment through to multi-day vehicle scheduling includ-ing maintenance and service times. Powerful optimization ensures efficiency

Resource Planning IVU.duty creates efficient duty schedules for staff through smart op-timization. A flexible rule system and numerous auto-mated functions make workloads easier.

Dispatching IVU.vehicle plans and controls the entire deployment process, from al-locating services and planning workshop visits, to quickly reacting to operational disruptions.

Dispatching IVU.crew supports the entire personnel dispatch process and en-sures that all employees are where they need to be. Pow-erful optimization ensures efficient personnel deployment.

Dispatching IVU.pad is the digital workplace for employees in the field. The web app contains all important information, such as duty schedules and handbooks, and improves communication between all employees.

Fleet Management IVU.fleet is the interface between the train and the dispatch team. The background system transfers data, monitors sensors, and supports evaluation tasks.

Fleet Management IVU.cockpit runs on the on-board computer on the train. The software displays dispatch changes, communicates with the dis-patch team, and supplies passenger information

Fleet Management IVU.box is the user-friendly on-board computer with a touch screen for the driver’s cab. It communicates with the control cen-ter, records the train position, and manages the on-board systems.

Ticketing IVU.fare manages sales processes, from setting fares to settling ticket sales (paper or e-tickets) within networks and indi-vidual companies.

Ticketing IVU.ticket is the software used for sales and inspection terminals. It handles the entire ticketing process, from printing tickets through to selling and validating e-tickets.

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Process Module Description

Ticketing IVU.validator is the e-ticketing customer terminal. Whether it is used for boarding checks or as a standalone sales terminal, the in-tuitive user interface makes it easy to operate.

Passenger Informa-tion

IVU.realtime provides real-time information to passengers on all chan-nels. Directly linked to the control center, the system gen-erates a consistent flow of data from train to passenger.

Passenger Informa-tion

IVU.journey computes the best route for passengers at all times. The travel planning system forms the basis for digital travel in-formation, including car and bike-sharing initiatives.

Controlling IVU.control records planned and actual data, merges this data, and prepares it for further processing, e.g. for management of transport contracts or for evaluations and analyses.

If you want to learn more about the different modules, I highly recommend taking a closer

look into the brochures13 IVU provides on their website, e. g. the brochure regarding

IVU.suite14 or the IVU.rail.15

IVU.cloud. With IVU.cloud, the standard software IVU.suite and IVU.rail can be operated as

a SaaS-model. Instead of a local installation at the customer's premises, the software is

located in the cloud, from which the customer can access it without having to relinquish

performance, availability, and data security.16

The modular structure enables customers to use IVU solutions as required. From IVU's point

of view, the use of standard software, which is then ultimately only adapted to the customer's

needs, is advantageous for several reasons:

▪ All customers work with identical solutions

▪ The software had to be developed once and can be used in a scalable way, which

results in economies of scale

IVU is currently growing both in Germany and abroad, but mainly in Europe. Approximately

49.2 % of sales in 2019 came from Germany, 47.8 % from the rest of Europe, and 2.9 %

from other countries making IVU a mainly European market player.

A key USP is that the company can offer complete solutions from a single source.

New customer acquisition is made possible in particular by the fact that the customer previ-

ously often used specially programmed software that works less and less efficient over time

with increasing mobility requirements, and there is, therefore, a desire to switch to standard

software. In other cases, customers still use different solutions from different small providers,

which do not always work together smoothly and become too inefficient as requirements

increase.

13 Overview of brochures IVU provides on the website 14 Brochure IVU.suite 15 Brochure IVU.rail 16 Brochure IVU.cloud

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Between 80 and 90 % of public transport companies in Germany use some of IVU's solu-

tions.17 IVU also focuses on up- and cross-selling: The company often wins a tender for a

single module and thus gets the proverbial leg in the door. After some time, when the cus-

tomer realizes how well the IVU solutions are working, further modules are often integrated.

Conversely, this means very profitable growth for IVU, because the costs of winning

customers are then very low, which allows higher margins.

IVU's business model is characterized by extremely high switching costs on the customer

side. Once a customer has been acquired, they generally remain loyal to the company for

many years, similar to an SAP system. The CEO said in an investor presentation that since

taking office almost 13 years ago he can only remember 2 - 3 customers that IVU has lost.

Increasing share of recurring revenue

The IVU.cloud was developed and deployed for the first time in the middle of the last decade.

The largest and first IVU.cloud customer is the Italian state railroad Trenitalia, which has

been using the IVU.cloud for planning, scheduling, and optimization of its 14,000 employees

and 5,000 vehicles since April 2015.18 In 2016, STIF, which organizes and finances all public

transport in Paris and the surrounding area as the responsible public transport authority for

the Île-de-France region, joined the customer base.19 Torghatten, one of Norway's largest

transport companies, which operates several bus and ferry services and regional airlines,

has been a customer of IVU since 2001. In 2018, a further three bus companies of Torghat-

ten were migrated to IVU's standard solution, which is also hosted via the IVU.cloud.20 Since

2019, the company has also counted SSB Cargo in Switzerland among its customers in this

area.21

In addition to the generally recurring maintenance revenues, there will be significant recur-

ring hosting revenues for the first time since 2016, reflecting the revenues of IVU.cloud. It is

easy to see that the share of recurring revenues in total revenues has increased continu-

ously from 20 % in 2008 to over 31 % in 2018. According to the company, revenues from

IVU.cloud imply a significantly higher margin, which is why the company is actively trying to

sell the solutions to customers as part of up- or cross-selling.

17 Figure provided by Investor Relations team 18 Annual Report 2015, p. 14 19 Annual Report 2016, p. 16 20 Annual Report 2018, p. 16 21 Annual Report 2019, p. 14

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Figure 8: Increasing share of recurring and higher-margin revenues22

Historical sales development

The sales trend from 2009 to 2014 was relatively flat. During this period, sales in the Public

Transport segment rose from just under € 31 million to € 41.7 million, which corresponds to

an annual growth rate of 6 % p.a. Since then, the sales development has been much more

dynamic. Since 2014, sales have more than doubled to almost € 90 million within only five

financial years (CAGR 16.3 %). This more dynamic development in recent years is due to

two reasons. On the one hand, this is due to the general market environment, as transport

companies have understood in recent years that they have to invest in the advancing digi-

talization. On the other hand, IVU has grown strongly in the railroad business.23

22 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2020, p. 17 23 Information provided by Investor Relations team

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Participation/Cooperation Daimler

IVU wants to participate in the growth of bus electrification. To this purpose, IVU entered a

strategic cooperation agreement with Daimler Buses (EvoBus GmbH) in February 2019.

Together, the two companies want to develop innovative, integrated solutions that go far

beyond the actual vehicle or traditional IT transport system and help transport companies

make optimum use of their electric buses. At the same time, Daimler Buses acquired a

5.25 % stake in IVU. The seller of the share package is the non-profit Gerlind & Ernst Denert

Foundation of the former IVU board member Prof. Dr. Ernst Denert.24

IVU has already received its first order from Daimler Buses. The company will supply the

loading management for 56 new eCitaro buses. The IVU.suite will ensure that all buses are

loaded appropriately and that the infrastructure and software are coordinated.25 The German

city of Wiesbaden intends to operate only electric buses in two years, which is why Daimler

Buses will supply the mentioned 56 buses.26

The financial benefits of the cooperation are difficult to assess from today's perspective, but

cooperation is certainly not disadvantageous. Furthermore, the shareholder structure has

gained a new strategy and probably a long-term oriented shareholder.

P&L may not show true profitability

IVU has been able to increase its revenues by 140 % from 2009 to 2019, while at the same

time the EBIT margin rose from 5.7 % to 11.8 %, which is also an increase of more than

100 %. I call the combination of rising revenues and increasing margin a “turbo boost”, which

ultimately leads to a multiplication of profits. IVU generated an EBIT of € 2.1 million in 2009.

10 years later it was already at € 10.5 million, resulting in a growth in earnings of ~390 %.

24 Ad-hoc-announcement from 25 February 2019 25 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2019, p. 11 26 Annual Report 2019, p. 6

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These are great figures!

Nevertheless, I think that IVU is in reality more profitable than the P&L shows and that

the management tries to disguise its actual profitability by exercising some accounting op-

tions. What would customers think if they realized that IVU generates EBIT margins of >

20 %?

Let me explain why I think so:

The company records annual R&D expenses, which have increased significantly from just

under € 0.9 million in 2009 to more than € 4,4 million in 2019, especially in the last three

financial years. Since R&D expenses have risen disproportionately to sales and gross profit

growth, the cost/income ratio has also increased significantly. Yes, R&D expenses may be

necessary for a software company, but to a certain extent, they distort the current profitability

of the company, since corresponding expenses usually only lead to revenues in later fiscal

years.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 20

At the same time, the company has booked a substantial – in the historical context unusually

high – addition to provisions in 2019, which mainly results from an addition to the warranty

provision of € 4.7 million and setting up a provision for impending losses of € 0.9 million.

Taking into account the utilization and reversion of unused amounts of the previously exist-

ing warranty provision, this resulted in a change in provisions of € 4.8 million in 2019. And I

would like to point out that this only becomes apparent when looking at the balance sheet!

As you can see, the warranty provision rose by 316 % in 2019.

Figure 9: Provisions 2019 vs. 201827

Given the EBT of € 10.1 million actually reported, arising the provisions to this extent is quite

significant. Without this effect of € 5.6 million, the EBT would have been € 15.7 million (!),

27 Annual Report 2019, p. 71

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 21

which would have meant an increase of 140 % compared to the EBT of € 6.5 million reported

in 2018. However, the reported EBT was only € 10.1 million, which makes the growth in

earnings look significantly lower (only 55 %). Of course, I cannot answer the question of

whether the sharp increase in the provision is partly or actually fully economically justified.

Probably, however, the truth lies somewhere in the middle, as always.

If the EBT is adjusted for the R&D expenses incurred as expenses and the change in provi-

sions (mainly only in 2019), the actual profitability of the Company is shown in the figure

below.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 22

2. Market

Transportation in Germany

IVU generates about 50 % of its revenues in Germany and 97 % in Europe. I limit my follow-

ing research to the German transportation market.

Transport can be divided into four areas: local public transport (german: Öffentlicher Perso-

nennahverkehr; ÖPNV), long-distance transport, individual transport, and freight transport.

ÖPNV itself can be divided into local rail transport (german: Schienenpersonennahverkehr;

SPNV), which mainly covers regional transport including suburban railroads, and local road

transport (german: öffentlicher Straßenpersonennahverkehr; ÖSPV), which includes "non-

rail transport", such as bus lines and streetcars. Public transport in Germany is operated by

district or city transport companies and also by private transport companies.

The terms may be hair-splitting, but they are nevertheless helpful in understanding better

who actually operates public transport in Germany - and thus who is ultimately one of IVU's

customers.

The terms may be hair-splitting, but they are helpful in understanding who actually

operates public transport in Germany – and who IVU's customers are.

In Germany, two authorities are responsible for local transport by law: The federal states are

responsible for SPNV, whereas ÖSPV is usually provided by the municipalities, i.e. the dis-

tricts and cities. They are referred to as public service providers. They often appoint their

own organizations to coordinate local public transport. Due to the high standards of local

transport and the comparatively low fares in Germany, the transport companies can rarely

provide services at their own economic risk. In order to guarantee the transport, public fi-

nancing is necessary (see below).28

In § 1 para. 1 RegG (Law on the regionalization of local public transport; german: Gesetz

zur Regionalisierung des öffentlichen Personnennahverkehrs) it is even enshrined in the act

that the citizens are adequately served by local public transport services and that this is a

service of general interest.

The public service providers participate financially. They conclude contracts with transport

companies. In these contracts, they regulate which services the companies must provide.

Transport companies such as DB Regio AG can apply for these public transport contracts.

The valid European Union regulation (EU regulation 1370/2007) requires European-wide

competition. As a rule, it is tendering procedures in which the companies participate. The

actor with the best offer is awarded the contract and the transport companies ensure traffic

for a certain period. In SPNV, the maximum period is 15 years, in ÖSPV it is 10 years.29

28 https://www.dbregio.de/db_regio/view/wir/nahverkehr-deutschland.shtml 29 https://www.dbregio.de/db_regio/view/wir/nahverkehr-deutschland.shtml

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The local linked transport systems (german: Verkehrsverbünde) also play an important role

in local public transport: they provide passengers with easy access to ÖPNV. They establish

a uniform tariff that is applied by all transport companies in the region. The linked transport

system distributes the revenue from the fares to the local transport companies according to

a fixed system.30

The following figure shows the linked transport systems in Germany that serve ÖSPV:

Figure 10: linked transport systems in Germany31

30 https://www.dbregio.de/db_regio/view/wir/nahverkehr-deutschland.shtml 31 https://upload.wikimedia.org/wikipedia/com-mons/f/f3/Karte_der_Verkehrsverb%C3%BCnde_und_Tarifverb%C3%BCnde_in_Deutschland.png

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 24

The so-called modal split is the percentage of travelers using a particular type of transpor-

tation. The 2019 modal split (in Germany) shows a share of 8.9 % for rail and 6.4 % for

ÖSPV, although this only refers to passenger transport, i.e. excluding freight transport, which

is handled by rail. In terms of freight transport, rail accounts for 18.1 % of the total transport

performance.32

In regional transport, Deutsche Bahn has a market share of 64 %, while the remaining 36 %

is accounted for by other railroads, e.g. so-called non-federally owned railroads. In freight

transport, the market share is lower at around 56 %. The following two graphs show that

Deutsche Bahn's market share has declined somewhat over the last 3 years.

Figure 11: Market shares in Germany in regional transport (left) and freight transport (right)33

Funding

Public transport in Germany is financed by public funds as well as by the users, i.e. through

fare revenues. The share of user financing contributes to approximately 50 % of total fund-

ings. In addition to user financing, public financing of public transport is necessary in order

to fulfill the constitutional mandate of nationwide service of general interest (see above).

Public funds are made available to the sector via various financing instruments (see Figure

12).34

The most important source of financing for SPNV as an important part of public transport is

the so-called regionalization funds (german: Regionalisierungsmittel).35

32 Wettbewerbskennzahlen 2019/20 Deutsche Bahn 33 https://upload.wikimedia.org/wikipedia/commons/f/f3/Karte_der_Verkehrs-verb%C3%BCnde_und_Tarifverb%C3%BCnde_in_Deutschland.png 34 https://www.dbregio.de/db_regio/view/branche/positionen/finanzierung.shtml 35 https://www.dbregio.de/db_regio/view/branche/positionen/finanzierung.shtml

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 25

The federal states receive funding from the federal government via the Regionalization Act

(RegG) to ensure public services of general interest in local public transport. For this pur-

pose, the public transport authority commissioned by the federal states and on the one side

and the transport companies on the other side enter into long-term transport contracts fol-

lowing a competitive tender procedure.

In addition to the provision of transport services, the contracts also regularly regulate exten-

sive and long-term investments, for example for the procurement of vehicles.36 Keep in mind,

that public transport is a business that requires huge Capex!

Do you remember § 1 para. 1 RegG which I mentioned on page 22? This act also stipulates

that the federal states are entitled to subsidies from the federal tax revenue to finance public

transport.

The regionalization funds are set at 8.2 billion euros annually from 2016. Of this amount,

eight billion euros will be distributed among all 16 German federal states according to a fixed

key. In the following years, there will be an annual inflation adjustment of 1.8 percent. The

regulation on the provision of regionalization funds is valid until 2031.37

The following diagram (sadly only available in german) shows how complex the financing of

public transport in Germany is:

36 https://www.dbregio.de/db_regio/view/branche/positionen/finanzierung.shtml 37 Stabile Finanzierung ist Voraussetzung für attraktive Mobilitätsangebote im ÖPNV (dbregio.de)

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 26

Figure 12: Financial instruments for financing public transport in Germany)38

In general, you will now ask yourself what effect COVID-19 has on the liquidity situation of

public transport companies - and thus also on IVU customers.

A legitimate question!

After all, the most important pillar – fare revenues – has largely collapsed in 2020. In long-

distance traffic, for example, passenger volumes fell by 46 % in the first half of 2020.39

In June, the federal government promised public transport a one-off increase in regionaliza-

tion funds of € 2.5 billion for 2020.40

38 Stabile Finanzierung ist Voraussetzung für attraktive Mobilitätsangebote im ÖPNV (dbregio.de) 39 https://www.handelsblatt.com/unternehmen/handel-konsumgueter/corona-folgen-fernverkehr-bricht-im-ersten-halbjahr-ein/26566044.html?ticket=ST-1866904-stg0zrR9ZUwfr0IrQPO0-ap6 40 https://www.roedl.de/themen/kompass-mobilitaet/14-2020/beschluss-bundesregierung-corona-konjunkturpaket

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 27

Whether this amount – as well as the other aid that Deutsche Bahn will receive from the

climate package, for example – will be enough is still written in the stars.

However, I assume that public transport will not collapse, since ensuring that the population

is adequately served by transport services as a service of general interest is enshrined in

law.

I suspect that there will be further state aid before the federal government lets

transport companies go bankrupt across the board.

Looking into the future

On 19 November 2020 IVU published their 9M-figures for the fiscal year 2020 which were

very satisfying in times of COVID-19. Revenues increased by 14.8 % in the first 9 months

compared to the previous year.

The CEO stated in their presentation held at the German Equity Forum on 17 November

2020 that there is currently no significant financial impact from COVID-19:

Figure 13: Currently no significant impact from COVID-1941

The fact that IVU does not currently experience any negative effects may strongly be related

to the following figure prepared by PwC, one of the big four auditing companies world-wide.

Almost 90 % of industry experts expect digitization in public transport to become

more important in the future. No other topic will occupy transportation companies as

much in the future as digitization.

41 Presentation „Deutsches Eigenkapitalforum“ (German Equity Forum) 2020, p. 22

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 28

Figure 14: Future significance of the trends for the public transport industry42

For all my readers who do not speak German, I would like to explain briefly what figure 14

shows (because unfortunately, this diagram is only available in German). The chart lists

various topics that are important for the future development of public transport. The dark

brown sections stand for increasing importance, the yellow ones in the middle for constant

importance, and the light brown ones for decreasing importance. In addition to digitization,

future topics include e. g. innovative payment systems, alternative forms of propulsion, new

market participants, and autonomous vehicles. Digitization takes the top 1 on the agenda.

NOBODY expects its importance to decline in the future, but 89 % of the experts expect it

to increase.

COVID-19 will sooner or later pass off for transport companies, and digitization will be more

important post-Corona than pre-Corona. The world keeps turning and people will continue

to use public transportation; unless you belong to the group that has seen public transpor-

tation disappear forever.

Increasing digitalization is playing heavily into IVU’s cards. Only a few days before this re-

search report was published, IVU announced that they will implement cashless payment for

‘Stadtwerke Münster’ (Stadtwerke Münster GmbH is the public utility company responsible

for public services and local public transport in Münster, a city with 300,000 inhabitants in

northern Germany).

42 Blickpunkt Verkehr: ÖPNV in der Coronakrise (pwc.de)

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Figure 15: Cashless payment for Stadtwerke Münster43

IVU’s market position

The dynamic and rapidly growing market environment is characterized by the three mega-

trends urbanization, mobility, and digitization. The high global demand for solutions for effi-

cient and reliable public transportation in order to cope with the growing volume of transpor-

tation is boosting companies within this market with a tailwind.

IVU.rail, the software solution developed especially for railroads, remains the leading fully

integrated system for planning and dispatching vehicles and personnel on the European

market. The IVU solution is an international leader, particularly in highly complex vehicle

scheduling.

IVU is also the market leader in the German railway market with its standard solution. Ac-

cording to the Competitor Report Railways 2019/20 by mofair e.V., the alliance for fair com-

petition in rail passenger transport, the four largest regional railway companies DB Regio,

Transdev, Netinera, and Abellio have a market share of around 82%. They all rely on IVU.rail

for the planning and dispatching of vehicles and personnel. They are joined by IVU’s cus-

tomers HLB, AVG, National Express, and SWEG, who also serve more than 6% of the Ger-

man volume of regional public transport traffic.44

In addition to pure passenger growth and the resulting increasing demand for appropriate IT

solutions,

the political and social framework conditions are also contributing to increased demand for

corresponding products. Last year, the Federal Government paid around € 8.6 billion in re-

gionalization funds to finance local public transport and regional passenger transport in the

43 IVU: Cashless Payment for Stadtwerke Münster 44 Annual Report 2019, p. 32 f.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 30

federal states. Besides, the Federal Ministry of Transport and Infrastructure is providing

€ 1.5 billion as part of the ‘Immediate Action Programme for Clean Air 2017-2020’. Of this

amount, € 393 million alone will go towards the electrification of transport and a further € 500

million towards the digitalization of transport systems. The Federal Ministry for the Environ-

ment is also funding the acquisition of electric buses for public transport with a total of around

€ 300 million by 2022.45

According to the Association of German Transport Companies, this has had the effect that

400 electric buses were already in use nationwide at the end of 2019. By the end of 2020,

the industry association estimates that their number will rise to around 1,000. According to

a study by SCI Verkehr, only 0.4 % of all buses in Europe were electrified in 2018. The

market research company expects the market for electric buses in Europe to grow by 40 %

by 2023. IVU intends to participate in this growth. Last year it concluded a cooperation

agreement with the vehicle manufacturer Daimler Buses. IVU wants to work together to de-

velop innovative, integrated solutions that go far beyond the vehicle itself or the traditional

IT transport system and help transport companies to make optimum use of their electric

buses. Also, IVU together with ebusplan GmbH, Aachen, founded the joint venture EBS

ebus solutions GmbH, Aachen, with the aim of developing software modules and compo-

nents for electric buses that enable an integrated planning process.46

Let’s take a closer look at IVU’s business model to find out if they have a moat.

Threat of new entrants. Thanks to the modular structure of the IVU.suite, IVU can use

solutions that have been programmed in-house and can be individually adapted for each

customer. This ensures economies of scale. The capital requirement for a new competitor

45 Annual Report 2019, p. 33 46 Annual Report 2019, p. 33

Porters Five

Forces

Threat of new entrants

Bargaining power of suppliers

Bargaining power of

buyersThreat of substitute products

Rivalry among existing

competitors

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 31

should probably not be underestimated, especially in the areas of research and development

and sales. IVU products are deeply rooted in the value chain of the customer and - meta-

phorically speaking - represent the engine room of a ship. The customer relies on the con-

tinuous availability of the systems. As a result, the customer's switching costs are very high.

Sales are also made by word of mouth. A new competitor would probably have to spend

significant resources to build a customer base. The proprietary software solution developed

by IVU enables the company to secure follow-up orders which a new competitor would have

difficulty winning. A few weeks ago, for example, IVU was able to win such a follow-up order

from Berliner Verkehrsbetriebe BVG. The reason for this was as follows: "Recent research

on the market has concluded that there are currently no alternative providers being consid-

ered for maintenance because on the one hand, no one has the access to the source code

of the software currently implemented and used for maintenance and on the other hand the

standard software solutions offered by the competitors have not yet met the special require-

ments of BVG without software extensions that are necessary for operation".47 I estimate

the market entry of new providers as low.

Rivalry among existing competitors. Rivalry among existing competitors regularly occurs

in the form of positional battles, i.e. tactics such as price competition, advertising battles, the

introduction of new products, and improved service or warranty conditions. The number of

competitors in the European market is modest. Both IVU and Init (one of IVU’s main com-

petitors; see below for more information) have recently achieved double-digit growth, so one

can assume that the entire market is growing and that growth is not achieved by reallocating

market shares. Although competition is also based on price, other criteria such as reference

projects, the reliability of the systems, speed of implementation, and support are also im-

portant. There is certainly rivalry among the existing competitors, but I estimate this to be

rather low as long as the industry continues to grow, which I expect to continue for several

years.

Threat of substitute products. The more attractive the cost/benefit ratio offered by the

substitute products, the more limited the industry profits. I am currently not aware of any

substitute products and I cannot imagine anything that could replace the software solutions

in the future. I would rather focus on IVU's customers for substitution products: IVU solutions

will only cease to be in demand when the public transport sector shrinks and may be com-

pletely wiped out one day because alternative transport concepts make the use of public

transport obsolete. The new transport concepts could be even more environmentally

friendly, cheaper, more flexible, and applicable across the board. The mobility market is

changing, but I do not assume that public transportation will no longer be part of future-

mobility. Rather, I think that there will be a co-existence of public transport and new alterna-

tives, which, however, cannot be regarded as real substitutes in this respect because they

do not serve the same purpose. On the other hand, there is a new market opportunity here

for existing competitors if the substitute product is included in the corporate strategy as an

unavoidable competitive factor, for example by developing new software solutions for the

new mobility solutions and then supplying them.

47 Services - 464288-2020 - TED Tenders Electronic Daily (europa.eu)

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 32

Bargaining power of buyers. Customers compete with the industry by pushing prices

down, demanding higher quality or better performance, and playing off competitors against

each other. With over 500 transport companies worldwide relying on IVU solutions, the cus-

tomer group is fragmented and no single customer accounts for an excessive share of total

revenues. Moreover, the products that the customer group purchases from the industry do

not represent a significant proportion of the customer group's total costs. The products are

also not standardized or differentiated. Each supplier uses its own software solutions with

its own functions. In addition, the switching costs (as already explained) are very high, which

is why the customers are tied to the suppliers. Furthermore, customers cannot credibly

threaten backward integration, as this is not feasible due to lack of know-how and what

would require considerable resources for in-house programming. In addition, the industry's

solutions ensure that public transport operations run smoothly, which means that the indus-

try product is significant for the quality/performance for the customer. In my opinion, the

bargaining power of buyers is rather low.

Bargaining power of suppliers. Suppliers can play out their bargaining power by threat-

ening to raise prices or lower quality. Since IVU focuses mainly on the software business,

IVU does not have to procure a lot from other suppliers. IVU only uses hardware if the project

requires it, for example, if an on-board computer is to be installed. Besides, IVU also pur-

chases external services such as programmers and an outsourced data center for the

IVU.cloud. I also consider the negotiating power of the suppliers to be rather limited to IVU's

business model.

Peers

In the public transportation sector, init innovation in traffic systems SE and Trapeze are the

two largest competitors. Also, other players in the market have emerged from university

spin-offs, for example. The more "specific" the solutions in demand, the less competition

there is for IVU, as the CEO explained at the German Equity Forum 2020.

Init. init innovation in traffic systems SE is a provider of integrated planning, dispatching,

telematics, and ticketing solutions, whereby init has greater exposure to its telematics and

ticketing solutions than IVU. Init has a greater focus on hardware-related business and in-

novations in this area, such as passenger guidance systems that use light signals to indicate

where there are still free seats in the vehicle at the edge of the platform when the vehicle

enters. Init has a much more international scope overall, is growing somewhat faster than

IVU, but its business is subject to much greater volatility than IVU, which is growing steadily

and specializes purely in software solutions. With revenues of € 156.5 million in 2019, rev-

enues are 76% higher than IVU's, and EAT of € 11.3 million is only slightly higher than IVU's

EAT (€ 10.6 million).

Trapeze. The Swiss company Trapeze Switzerland GmbH is a global provider of compre-

hensive solutions for personnel and vehicle dispatching, operations control technology, pas-

senger information, and ticketing. As Trapeze is a private company, no data on revenue and

profit are publicly accessible. The product range is also more comparable to init. For exam-

ple, Trapeze also sells ticket printers, ticket validators, smart information systems in vehi-

cles, and assistance systems for the blind.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 33

3. Financial Statements

3.1. Balance Sheet

The balance sheet of IVU is very clean. The balance sheet total has increased from almost

€ 40 million in 2010 to over € 105 million in 2019. Astonishingly, the non-current assets have

remained at practically the same level from 2009 to 2018. During this period, revenues more

than doubled from € 37.3 million to € 77.8 million! Only from 2019 onwards, a small jump

can be seen through the first-time capitalization of rights of use assets (IFRS 16) in the

amount of € 7.2 million. The largest fixed asset item (intangibles) consists mainly of goodwill,

which has been at € 11.3 million for years without any impairment. It should be noted that

primary intangible assets with a residual book value of € 0 are shown in the balance sheet.

This comes from a time before 2009, so I have not gone into detail here. However, it should

be mentioned that the primary intangible assets depreciated to € 0 had acquisition costs of

€ 15.5 million.

The balance sheet extension since 2009 is therefore based on an increase in current assets.

The two largest asset items (current trade receivables and cash and cash equivalents) ac-

count for around 72 % of current assets. There are also current contract assets and other

current assets as well as a few inventories.

I would also like to note that the receivables from trade receivables regularly reach the high-

est level of the year at the end of the year, as the majority of invoicing takes place in

November and December. Within the first half of the next fiscal year, receivables are re-

duced accordingly, which is shown in the following screenshot from the balance sheet as of

June 30, 2020:

Figure 16: Current trade receivables significantly decrease during the first half of the year48

48 Half-year report 2020, p. 6

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Equity is € 56 million and consists mainly of share capital and retained earnings.

Similar remarks as for fixed assets can also be made for non-current liabilities. These re-

mained relatively stable at around €5 million from 2009 to 2018. In 2019, leasing liabilities

were recognized for the first time as a result of the first-time application of IFRS 16, which

led to a corresponding increase of € 6.1 million.

If you were observant, you will notice that the long-term leasing liabilities according to IFRS

16 of € 6.1 million do not correspond to the capitalized rights of use on the asset side of

€ 7.2 million. The difference of € 1.2 million was carried as a liability as short-term leasing

liabilities. The remaining current liabilities are relatively unspectacular. In addition to current

trade accounts payables, there are contractual liabilities, provisions, and other current liabil-

ities. Nothing that I am currently worried about! There has never been any financial debt.

Overall, I perceive IVU's balance sheet as very tidy, clear, and without major balance sheet

risks.

3.2. Profit and Loss Statement

As already described in Chapter 1, IVU prepared segment reporting was until 2018. The

small Logistics segment which in 2018 contributed only € 3.7 million sales or 4.8 % of group

sales, is no longer reported since 2019. In May 2020, IVU divested IVU.elect, which was a

wise step to concentrate fully on the remaining main business.

in '000 € 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Assets

Intanbigle assets 11.792 11.661 11.829 11.805 11.593 12.289 12.170 11.770 12.028 11.596 11.480

Industrial property rights and licenses, software 443 312 480 456 244 940 821 421 679 247 131

Goodwill 11.349 11.349 11.349 11.349 11.349 11.349 11.349 11.349 11.349 11.349 11.349

Primary intangible assets 0 0 0 0 0 0 0 0 0 0 0

Tangible fixed assets 1.166 960 1.378 1.722 1.477 1.489 1.681 1.770 1.257 1.043 1.237

Rights of use (IFRS 16) 0 0 0 0 0 0 0 0 0 0 7.198

Non-current trade receivables 0 0 0 0 1.252 10 514 768 253 37 0

Deferred taxes 1.141 1.861 1.976 1.099 2.200 3.009 2.234 1.020 802 1.661 3.553

Non-current assets 14.099 14.482 15.183 14.626 16.522 16.797 16.599 15.328 14.340 14.337 23.468

Inventories 1.679 1.252 1.423 2.051 2.553 3.296 3.226 2.077 1.684 2.146 2.692

Current trade receivables 15.991 13.263 13.357 16.010 17.867 15.098 18.013 14.291 26.603 24.590 30.111

Current receivables from joint ventures 0 0 0 0 0 0 0 0 0 0 295

Current contract assets 4.237 8.770 9.810 7.996 7.135 9.587 13.351 15.135 9.059 13.135 14.756

Other current assets 2.015 1.882 2.259 3.639 4.250 4.652 3.685 3.355 5.616 3.873 4.676

Cash and cash equivalents 1.129 995 652 5.236 10.668 14.667 7.505 8.614 11.521 21.298 29.254

Current assets 25.051 26.162 27.501 34.932 42.473 47.300 45.780 43.472 54.483 65.042 81.784

Assets 39.150 40.644 42.684 49.558 58.995 64.097 62.379 58.800 68.823 79.379 105.252

in '000 € 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Equity & Liabilities

Share capital 17.719 17.719 17.719 17.719 17.719 17.719 17.719 17.719 17.719 17.719 17.719

Additional paid-in capital 46.456 46.456 46.456 46.456 3.696 3.696 1.991 0 0 0 198

Other components of equity 0 0 0 0 -450 -1.272 -935 -1.128 -932 -985 -1.212

Revenue reserve -43.061 -40.685 -38.279 -34.690 11.630 15.995 20.415 22.199 27.175 31.644 40.098

Foreign exchange reconciling item 47 66 51 100 46 47 51 40 38 0 0

Equity 21.161 23.556 25.947 29.585 32.641 36.185 39.241 38.830 44.000 48.378 56.803

Equity ratio 54,1 % 58,0 % 60,8 % 59,7 % 55,3 % 56,5 % 62,9 % 66,0 % 63,9 % 60,9 % 54,0 %

Provisions for pensions 2.745 2.885 3.025 3.150 3.755 5.016 4.557 4.873 4.775 4.804 5.160

Leasing liabilities (IFRS 16) 0 0 0 0 0 0 0 0 0 0 6.102

Other 354 312 399 526 361 335 94 5 0 0 0

Deferred taxes 1.141 1.861 2.185 0 0 0 0 0 0 0 15

Non-current liabilities 4.240 5.058 5.609 3.676 4.116 5.351 4.651 4.878 4.775 4.804 11.277

Current debt 1.469 0 6 0 0 0 0 0 0 0 0

Current leasing liabilities (IFRS 16) 0 0 0 0 0 0 0 0 0 0 1.206

Current trade accounts payable 3.044 2.789 3.420 3.246 2.588 5.111 3.533 2.568 2.038 3.273 7.567

Contractual liabilities 2.983 2.151 925 5.481 10.625 9.417 7.136 4.850 5.436 7.865 9.129

Provisions 572 581 952 1.159 1.101 832 484 530 1.281 1.235 6.044

Provisions for taxes 84 84 0 546 1.259 373 61 42 723 1.714 329

Other current liabilities 5.597 6.425 5.825 5.865 6.665 6.828 7.273 7.102 10.570 12.110 12.897

Current liabilities 13.749 12.030 11.128 16.297 22.238 22.561 18.487 15.092 20.048 26.197 37.172

Equity & Liabilities 39.150 40.644 42.684 49.558 58.995 64.097 62.379 58.800 68.823 79.379 105.252

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 35

The consolidated revenues have increased with a CAGR of 9.1 % since 2009 from € 37.2

million to € 88.8 million.

The main cost blocks at IVU are mainly the cost of materials, personnel expenses, and other

operating expenses. The cost of materials is divided on the one hand into cost of purchased

goods (e.g. IVU purchases hardware from third parties), and cost of purchased services on

the other (e.g. services, software, or server capacities at Amazon or IBM for the IVU.cloud).

The costs of materials are mainly variable.

In the last 3-4 years, it seems that IVU is obviously carrying out external services in-house

again, thus increasing the degree of its own value chain. The cost of purchased services

in % of revenue has fallen slightly in recent years, while personnel expenses in % of revenue

have risen slightly. Overall, however, this has improved the margin by around 5 per-

centage points. Whereas the two cost blocks together accounted for 59.8 % of revenue in

2016, the ratio was only 54.7 % in 2019. This leads to the conclusion that IVU can perform

some work more cheaply/efficiently than external service providers due to its own added

value.

Other operating expenses consist almost equally of selling expenses, operating expenses,

administrative expenses, and others. Other operating expenses are almost equally divided

between selling expenses, operating expenses, administrative expenses and others. It is

impressive that selling expenses increased only marginally and grew at a much slower rate

than sales growth.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 36

Looking ahead to 2016, the dip in earnings is immediately apparent. In 2016, two one-offs

occurred when two customers canceled projects that had already been started without rea-

son, one in Israel and the other in Colombia. IVU has shown the costs of € 2.2 million already

incurred for these projects under other operating expenses49, while on the other hand, the

corresponding revenues were missing. This had a strong impact on profitability in 2016 but

should be declared as a one-off effect. Of course, this does not mean that something like

this will not happen again, but it also shows that entrepreneurial success is not only straight-

forward but that unforeseen and financially burdensome effects can also occur, especially

in the project business.

Overall, IVU was able to reduce the cost ratio from 17.2 % (2009) to 10.9 % (2019) through

scaling, thereby contributing to an increase in margins.

The partially opposing effects that were mentioned above resulted in a relatively stable EBIT

margin of 8-9 %. Looking at 2009, however, it was 5.7 %, in 2019 it was 11.8 %.

At the tax level, IVU has an income tax rate in the low double-digit range, which is due to

the considerable tax loss carryforwards which IVU has and will continue to have in the future

to ensure a tax rate of less than 30 % until the loss carryforwards are used up. The income

taxes incurred annually despite these loss carryforwards relate on the one hand to taxed

profits of foreign subsidiaries (which have no loss carryforwards) and on the other hand to

the minimum taxation of IVU AG under Section 8 para. 1 sentence 1 of the German

Corporation Tax Act (KStG) in conjunction with Section 10d para. sentence 1 of the German

Income Tax Act (EStG).

49 Annual Report 2016, p. 34

One-Off

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 37

The German (corporate) tax law is relatively complicated and generally provides for the

offsetting of losses, but there is the special feature that a loss carried forward into the

following year is only deductible up to € 1 million without restriction, but the portion exceeding

this amount may only be deducted at 60 %. The remainder must still be carried forward into

the following years as loss carryforward. As a result, 40% of the portion exceeding € 1 million

is subject to taxation.

I would like to give a small example to illustrate this. Imagine a company with a loss carried

forward of € 5 million. In year 1 the company makes a profit of € 3 million. It would be too

easy not to pay taxes in year 1 (+€ 3 million ./. € 3 million = € 0 profit) and to carry forward

a remaining loss of € 2 million. However, if the minimum taxation is applied, the unlimited

deductible loss carryforward of € 1 million must first be taken into account from the € 3 million

profit. The loss exceeding this amount (€ 3 million ./. € 1 million = € 2 million) may only be

taken into account to the extent of 60 %: € 2 million x 60 % = € 1.2 million. Thus, in year 1

the company has used a loss carryforward of € 1 million + € 1.2 million = € 2.2 million,

although the profit is € 3 million and the loss carryforward is € 5 million. The remaining loss

carried forward for year 2 is therefore still € 2.8 million. However, the taxable profit in year 1

is not € 0 but € 3 million ./. 2.2 million = € 0.8 million. If the tax rate is 30%, taxes of

€ 0.24 million would have to be paid, even though the loss carryforwards exceeded EBT and

would have been fully sufficient. As a securities analyst, however, we only see the EBT of

€ 3 million in the income statement, which is why the taxes paid result in a tax rate of 8 %.

The same is the case with IVU, as the company still has loss carryforwards for corporation

tax (€ 28.6 million) and trade tax (€ 23.9 million) as of December 31, 201950.

50 Annual Report 2019, p. 72

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 38

3.3. Cash Flow Statement

The cash flow statement is also relatively clean. The EBITDA can be reconciled to the gross

operating cash flow mainly through changes in provisions as well as interest and taxes paid.

You then can calculate the cash flow from operating activities by taking into account the

changes in working capital.

Remember what I wrote regarding "actual profitability" in chapter 1. I argue that IVU has

booked a large allocation to provisions in 2019 to (supposedly!) depress the result. But the

cash flow statement is less manipulable! EBITDA has increased by 56 % compared to 2019.

If we now add the change in provisions of € 4.8 million, which is shown as non-cash, the

actual cash EBITDA is € 17.6 million, which is 100 % higher than the result from 2018!

IVU spends approx. € 1 million per year as Capex which is relatively low, so that an increase

in earnings increases the FCF disproportionately.

The financing cash flow only consists of the dividend paid out and, from 2019, additionally

of payments for the repayment of leasing liabilities under IFRS 16.

in '000 € 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Group P&L

Salves revenues 37.285 39.077 39.890 44.440 46.250 47.236 58.064 59.758 71.065 77.798 88.787

% YOY 4,8 % 2,1 % 11,4 % 4,1 % 2,1 % 22,9 % 2,9 % 18,9 % 9,5 % 14,1 %

Other operating income 652 775 830 520 675 1.074 795 426 898 1.400 380

in % of revenue 1,7 % 2,0 % 2,1 % 1,2 % 1,5 % 2,3 % 1,4 % 0,7 % 1,3 % 1,8 % 0,4 %

Cost of materials -10.325 -10.372 -10.303 -13.157 -12.165 -11.230 -18.762 -17.345 -24.245 -27.127 -27.039

Cost of purchased goods -7.326 -6.772 -7.039 -8.617 -7.962 -6.606 -11.532 -10.240 -16.132 -17.740 -18.195

Cost of purchased services -2.998 -3.600 -3.264 -4.540 -4.203 -4.624 -7.230 -7.105 -8.113 -9.387 -8.844

in % of revenue -8,0 % -9,2 % -8,2 % -10,2 % -9,1 % -9,8 % -12,5 % -11,9 % -11,4 % -12,1 % -10,0 %

in % of revenue -27,7 % -26,5 % -25,8 % -29,6 % -26,3 % -23,8 % -32,3 % -29,0 % -34,1 % -34,9 % -30,5 %

Gross profit 27.612 29.480 30.417 31.803 34.760 37.080 40.097 42.839 47.718 52.071 62.128

Gross profit margin 74,1 % 75,4 % 76,3 % 71,6 % 75,2 % 78,5 % 69,1 % 71,7 % 67,1 % 66,9 % 70,0 %

% YOY 6,8 % 3,2 % 4,6 % 9,3 % 6,7 % 8,1 % 6,8 % 11,4 % 9,1 % 19,3 %

Personnel expenses -18.335 -18.828 -19.632 -21.419 -22.765 -23.887 -25.205 -28.614 -31.224 -33.880 -39.712

in % of revenue -49,2 % -48,2 % -49,2 % -48,2 % -49,2 % -50,6 % -43,4 % -47,9 % -43,9 % -43,5 % -44,7 %

in % of gross profit -66,4 % -63,9 % -64,5 % -67,3 % -65,5 % -64,4 % -62,9 % -66,8 % -65,4 % -65,1 % -63,9 %

Other operating expenses -6.388 -7.103 -6.792 -6.048 -7.150 -7.895 -8.837 -11.318 -9.120 -10.074 -9.690

in % of revenue -17,1 % -18,2 % -17,0 % -13,6 % -15,5 % -16,7 % -15,2 % -18,9 % -12,8 % -12,9 % -10,9 %

EBITDA 2.889 3.549 3.993 4.336 4.845 5.298 6.055 2.907 7.374 8.117 12.726

EBITDA margin 7,7 % 9,1 % 10,0 % 9,8 % 10,5 % 11,2 % 10,4 % 4,9 % 10,4 % 10,4 % 14,3 %

in % of revenue 22,8 % 12,5 % 8,6 % 11,7 % 9,3 % 14,3 % -52,0 % 153,7 % 10,1 % 56,8 %

Depreciation on non-current assets -762 -827 -1.050 -955 -989 -951 -1.188 -1.513 -1.242 -1.414 -2.245

in % of revenue -2,0 % -2,1 % -2,6 % -2,1 % -2,1 % -2,0 % -2,0 % -2,5 % -1,7 % -1,8 % -2,5 %

EBIT 2.127 2.722 2.943 3.381 3.856 4.347 4.867 1.394 6.132 6.703 10.481

by segments:

Segment Public Transport 6.977 7.683 8.139 9.495 10.644 12.638 10.181 6.705 11.130 12.543

Segment Logistics 1.125 811 1.323 -125 1.675 1.399 1.641 1.400 1.568 1.378

Segment Central Services -5.975 -5.772 -6.519 -5.989 -8.463 -9.690 -6.955 -6.711 -6.566 -7.218

2.127 2.722 2.943 3.381 3.856 4.347 4.867 1.394 6.132 6.703

EBIT margin 5,7 % 7,0 % 7,4 % 7,6 % 8,3 % 9,2 % 8,4 % 2,3 % 8,6 % 8,6 % 11,8 %

by segments:

Segment Public Transport 22,5 % 22,7 % 23,7 % 24,1 % 26,3 % 30,2 % 19,4 % 12,4 % 17,0 % 16,9 % -

Segment Logistics 18,2 % 15,5 % 23,8 % -2,5 % 28,9 % 25,9 % 30,4 % 24,7 % 28,5 % 36,6 % -

Segment Central Services - - - - - - - - - - -

% YOY 28,0 % 8,1 % 14,9 % 14,0 % 12,7 % 12,0 % -71,4 % 339,9 % 9,3 % 56,4 %

Financial income 12 18 18 14 27 17 7 2 1 15 2

Financial expenses -206 -194 -189 -344 -292 -233 -230 -172 -178 -190 -278

Result from investments accounted for using the quity-method 0 0 0 0 0 0 0 0 0 0 -119

EBT 1.933 2.546 2.772 3.051 3.591 4.131 4.644 1.224 5.955 6.528 10.086

EBT margin 5,2 % 6,5 % 6,9 % 6,9 % 7,8 % 8,7 % 8,0 % 2,0 % 8,4 % 8,4 % 11,4 %

% YOY 31,7 % 8,9 % 10,1 % 17,7 % 15,0 % 12,4 % -73,6 % 386,5 % 9,6 % 54,5 %

Actual income taxes -122 -170 -157 -770 -934 -208 -419 -131 -848 -1.228 -1.278

Actual income tax rate -6,3 % -6,7 % -5,7 % -25,2 % -26,0 % -5,0 % -9,0 % -10,7 % -14,2 % -18,8 % -12,7 %

Deferred taxes 0 0 -209 1.090 1.170 442 -624 -1.300 -131 859 1.772

EAT 1.811 2.376 2.406 3.371 3.827 4.365 3.601 -207 4.976 6.159 10.580

EAT margin 4,9 % 6,1 % 6,0 % 7,6 % 8,3 % 9,2 % 6,2 % -0,3 % 7,0 % 7,9 % 11,9 %

% YOY 31,2 % 1,3 % 40,1 % 13,5 % 14,1 % -17,5 % -105,7 % -2503,9 % 23,8 % 71,8 %

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 39

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EBT 1.933 2.546 2.772 3.051 3.591 4.131 4.644 1.224 5.955 6.528 10.086

Net interest income 194 176 171 330 265 216 223 170 177 175 276

Share of profit of associates and joint ventures 0 0 0 0 0 0 0 0 0 0 119

EBIT 2.127 2.722 2.943 3.381 3.856 4.347 4.867 1.394 6.132 6.703 10.481

Depreciation of fixed assets 762 827 1.050 955 989 951 1.188 1.513 1.242 1.414 2.245

EBITDA 2.889 3.549 3.993 4.336 4.845 5.298 6.055 2.907 7.374 8.117 12.726

Change in provisions -11 9 427 332 -76 -198 -319 83 936 -17 4.826

Other non-cash expenses/income -10 18 7 62 -55 60 3 -11 662 -9 7

Non-cash expenses/income from right of use and leasing liabilities 0 0 0 0 0 0 0 0 0 0 110

Result from the disposal of assets 17 -1 -2 0 0 0 0 0 1 -2 0

Earnings from dissolved special positions -26 0 0 0 0 0 0 0 0 0 0

Equity-settled shares-based payment 0 0 0 0 0 0 0 0 0 0 198

Interest paid -206 -194 -167 -344 -292 -233 -230 -172 -178 -190 -232

Income taxes paid -76 -170 -201 -237 -356 -1.147 -714 -128 -94 -237 -3.009

Gross operating cashflow 2.577 3.211 4.057 4.149 4.066 3.780 4.795 2.679 8.701 7.662 14.626

Δ Inventories -236 427 -171 -628 -502 -743 70 1.149 -370 -462 -546

Δ Receivables and other assets -389 -1.672 -1.511 -2.219 -2.860 1.157 -6.226 1.990 -7.923 -99 -7.881

Δ Liabilities (excluding provisions) 901 -399 -1.716 4.090 5.087 1.063 -3.655 -3.209 3.388 5.207 6.345

Cash flow from operating activities 2.853 1.567 659 5.392 5.791 5.257 -5.016 2.609 3.796 12.308 12.544

Payments made for investments in fixed assets -360 -222 -1.022 -807 -386 -1.275 -1.267 -1.502 -993 -774 -1.053

Receipts from disposal of fixed assets 2 2 5 0 0 0 0 0 2 0 0

Payments for the acquisition of shares in consolidated subsidiearies 0 0 0 0 0 0 0 0 101 0 0

Payment for the acquisition of shares in associated companies 0 0 0 0 0 0 0 0 0 0 -119

Interest received 7 18 18 14 27 17 7 2 1 15 2

Cash flow from investing activities -351 -202 -999 -793 -359 -1.258 -1.260 -1.500 -889 -759 -1.170

Free-Cashflow (FCF) 2.502 1.365 -340 4.599 5.432 3.999 -6.276 1.109 2.907 11.549 11.374

Payment of dividends 0 0 0 0 0 0 -886 0 0 -1.772 -2.126

Repayments of liabilities from Sales & Leaseback dealings -57 -30 -9 -9 0 0 0 0 0 0 0

Cash receipts from the acceptance of current financial liabilities 0 0 6 0 0 0 0 0 0 0 0

Cash payments for repayments of current financial liabilities -635 -1.469 0 -6 0 0 0 0 0 0 0

Cash payments for repayments of non-current financial liabilities -1.030 0 0 0 0 0 0 0 0 0 0

Payments for the repayment of leasing liabilities 0 0 0 0 0 0 0 0 0 0 -1.292

Cash flow from financing activities -1.722 -1.499 -3 -15 0 0 -886 0 0 -1.772 -3.418

Net change in cash and cash equivalents 780 -134 -343 4.584 5.432 3.999 -7.162 1.109 2.907 9.777 7.956

Cash and cash equivalents at the beginning of the period 349 1.129 995 652 5.236 10.668 14.667 7.505 8.614 11.521 21.298

Cash and cash equivalents at the end of the period 1.129 995 652 5.236 10.668 14.667 7.505 8.614 11.521 21.298 29.254

IVU makes good progress

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 40

4. Balance Sheet Analysis

All key earnings figures have improved significantly over time, although the base year 2010

already delivered satisfactory, but not yet exceptionally good, results. In 2019, shareholders

were pleased with a RoE of 20.1%, a RoI of 11.2, a RoA of 11.5%, and a RoTCE of 33.9%.

IVU has closed the last decade with record figures! (The definition of the formulas used to

calculate the ratios can be found in the Appendix).

I particularly like companies that can achieve a constant and high RoE.

Imagine a hypothetical company that makes a profit of € 20 million in t=1. Assume the com-

pany has equity of € 100 million which results in an RoE of 20 %. If the management does

neither reinvest the profit of 20 in the company nor pays a dividend, the incremental € 20

million on the bank only earn 0 % (in the worst case penalty interest becomes due). The

profit in t=2 is still 20, but the RoE decreases to 20 / 120 = 16.6 %. In t=3 the RoE decreases

to 20 / 140 = 14.2 %. As you can see, the RoE comes down very fast, if the profit is not

reinvested into the business.

In order to achieve a stable RoE over years, the management must reinvest the profits.

If management takes these € 20 million and hires new staff, the profit may increase by 20 %

to € 24 million in t=2, the RoE remains stable at 24 / 120 = 20 %.

This is precisely the case at IVU. The RoE has fluctuated around 10 % in recent years, but

in 2019 it almost doubled to 20 %. Combine this insight with the fact that hardly any dividends

have been paid in recent years and you can see why IVU has performed so well fundamen-

tally in recent years and why I expect it to continue to do so in the future.

The equity ratio is relatively stable and fluctuates slightly around the average value of ap-

proximately 60 % (what makes a high RoE more outstanding because it is not levered),

although a decline can be observed since 2016. If you take a look at the balance sheet,

equity has increased by +46.3% since 2016, but some liabilities have increased even more.

The main ones are Provisions (think of the latent veiling of profitability by the management

– especially in 2019 – which I wrote about in chapter 1!), current trade payables (not bad in

my opinion, since it represents working capital on the liabilities side) and leasing liabilities

according to the new IFRS 16 accounting from 2019 on.

IVU has always been debt-free and therefore has a negative gearing, as the company has

a net cash position. Accordingly, the dynamic debt ratio and the net debt/EBITDA are also

negative. The fact that the business model is asset-light is reflected in a low rate of

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Key figures on earnings & profitability:

Return on Equity (RoE) 10,1 % 9,7 % 12,1 % 12,3 % 12,7 % 9,5 % n/a 12,0 % 13,3 % 20,1 %

Return on Sales (RoS) 6,1 % 6,0 % 7,6 % 8,3 % 9,2 % 6,2 % -0,3 % 7,0 % 7,9 % 11,9 %

Return on Investment (RoI) 6,7 % 7,1 % 7,3 % 7,1 % 7,1 % 7,7 % 2,3 % 9,6 % 9,0 % 11,2 %

Return on Assets (RoA) 5,8 % 5,8 % 7,3 % 7,1 % 7,1 % 5,7 % -0,3 % 7,8 % 8,3 % 11,5 %

Return on Tangible Capital Employed (RoTCE) 13,2 % 11,8 % 19,6 % 26,0 % 30,7 % 14,7 % -0,9 % 16,5 % 21,2 % 33,9 %

EBITDA margin 9,1 % 10,0 % 9,8 % 10,5 % 11,2 % 10,4 % 4,9 % 10,4 % 10,4 % 14,2 %

EBIT margin 7,0 % 7,4 % 7,6 % 8,3 % 9,2 % 8,4 % 2,3 % 8,6 % 8,6 % 11,7 %

Capital Turnover Ratio 1,0 x 1,0 x 1,0 x 0,9 x 0,8 x 0,9 x 1,0 x 1,1 x 1,0 x 1,0 x

Cashflow Turnover Ratio 4,0 % 1,7 % 12,1 % 12,5 % 11,1 % -8,6 % 4,4 % 5,3 % 15,8 % 14,1 %

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 41

investment, which indicates the ratio of Capex to operating cash flow. This is also reflected

in a very low fixed asset intensity of 22.3 % in 2019. While the goodwill has remained un-

changed since 2010 at € 11.4 million, the ratio of goodwill divided by equity has declined

steadily from almost 50 % to 20 % recently due to an increase in equity.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Key figures on financial stability:

Equity Ratio 58,0 % 60,8 % 59,7 % 55,3 % 56,5 % 62,9 % 66,0 % 63,9 % 60,9 % 54,0 %

Gearing -2,5 % -0,9 % -16,0 % -30,9 % -38,8 % -17,5 % -20,7 % -24,6 % -42,4 % -49,6 %

Dynamic Debt Ratio -0,4 x n/a -1,0 x -1,9 x -3,5 x n/a -7,2 x -3,7 x -1,8 x -2,5 x

Net debt/EBITDA -0,2 x -0,1 x -1,1 x -2,1 x -2,6 x -1,1 x -2,8 x -1,5 x -2,5 x -2,2 x

Rate of Investment -31,0 % -248,7 % -23,6 % -9,2 % -31,6 % 25,3 % -46,2 % -26,1 % -6,3 % -8,4 %

Growth Rate 58,8 % 156,1 % 133,5 % 53,8 % 174,9 % 106,6 % 79,6 % 79,9 % 54,5 % 46,9 %

Fixed Asset Intensity 35,6 % 35,6 % 29,5 % 28,0 % 26,2 % 26,6 % 26,1 % 20,8 % 18,1 % 22,3 %

Current Asset Intensity 64,4 % 64,4 % 70,5 % 72,0 % 73,8 % 73,4 % 73,9 % 79,2 % 81,9 % 77,7 %

Cover Ratio I 162,7 % 170,9 % 202,3 % 197,6 % 215,4 % 236,4 % 253,3 % 306,8 % 337,4 % 242,0 %

Cover Ratio II 197,6 % 207,8 % 227,4 % 222,5 % 247,3 % 264,4 % 285,2 % 340,1 % 370,9 % 290,1 %

Goodwill in % of Equity 48,2 % 43,7 % 38,4 % 34,8 % 31,4 % 28,9 % 29,2 % 25,8 % 23,5 % 20,0 %

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 42

5. Capital Allocation

IVU's business model is highly cash flow generative and has always generated a positive

Free-Cashflow since 2009, except in two years. In the eleven years from 2009 to 2019,

around € 47.7 million FCF were generated (Gross operating cashflow of € 60.3 million less

€ 12.5 million outflows for working capital).

Since IVU as a software company does not maintain its own production, the Capex is com-

paratively low. While according to the cash flow statement exactly € 9,661 thousand has

been invested since 2009, the total additions according to the fixed assets movement sched-

ule correspond to € 11,466 thousand, which results in a difference of more than € 1.8 million.

The analysis of the additions according to the statement of changes in fixed assets is an

indication of what IVU spends its Capex on; these are mainly investments for industrial prop-

erty rights and licenses and software as well as other assets and office equipment. The latter

amount to between € 600.000 and € 950.000 annually.

Payments for M&A transactions and other investments are. The Company paid out approx-

imately € 4.8 million in dividends and repaid € 3.1 million in financial liabilities in the above

mentioned period.

Thus, the amount of liquid assets has grown over the years from € 0.35 million to € 29 million.

The following chart provides an overview of the figures discussed above and under-

lines the cash-generative business model:

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ∑ ∑

Capex

Capex according to cashflow statement 360 222 1.022 807 386 1.275 1.267 1.502 993 774 1.053 9.661

Capex according to additions (development in intangibles and

PP&E) (without IFRS 16)584 486 1.639 1.275 532 1.663 1.267 1.205 992 770 1.053 11.466 100,0 %

thereof Industrial property rights and licenses, software 183 92 638 259 78 1.028 327 211 292 104 105 3.317 28,9 %

thereof Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0,0 %

thereof Primary intangible assets 0 0 0 0 0 0 0 0 0 0 0 0 0,0 %

thereof Technical equipment and machinery 0 0 245 74 0 0 0 0 0 0 0 319 2,8 %

thereof Other equipment, operating and office equipment 401 394 600 939 439 634 940 677 700 666 944 7.334 64,0 %

thereof Advance payments and assets under construction 0 0 156 3 15 1 0 317 0 0 4 496 4,3 %

Delta -224 -264 -617 -468 -146 -388 0 297 1 4 0 -1.805

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 43

The payout ratio (dividend payout divided by EAT for the previous year) is shown in the

following chart.

While the first dividend was paid out in 2015 from the 2014 profit, the company was last able

to pay out dividends in 2018 and 2019 amounting to around 35% of the previous year's net

income. From the 2019 profit, a dividend of € 0.16 per share was paid in the first half of

2020. With approximately 17.7 million shares, this corresponds to a payout of approximately

€ 2.8 million. Based on the EAT of € 10.58 million generated in 2019, the payout ratio in

2020 is around 26 % and thus almost 8 percentage points below the payout ratio of

the previous year despite a dividend increase of 33 %. The payout ratio is regarded

as very positive since the retention of liquid funds in the company should finance

further growth, provide a comfortable liquidity cushion (to be reduced as a special

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 44

dividend or invested in M&A). At the same time, the payout ratio is so low that a com-

parable dividend could be distributed even in the event of temporary declines in prof-

its.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 45

6. Management / Shareholder

Structure

In 2000/2001, IVU restructured and significantly reduced the size of the Management Board

consisting of the founders. Only Dr. Olaf Schemczyk remained, who was supported by the

Munich entrepreneur Prof. Ernst Denert from 2001 onwards. Mr. Schemczyk left on July 9,

2007, and six months later Frank Kochanski and Martin Müller-Elschner joined the board on

January 1, 2008. After Prof. Dr. Denert also left the board on December 31, 2009, Dr. Helmut

Bergstein joined the board on January 1st, 2010 but left the Board on October 30, 2016.

Today's CEO Müller-Elschner has been a member of the IVU Board of Management for

almost 13 years after he took on the leadership of several projects in the passenger information

area in 1994.51 His two colleagues on the board, Matthias Rust (CTO) and Leon Stuijk (CCO)

joined the company at the end of 2016 and in February 2018 respectively.

I have prepared the following overview for you to better understand the changes in the Ex-

ecutive Board.

Matthias Rust has been a member of the Executive Board since November 2016. He has

been a representative of IVU’s management team since 2005, in which he was responsible

for the logistics division. An IT specialist, he has acquired many years of experience with

public transport IT systems and first assumed management responsibilities at IVU in 1998.52

Leon Struijk joined the Executive Board in February 2018. He has a degree in business

administration from the University of Amsterdam and subsequently gained extensive expe-

rience in executive positions at transport operators. After working at PwC and Connexxion,

he co-founded Qbuzz, which he developed into one of the leading bus companies in the

Netherlands.53

The CEO's strong commitment to the company is also expressed by the insider trans-

actions that have been carried out almost every year (!) since 2008. Mr. Müller-Elschner

has thus acquired over 223,000 shares at an average price of just under € 2.6 and thus

51 https://www.ivu.com/company/management.html 52 https://www.ivu.com/company/management.html 53 https://www.ivu.com/company/management.html

Executive Board 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Martin Müller-Elschner Jan 1 x x x x x x x x x x x x

Matthias Rust Nov 1 x x x x

Leon Struijk Feb 1 x x

Dr. Helmut Bergstein Jan 1 x x x x x Oct 30

Frank Kochanski Jan 1 x x x x x x

Prof. Dr. Ernst Denert x x x x x x x x Dec 31

Dr. Olaf Schemczyk x x x x x x x Jul 9

Dr. Gero Scholz Feb 1 x Jan 31

Dr. Manfred Garben x

Dr. Wolf-Dieter Klemt x

Dr. Herbert Sonntag x

Dr. Joachim Winckler x

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 46

invested € 578,000 over time. He started buying IVU shares when they were still trading

below € 1,0!

According to the 2019 Annual Report, he held exactly 235,000 shares as of December 31,

2019.54 If the transactions carried out in 2020 are deducted from the self-determined number

of 213,635 shares (see below) that he currently holds, the result is exactly 215,000 shares

as of December 31, 2019. The difference to the reported 235,000 shares as of December

31, 2019, probably results from the fact that he already owned 20,000 shares before he

became a member of the Board of Directors and had to disclose the insider purchases.

At a share price of around € 15.9, his shares are worth almost € 3.4 million. He is likely

to have a great personal interest in further increasing share prices.

Date Reporting person Number of

stocks Price Volume Transaction

13.06.2008 Müller-Elschner, Martin 3.000 € 0,85 € 2.550 Acquired

13.06.2008 Müller-Elschner, Martin 3.163 € 0,85 € 2.689 Acquired

13.06.2008 Müller-Elschner, Martin 23.837 € 0,85 € 20.261 Acquired

30.05.2011 Müller-Elschner, Martin 5.000 € 1,43 € 7.150 Acquired

27.06.2011 Müller-Elschner, Martin 5.000 € 1,32 € 6.600 Acquired

22.08.2011 Müller-Elschner, Martin 5.000 € 1,09 € 5.450 Acquired

23.08.2011 Müller-Elschner, Martin 5.000 € 1,05 € 5.250 Acquired

13.12.2011 Müller-Elschner, Martin 5.000 € 1,09 € 5.450 Acquired

29.10.2012 Müller-Elschner, Martin 1.130 € 1,15 € 1.300 Acquired

29.10.2012 Müller-Elschner, Martin 3.870 € 1,15 € 4.451 Acquired

29.10.2012 Müller-Elschner, Martin 2.000 € 1,19 € 2.380 Acquired

29.10.2012 Müller-Elschner, Martin 5.000 € 1,16 € 5.800 Acquired

11.12.2012 Müller-Elschner, Martin 4.800 € 1,27 € 6.096 Acquired

06.02.2013 Müller-Elschner, Martin 2.765 € 1,38 € 3.816 Acquired

08.05.2013 Müller-Elschner, Martin 5.435 € 1,65 € 8.968 Acquired

14.06.2013 Müller-Elschner, Martin 20.000 € 1,50 € 30.000 Acquired

29.08.2013 Müller-Elschner, Martin 5.000 € 1,76 € 8.800 Acquired

16.12.2013 Müller-Elschner, Martin 5.000 € 1,91 € 9.550 Acquired

16.12.2013 Müller-Elschner, Martin 5.000 € 1,86 € 9.300 Acquired

16.12.2013 Müller-Elschner, Martin 5.000 € 1,96 € 9.800 Acquired

06.08.2014 Müller-Elschner, Martin 10.000 € 2,47 € 24.700 Acquired

06.08.2014 Müller-Elschner, Martin 10.000 € 2,45 € 24.500 Acquired

06.10.2014 Müller-Elschner, Martin 5.000 € 2,82 € 14.100 Acquired

06.10.2014 Müller-Elschner, Martin 5.000 € 2,86 € 14.300 Acquired

06.10.2014 Müller-Elschner, Martin 7.200 € 2,76 € 19.872 Acquired

16.12.2016 Müller-Elschner, Martin 22.800 € 2,82 € 64.296 Acquired

14.02.2017 Müller-Elschner, Martin 25.000 € 2,73 € 68.250 Acquired

02.05.2019 Müller-Elschner, Martin 2.500 € 8,00 € 20.000 Acquired

31.05.2019 Müller-Elschner, Martin 5.000 € 8,86 € 44.300 Acquired

08.07.2019 Müller-Elschner, Martin 2.500 € 8,50 € 21.250 Acquired

02.04.2020 Müller-Elschner, Martin 8.634 € 12,39 € 106.975 Acquired

05.06.2020 Müller-Elschner, Martin -5.000 € 16,50 € -82.500 Sold

54 Annual Report 2019, p. 26

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 47

05.06.2020 Müller-Elschner, Martin -4.999 € 16,51 € -82.533 Sold

213.635 € 2,71 € 413.169

Prof. Dr. Herbert Sonntag, one of the five founding partners, is still on the supervisory board

(with chairmanship).

The shareholder structure can only be determined vaguely, as not even Bloomberg provides

complete data.

Since 2019, Daimler has been the largest shareholder, holding 5.25 % or 929,939 shares.

In addition, the founders also hold 22 % of the shares; Prof. Dr. Herbert Sonntag is the only

person who still holds an office at IVU as Chairman of the Supervisory Board.

No exact number of shares can be found publicly for the founders, who are highlighted in

color in the following table. For this reason, the number of shares held was calculated based

on the most recent ownership interest known to IVU and may differ slightly from the actual

number of shares held.

Besides, IVU is aware of individual further block of shares from institutional investors, which

are in the range of 1 - 2 %. In total, however, these shares do not amount to more than 9 -

10 %, according to Investor Relations.

Shareholder Position Ownership Daimler 929.939 5,25 %

Fou

nd

ers

Prof. Dr. Herbert Sonntag 866.000 4,89 %

Dr. Manfred Garben 894.818 5,05 %

Dr. Wolf-Dieter Klemt 272.875 1,54 %

Dr. Olaf Schemczyk 818.625 4,62 %

Dr. Joachim Winckler 519.171 2,93 %

Familie Wiegand 549.294 3,10 %

Exec

uti

ves Martin Müller-Elschner 235.000 1,33 %

Matthias Rust 14.998 0,08 %

Leon Struijk 14.998 0,08 %

Bo

ard

Ute Witt 1.000 0,01 %

Axel Zimmermann 680 0,00 % Other 12.601.762 71,12 % 17.719.160 100,00 %

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 48

7. SWOT

Strengths:

▪ Scalable product

▪ Large growth runway available

▪ Political tailwind as well as from megatrends such as urbanization, mobility, and

digitization

▪ The software solutions cause high switching costs for the customer, which are even

higher the more modules the customer uses. Once IVU has won a customer, the

probability that he will switch to a competitor is relatively low, as this change would

involve enormous effort

▪ Competitive advantage: very powerful optimization algorithms that enable customers

to use vehicles and personnel more efficiently and thus save costs

▪ Cross-selling through continuous integration of the products

▪ Very strong market position (monopoly?)

Weaknesses:

▪ Planning is difficult to implement due to the project's business character. There can

always be delays or even cancellation of projects that have already been started and

for which IVU has already incurred expenses

▪ Certain dependence on politics and budgetary policy/temporary investment

commitment of bus and train companies

Opportunities:

▪ Winning further contracts, especially long-term framework agreements

▪ Through further growth and increasing market capitalization, the company is moving

into the focus of further institutional investors (interest was already evident at

Eigenkapitalforum 2019)

▪ As the share of recurring revenues increases, the perception of the company on the

capital market will change

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 49

Threats:

▪ Project business (cost under coverage with an increased workload, etc.)

▪ Export business means market development risk, political and economic risk abroad

▪ Postponement or cancellation of individual orders for which IVU already has incurred

expenses can have a huge one-off impact on profitability (as seen in 2016)

▪ Payment defaults

▪ Effects of coronavirus are small from today's perspective, but difficult to assess in

the long term

For further risks, I refer to the annual report.

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 50

8. Valuation

Knowing full well that a DCF model is imprecise, especially in the case of strongly growing

companies with margin increases (from when does the margin remain flat?), it nevertheless

serves as an approximation. Scenarios also form a range within which the enterprise value

can move. I have defined two scenarios for this purpose and would like to make one or two

additional comments:

▪ Base case: The basic scenario assumes an annual increase in sales of 10 %, which

is roughly in line with the historical average growth rate, depending on the period

under consideration. Scale effects increase the EBIT margin to 14.3 % by terminal

value, which is perhaps too conservative after 11.8 % were achieved in 2019.

▪ Worst case: In the worst case, sales growth falls to 5 %. From 2021 onwards, a

constant EBIT margin is assumed up to the terminal value.

▪ Best case: The best case assumes significantly higher growth rates and even

stronger economies of scale which result in slightly higher margins compared to the

base case.

▪ In all three scenarios, a one-off income is recorded in other operating income for

2020, which reflects the sale of IVU.elect. In the following years, the ratio, therefore,

returns to a normal level.

▪ The tax rate is planned to take into account the German minimum taxation for

corporations (see page 36). It is assumed that the IFRS EBT corresponds to the

taxable income and that the tax rate is 30%.

▪ The transition to terminal value with a growth rate of 2 % is a significant "decline"

concerning the growth in previous years. But I would feel uncomfortable to put 3 %,

4 %, or 5 % here. This would represent the company value much higher.

▪ I calculate the investments in working capital from the ratio of working capital to sales

of 28 %. Capex is also deducted in % of revenue. The corresponding free cash flows

are discounted with a WACC of 8 % (which I use as standard) and the terminal value

carries a growth rate of 2 %.

▪ The two scenarios are shown below. The colored cells represent my input cells,

which contain the planning premises.

▪ For 2020 the company guides revenues of more than € 90 million and an EBIT of

€ 12.5 million. A disproportionately large share of revenues and earnings will be

generated by license requests in Q4. In this respect, it remains to be seen how 2020

will actually turn out, but I expect somewhat better figures: in 2019, sales of almost

€ 40 million were booked in Q4, even if it was somewhat less in previous years. If

this revenue can also be generated again in Q4 2020, the revenue in 2020, including

the revenue in the first nine months, will be around € 96 million.

Research report: IVU Traffic Technologies AG See disclaimer on last page

Base scenario:

P&L planning:

in '000 € 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TV

P&L

Salves revenues 58.064 59.758 71.065 77.798 88.787 97.666 107.432 118.175 129.993 142.992 157.292 160.437

% YoY 22,9 % 2,9 % 18,9 % 9,5 % 14,1 % 10,0 % 10,0 % 10,0 % 10,0 % 10,0 % 10,0 % 2,0 %

Other operating income 795 426 898 1.400 380 6.000 537 591 650 715 786 802

in % of revenue 1,4 % 0,7 % 1,3 % 1,8 % 0,4 % 6,1 % 0,5 % 0,5 % 0,5 % 0,5 % 0,5 % 0,5 %

Cost of materials -18.762 -17.345 -24.245 -27.127 -27.039 -32.230 -34.915 -37.816 -40.948 -44.328 -47.974 -48.131

in % of revenue -32,3 % -29,0 % -34,1 % -34,9 % -30,5 % -33,0 % -32,5 % -32,0 % -31,5 % -31,0 % -30,5 % -30,0 %

Gross profit 40.097 42.839 47.718 52.071 62.128 71.436 73.054 80.950 89.695 99.380 110.104 113.108

Gross profit margin 69,1 % 71,7 % 67,1 % 66,9 % 70,0 % 73,1 % 68,0 % 68,5 % 69,0 % 69,5 % 70,0 % 70,5 %

Personnel expenses -25.205 -28.614 -31.224 -33.880 -39.712 -43.950 -48.022 -52.470 -57.327 -62.631 -68.422 -69.309

in % of revenue -43,4 % -47,9 % -43,9 % -43,5 % -44,7 % -45,0 % -44,7 % -44,4 % -44,1 % -43,8 % -43,5 % -43,2 %

Other operating expenses -8.837 -11.318 -9.120 -10.074 -9.690 -10.255 -11.280 -12.408 -13.649 -15.014 -16.516 -16.846

in % of revenue -15,2 % -18,9 % -12,8 % -12,9 % -10,9 % -10,5 % -10,5 % -10,5 % -10,5 % -10,5 % -10,5 % -10,5 %

EBITDA 6.055 2.907 7.374 8.117 12.726 17.232 13.751 16.072 18.719 21.735 25.167 26.953

EBITDA margin 10,4 % 4,9 % 10,4 % 10,4 % 14,3 % 17,6 % 12,8 % 13,6 % 14,4 % 15,2 % 16,0 % 16,8 %

Depreciation on non-current assets -1.188 -1.513 -1.242 -1.414 -2.245 -2.442 -2.686 -2.954 -3.250 -3.575 -3.932 -4.011

in % of revenue -2,0 % -2,5 % -1,7 % -1,8 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 %

EBIT 4.867 1.394 6.132 6.703 10.481 14.790 11.066 13.117 15.469 18.160 21.234 22.943

EBIT margin 8,4 % 2,3 % 8,6 % 8,6 % 11,8 % 15,1 % 10,3 % 11,1 % 11,9 % 12,7 % 13,5 % 14,3 %

Financial income 7 2 1 15 2 0 0 0 0 0 0 0

Financial expenses -230 -172 -178 -190 -278 -300 -300 -300 -300 -300 -300 -300

Result from investments accounted for using the quity-method 0 0 0 0 -119 -119 -119 -119 -119 -119 -119 -119

EBT 4.644 1.224 5.955 6.528 10.086 14.371 10.647 12.698 15.050 17.741 20.815 22.524

Actual income taxes -419 -131 -848 -1.228 -1.278 -1.605 -1.158 -1.404 -3.792 -5.322 -6.245 -6.757

Actual income tax rate -9,0 % -10,7 % -14,2 % -18,8 % -12,7 % -11,2 % -10,9 % -11,1 % -25,2 % -30,0 % -30,0 % -30,0 %

Deferred taxes -624 -1.300 -131 859 1.772 0 0 0 0 0 0 0

EAT 3.601 -207 4.976 6.159 10.580 12.766 9.489 11.295 11.258 12.419 14.571 15.766

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 52

Cash flow planning:

in '000 € 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TV

Reconcilation to Free-Cashflow

EBIT 4.867 1.394 6.132 6.703 10.481 14.790 11.066 13.117 15.469 18.160 21.234 22.943

Depreciation of fixed assets 1.188 1.513 1.242 1.414 2.245 2.442 2.686 2.954 3.250 3.575 3.932 4.011

EBITDA 6.055 2.907 7.374 8.117 12.726 17.232 13.751 16.072 18.719 21.735 25.167 26.953

Change in provisions -319 83 936 -17 4.826 0 0 0 0 0 0 0

Interest paid -230 -172 -178 -190 -232

Income taxes paid -714 -128 -94 -237 -3.009 -1.605 -1.158 -1.404 -3.792 -5.322 -6.245 -6.757

Gross operating cashflow 4.792 2.690 8.038 7.673 14.311 15.627 12.594 14.668 14.927 16.413 18.922 20.196

Delta Working Capital -9.811 -70 -4.905 4.646 -2.082 -2.110 -2.735 -3.008 -3.309 -3.640 -4.004 -881

Cash flow from operating activities -5.019 2.620 3.133 12.319 12.229 13.517 9.859 11.660 11.618 12.773 14.918 19.316

Capex -1.267 -1.502 -993 -774 -1.053 -1.000 -1.100 -1.200 -1.300 -1.400 -1.500 -1.600

Payments for the repayment of leasing liabilities 0 0 0 0 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292

Free Cashflow (FCF) -6.286 1.118 2.140 11.545 9.884 11.225 7.467 9.168 9.026 10.081 12.126 16.424

Present Value 10.393 6.402 7.278 6.634 6.861 7.642 172.494

∑ Present Value 217.704

thereof TV 79,2 %

Cash as of 30.09.2020 35.462

Debt as of 30.09.2020 0

Accrual for pensions as of 30.09.2020 -5.151

Equity Value 248.015

Outstanding stock as of 30.09.2020 17.719

Equity Value per share (EUR) 14,00

Current stock price (EUR) 15,80

Upside -11,4 %

WACC-Approach => FCF excluding interest paid

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 53

Worst case scenario:

P&L planning:

in '000 € 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TV

P&L

Salves revenues 58.064 59.758 71.065 77.798 88.787 97.666 104.991 110.240 115.752 121.540 127.617 130.169

% YoY 22,9 % 2,9 % 18,9 % 9,5 % 14,1 % 10,0 % 7,5 % 5,0 % 5,0 % 5,0 % 5,0 % 2,0 %

Other operating income 795 426 898 1.400 380 6.000 525 551 579 608 638 651

in % of revenue 1,4 % 0,7 % 1,3 % 1,8 % 0,4 % 6,1 % 0,5 % 0,5 % 0,5 % 0,5 % 0,5 % 0,5 %

Cost of materials -18.762 -17.345 -24.245 -27.127 -27.039 -29.743 -31.974 -33.572 -35.251 -37.013 -38.864 -39.641

in % of revenue -32,3 % -29,0 % -34,1 % -34,9 % -30,5 % -30,5 % -30,5 % -30,5 % -30,5 % -30,5 % -30,5 % -30,5 %

Gross profit 40.097 42.839 47.718 52.071 62.128 73.923 73.542 77.219 81.080 85.134 89.391 91.179

Gross profit margin 69,1 % 71,7 % 67,1 % 66,9 % 70,0 % 75,7 % 70,0 % 70,0 % 70,0 % 70,0 % 70,0 % 70,0 %

Personnel expenses -25.205 -28.614 -31.224 -33.880 -39.712 -43.683 -46.959 -49.307 -51.773 -54.361 -57.079 -58.221

in % of revenue -43,4 % -47,9 % -43,9 % -43,5 % -44,7 % -44,7 % -44,7 % -44,7 % -44,7 % -44,7 % -44,7 % -44,7 %

Other operating expenses -8.837 -11.318 -9.120 -10.074 -9.690 -10.659 -11.458 -12.031 -12.633 -13.265 -13.928 -14.206

in % of revenue -15,2 % -18,9 % -12,8 % -12,9 % -10,9 % -10,9 % -10,9 % -10,9 % -10,9 % -10,9 % -10,9 % -10,9 %

EBITDA 6.055 2.907 7.374 8.117 12.726 19.581 15.124 15.880 16.674 17.508 18.383 18.751

EBITDA margin 10,4 % 4,9 % 10,4 % 10,4 % 14,3 % 20,0 % 14,4 % 14,4 % 14,4 % 14,4 % 14,4 % 14,4 %

Depreciation on non-current assets -1.188 -1.513 -1.242 -1.414 -2.245 -2.470 -2.655 -2.787 -2.927 -3.073 -3.227 -3.291

in % of revenue -2,0 % -2,5 % -1,7 % -1,8 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 %

EBIT 4.867 1.394 6.132 6.703 10.481 17.111 12.469 13.093 13.747 14.435 15.157 15.460

EBIT margin 8,4 % 2,3 % 8,6 % 8,6 % 11,8 % 17,5 % 11,9 % 11,9 % 11,9 % 11,9 % 11,9 % 11,9 %

Financial income 7 2 1 15 2 0 0 0 0 0 0 0

Financial expenses -230 -172 -178 -190 -278 -300 -300 -300 -300 -300 -300 -300

Result from investments accounted for using the quity-method 0 0 0 0 -119 -119 -119 -119 -119 -119 -119 -119

EBT 4.644 1.224 5.955 6.528 10.086 16.692 12.050 12.674 13.328 14.016 14.738 15.041

Actual income taxes -419 -131 -848 -1.228 -1.278 -1.883 -1.326 -1.401 -3.942 -4.205 -4.421 -4.512

Actual income tax rate -9,0 % -10,7 % -14,2 % -18,8 % -12,7 % -11,3 % -11,0 % -11,1 % -29,6 % -30,0 % -30,0 % -30,0 %

Deferred taxes -624 -1.300 -131 859 1.772 0 0 0 0 0 0 0

EAT 3.601 -207 4.976 6.159 10.580 14.809 10.724 11.273 9.387 9.811 10.316 10.529

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 54

Cash flow planning:

in '000 € 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TV

Reconcilation to Free-Cashflow

EBIT 4.867 1.394 6.132 6.703 10.481 17.111 12.469 13.093 13.747 14.435 15.157 15.460

Depreciation of fixed assets 1.188 1.513 1.242 1.414 2.245 2.470 2.655 2.787 2.927 3.073 3.227 3.291

EBITDA 6.055 2.907 7.374 8.117 12.726 19.581 15.124 15.880 16.674 17.508 18.383 18.751

Change in provisions -319 83 936 -17 4.826 0 0 0 0 0 0 0

Interest paid -230 -172 -178 -190 -232

Income taxes paid -714 -128 -94 -237 -3.009 -1.883 -1.326 -1.401 -3.942 -4.205 -4.421 -4.512

Gross operating cashflow 4.792 2.690 8.038 7.673 14.311 17.698 13.798 14.479 12.733 13.303 13.962 14.239

Delta Working Capital -9.811 -70 -4.905 4.646 -2.082 -2.110 -2.051 -1.470 -1.543 -1.621 -1.702 -715

Cash flow from operating activities -5.019 2.620 3.133 12.319 12.229 15.587 11.747 13.010 11.189 11.683 12.261 13.524

Capex -1.267 -1.502 -993 -774 -1.053 -1.000 -1.100 -1.200 -1.300 -1.400 -1.500 -1.600

Payments for the repayment of leasing liabilities 0 0 0 0 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292

Free Cashflow (FCF) -6.286 1.118 2.140 11.545 9.884 13.295 9.355 10.518 8.597 8.991 9.469 10.632

Present Value 12.310 8.020 8.349 6.319 6.119 5.967 111.668

∑ Present Value 158.753

thereof TV 70,3 %

Cash as of 30.09.2020 35.462

Debt as of 30.09.2020 0

Accrual for pensions as of 30.09.2020 -5.151

Equity Value 189.064

Outstanding stock as of 30.09.2020 17.719

Equity Value per share (EUR) 10,67

Current stock price (EUR) 15,80

Upside -32,5 %

WACC-Approach => FCF excluding interest paid

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 55

Best case scenario:

P&L planning:

in '000 € 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TV

P&L

Salves revenues 58.064 59.758 71.065 77.798 88.787 97.666 112.316 131.971 158.365 186.079 213.991 218.270

% YoY 22,9 % 2,9 % 18,9 % 9,5 % 14,1 % 10,0 % 15,0 % 17,5 % 20,0 % 17,5 % 15,0 % 2,0 %

Other operating income 795 426 898 1.400 380 6.000 562 660 792 930 1.070 1.091

in % of revenue 1,4 % 0,7 % 1,3 % 1,8 % 0,4 % 6,1 % 0,5 % 0,5 % 0,5 % 0,5 % 0,5 % 0,5 %

Cost of materials -18.762 -17.345 -24.245 -27.127 -27.039 -32.230 -35.941 -40.911 -47.509 -55.824 -64.197 -65.481

in % of revenue -32,3 % -29,0 % -34,1 % -34,9 % -30,5 % -33,0 % -32,0 % -31,0 % -30,0 % -30,0 % -30,0 % -30,0 %

Gross profit 40.097 42.839 47.718 52.071 62.128 71.436 76.936 91.720 111.647 131.186 150.863 153.881

Gross profit margin 69,1 % 71,7 % 67,1 % 66,9 % 70,0 % 73,1 % 68,5 % 69,5 % 70,5 % 70,5 % 70,5 % 70,5 %

Personnel expenses -25.205 -28.614 -31.224 -33.880 -39.712 -43.950 -49.980 -58.067 -68.889 -80.014 -90.946 -91.674

in % of revenue -43,4 % -47,9 % -43,9 % -43,5 % -44,7 % -45,0 % -44,5 % -44,0 % -43,5 % -43,0 % -42,5 % -42,0 %

Other operating expenses -8.837 -11.318 -9.120 -10.074 -9.690 -10.255 -11.232 -12.537 -14.253 -16.282 -18.189 -18.553

in % of revenue -15,2 % -18,9 % -12,8 % -12,9 % -10,9 % -10,5 % -10,0 % -9,5 % -9,0 % -8,8 % -8,5 % -8,5 %

EBITDA 6.055 2.907 7.374 8.117 12.726 17.232 15.724 21.115 28.506 34.890 41.728 43.654

EBITDA margin 10,4 % 4,9 % 10,4 % 10,4 % 14,3 % 17,6 % 14,0 % 16,0 % 18,0 % 18,8 % 19,5 % 20,0 %

Depreciation on non-current assets -1.188 -1.513 -1.242 -1.414 -2.245 -2.442 -2.808 -3.299 -3.959 -4.652 -5.350 -5.457

in % of revenue -2,0 % -2,5 % -1,7 % -1,8 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 % -2,5 %

EBIT 4.867 1.394 6.132 6.703 10.481 14.790 12.916 17.816 24.547 30.238 36.378 38.197

EBIT margin 8,4 % 2,3 % 8,6 % 8,6 % 11,8 % 15,1 % 11,5 % 13,5 % 15,5 % 16,3 % 17,0 % 17,5 %

Financial income 7 2 1 15 2 0 0 0 0 0 0 0

Financial expenses -230 -172 -178 -190 -278 -300 -300 -300 -300 -300 -300 -300

Result from investments accounted for using the quity-method 0 0 0 0 -119 -119 -119 -119 -119 -119 -119 -119

EBT 4.644 1.224 5.955 6.528 10.086 14.371 12.497 17.397 24.128 29.819 35.959 37.778

Actual income taxes -419 -131 -848 -1.228 -1.278 -1.605 -1.380 -2.424 -7.238 -8.946 -10.788 -11.333

Actual income tax rate -9,0 % -10,7 % -14,2 % -18,8 % -12,7 % -11,2 % -11,0 % -13,9 % -30,0 % -30,0 % -30,0 % -30,0 %

Deferred taxes -624 -1.300 -131 859 1.772 0 0 0 0 0 0 0

EAT 3.601 -207 4.976 6.159 10.580 12.766 11.118 14.974 16.889 20.873 25.172 26.445

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 56

Cash flow planning:

in '000 € 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TV

Reconcilation to Free-Cashflow

EBIT 4.867 1.394 6.132 6.703 10.481 14.790 12.916 17.816 24.547 30.238 36.378 38.197

Depreciation of fixed assets 1.188 1.513 1.242 1.414 2.245 2.442 2.808 3.299 3.959 4.652 5.350 5.457

EBITDA 6.055 2.907 7.374 8.117 12.726 17.232 15.724 21.115 28.506 34.890 41.728 43.654

Change in provisions -319 83 936 -17 4.826 0 0 0 0 0 0 0

Interest paid -230 -172 -178 -190 -232

Income taxes paid -714 -128 -94 -237 -3.009 -1.605 -1.380 -2.424 -7.238 -8.946 -10.788 -11.333

Gross operating cashflow 4.792 2.690 8.038 7.673 14.311 15.627 14.345 18.692 21.267 25.944 30.940 32.321

Delta Working Capital -9.811 -70 -4.905 4.646 -2.082 -2.110 -4.102 -5.503 -7.390 -7.760 -7.815 -1.198

Cash flow from operating activities -5.019 2.620 3.133 12.319 12.229 13.517 10.243 13.188 13.877 18.184 23.125 31.122

Capex -1.267 -1.502 -993 -774 -1.053 -1.000 -1.100 -1.200 -1.300 -1.400 -1.500 -1.600

Payments for the repayment of leasing liabilities 0 0 0 0 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292 -1.292

Free Cashflow (FCF) -6.286 1.118 2.140 11.545 9.884 11.225 7.851 10.696 11.285 15.492 20.333 28.230

Present Value 10.393 6.731 8.491 8.295 10.544 12.813 296.497

∑ Present Value 353.764

thereof TV 83,8 %

Cash as of 30.09.2020 35.462

Debt as of 30.09.2020 0

Accrual for pensions as of 30.09.2020 -5.151

Equity Value 384.075

Outstanding stock as of 30.09.2020 17.719

Equity Value per share (EUR) 21,68

Current stock price (EUR) 15,60

Upside 38,9 %

WACC-Approach => FCF excluding interest paid

Research report: IVU Traffic Technologies AG See disclaimer on last page

9. Appendix

Formulas used in the balance sheet analysis

Key figures on earnings and profitability:

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 (𝑅𝑜𝐸) = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

∅ 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′𝐸𝑞𝑢𝑖𝑡𝑦

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑆𝑎𝑙𝑒𝑠 (𝑅𝑜𝑆) = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒

𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 (𝑅𝑜𝐼) = 𝐸𝐵𝐼𝑇 𝑚𝑎𝑟𝑔𝑖𝑛 𝑥 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =𝐸𝐵𝐼𝑇

∅ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑅𝑜𝐴) = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 + |𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒|

∅ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 (𝑅𝑜𝑇𝐶𝐸) = 𝑁𝑂𝑃𝐿𝐴𝑇

𝑇𝐶𝐸

𝑇𝐶𝐸 = Working Capital + PP&E

TCE = (Inventories + Accounts receiv. + Unbilled rev . −accounts pay. − Deferred rev. ) + PP&E

𝐸𝐵𝐼𝑇𝐷𝐴 𝑚𝑎𝑟𝑔𝑖𝑛 =𝐸𝐵𝐼𝑇𝐷𝐴

𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝐸𝐵𝐼𝑇 𝑚𝑎𝑟𝑔𝑖𝑛 =𝐸𝐵𝐼𝑇

𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠

𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =𝑅𝑒𝑣𝑒𝑛𝑢𝑒

∅ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑎𝑠ℎ𝑓𝑙𝑜𝑤 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ𝑓𝑙𝑜𝑤

𝑅𝑒𝑣𝑒𝑛𝑢𝑒

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 58

Key figures on financial stability:

𝐸𝑞𝑢𝑖𝑡𝑦 𝑟𝑎𝑡𝑖𝑜 =𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′𝐸𝑞𝑢𝑖𝑡𝑦

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐺𝑒𝑎𝑟𝑖𝑛𝑔 =𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 + 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 − 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′𝑒𝑞𝑢𝑖𝑡𝑦

𝐷𝑦𝑛𝑎𝑚𝑖𝑐 𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 =𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 + 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 − 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ𝑓𝑙𝑜𝑤

𝑁𝑒𝑡 𝑑𝑒𝑏𝑡/𝐸𝐵𝐼𝑇𝐷𝐴 =𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 + 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 − 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

𝐸𝐵𝐼𝑇𝐷𝐴

𝑅𝑎𝑡𝑒 𝑜𝑓 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 =𝐶𝑎𝑝𝑒𝑥

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ𝑓𝑙𝑜𝑤

𝐺𝑟𝑜𝑤𝑡ℎ 𝑅𝑎𝑡𝑒 =𝐶𝑎𝑝𝑒𝑥

𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑎𝑛𝑑 𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛

𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦 =𝑁𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦 =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 𝐼 =𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦

𝑁𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 𝐼𝐼 =𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑁𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝐺𝑜𝑜𝑑𝑤𝑖𝑙𝑙 𝑖𝑛 % 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 =𝐸𝑞𝑢𝑖𝑡𝑦

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦

Research report: IVU Traffic Technologies AG See disclaimer on last page Page 59

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