Bumps in the road

Borussia Dortmund 10 April 2018 Outlook
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Borussia Dortmund

Bumps in the road

Reappraisal

Travel & leisure

10 April 2018

Price

€5.20

Market cap

€478m

Net cash (€m) at December 2017 including finance leases

14.2

Shares in issue

92.0m

Free float

60.1%

Code

BVB

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.0)

(15.8)

(7.4)

Rel (local)

(8.3)

(8.1)

(7.7)

52-week high/low

€8.3

€4.9

Business description

The group operates Borussia Dortmund, a leading German football club, who were DFB Cup winners in 2016/17 and competed in this season’s UEFA Champions and Europa Leagues (Champions League quarter-finalists in 2016/17).

Next events

Bundesliga season end

12 May 2018

Q318 results

15 May 2018

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Borussia Dortmund is a client of Edison Investment Research Limited

While longstanding brand and financial strengths hold true, Borussia Dortmund (BVB) is currently bedevilled by uncertainties. Some, such as the absence of a permanent coach and Champions League qualification, may be temporary. Potentially more challenging is the conflict between sporting and financial aims, given an apparent increased reliance on transfer gains (investor concern at the sale of exceptional goal-scorer Aubameyang is telling). However, there is undeniable reassurance in the scale of the surplus of market value to net player assets (broadly, c €240m per www.transfermarkt.de), further lively transfer inflation and BVB’s prized development record. Moreover, finances remain resolutely robust.

Year end

Revenue* (€m)

EBITDA
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

EV/EBITDA
(x)

06/16

281.3

86.7

73.8

0.68

0.06

5.1

06/17

328.4

74.1

61.1

0.56

0.06

6.0

06/18e

331.0

135.0

120.0

1.11

0.06

3.1

06/19e

375.0

85.0

71.0

0.66

0.06

5.0

Note: *Before player transfer income. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Renowned player investment continues to pay off

The remarkable sale of Dembélé to Barcelona, followed by that of Aubameyang, all but comfortably guarantees a record EBITDA this year. This is welcome, given relative sporting disappointment, epitomised by premature exit from the Champions League and a likely near-halving in contribution to broadcasting revenue. Indeed we see creditable growth (maybe double-digit) in other pre-transfer income thanks to advertising and a new deal on domestic TV marketing, only for this to be offset by persistent high costs, notably labour. While this year is a hard act to follow owing to bumper transfers, we look for a clear rise in FY19 operational profit, assuming qualification for Champions League (BVB in the mix but minimal room for error) and more generous distribution from its new format. The markedly lower expected transfer gain for FY19 reflects the average of recent years excluding exceptionals.

Proven strategy and track record

Current management has transformed the company’s fortunes since near-bankruptcy in 2005. It is pursuing a well-defined strategy centred on developing core revenue sources such as broadcasting, advertising, match operations and merchandising. It is maximising success on the field without taking on new debt, while achieving a balance between financial and sporting interests thanks to judicious player development.

Valuation: Unduly cautious

In a febrile atmosphere an EV/EBITDA of 5x more normal FY19e earnings ignores the long-term potential of strong brand development, valuable media rights and sustainable cash flow (estimated net cash €48m), backed by freehold property and substantial subscription revenue, and hidden reserves from player development. EV against resilient, growing pre-transfer revenue is barely 1x FY19e.

Investment summary

Company description: A leading German football club

Borussia Dortmund has been a major force in German football for decades. Second only to Bayern Munich in terms of Bundesliga titles over the last 25 years, it was the first German club to win a European competition (the European Cup Winners’ Cup in 1966) and the Champions League in 1997. Last season was typically successful: victory in the German Cup, quarter-finalists in the Champions League and third place in the Bundesliga. The club’s fabled stadium (the Westfalenstadion, now formally SIGNAL IDUNA PARK) has long enjoyed the highest average attendance (over 80,000) in the country and indeed in Europe. Borussia Dortmund was formed as Ballspielverein Borussia 09 e.V. Dortmund in 1909 (hence the BVB 09 logo) and was listed on the Frankfurt Stock Exchange in 2000.

Valuation: Unduly cautious

Despite a lack of comparability with peers, Borussia Dortmund is rated among the lowest. However, we prefer to focus on the company’s success in creating value in a sustainable business. Despite current uncertainties, an EV/EBITDA rating of 5x FY19e does not, in our view, reflect the long-term potential of powerful brand development, valuable media rights and sustainable positive cash flow, backed by freehold property, substantial subscription revenue, and hidden reserves from player investment. EV as a share of resilient and growing revenue is only 1x prospective. The company’s transfer policy continues to generate significant hidden reserves in player values. Despite a positive balance of transfers since 2014, the surplus of market value, estimated by www.transfermarkt.de, to net player assets is c €240m.

Sensitivities

Reliance on sporting fortunes, especially on participation in lucrative UEFA competitions.

Serious player injuries cannot be foreseen but mitigated by a strong squad.

Competes for a share of disposable consumer income but home attendance resilient and substantially pre-sold.

Dependence on brand perception tempered by long-term contracts with major sponsors.

Subject to external governing bodies, which may change the structure of German and European football.

Negotiation of key media contracts is outside the company’s control. Obliged to pay players and coaching staff in line with competitors.

Potential conflict between sporting and financial aims. Increased reliance on transfer profit.

Financials

After its financial troubles under previous management Dortmund has successfully implemented a clear strategy focused on developing core revenue sources such as advertising, merchandising, match operations and broadcasting. Management is similarly intent on maximising success on the field without taking on new debt, while achieving a balance between financial and sporting interests.

The current year is headed for record EBITDA despite a disappointing season, notably in Europe and a consequent change of coach. The record outturn is driven by sales of star players, Dembélé and Aubameyang.

The company reports quarterly, with preliminary results for the full year due in late August.

Company description: A leading German football club

Top drawer: Since its formation in 1909 Borussia Dortmund has become one of Germany’s most successful football clubs, having won eight national championships, four German Cups (current holders) and six German Supercups as well as the Champions League in 1997 and the European Cup Winners’ Cup in 1966.

Exhibit 1: Club honours

German championship*

1956, 1957, 1963, 1995, 1996, 2002, 2011 and 2012

DFB Cup

1965, 1989, 2012 and 2017

German Supercup

1989, 1995, 1996, 2008,** 2013 and 2014

UEFA Champions League

1997 (defeated Juventus 3-1 in final)

European Cup Winners’ Cup

1966 (defeated Liverpool 2-1 in final)

Intercontinental Cup

1997 (defeated Cruzeiro 2-0 in final)

German championship*

DFB Cup

German Supercup

UEFA Champions League

European Cup Winners’ Cup

Intercontinental Cup

1956, 1957, 1963, 1995, 1996, 2002, 2011 and 2012

1965, 1989, 2012 and 2017

1989, 1995, 1996, 2008,** 2013 and 2014

1997 (defeated Juventus 3-1 in final)

1966 (defeated Liverpool 2-1 in final)

1997 (defeated Cruzeiro 2-0 in final)

Source: Bundesliga. Note: *Bundesliga from 1964, ** unofficial.

During the 54 years of the Bundesliga the club has achieved top six status (the benchmark for UEFA competition qualification) on 24 occasions (also in the current season to date) in addition to its five titles. Indeed more recently, as shown in Exhibit 2, Dortmund’s performance in the Bundesliga has been second just to dominant Bayern Munich as the only other club to have won multiple titles in the last 20 years or so. The prolonged decline between 2003 and 2008 reflects financial troubles under previous management, while the 2015 dip proved short-lived (change of coach) and still allowed successful international participation as Europa League quarter-finalists.

Exhibit 2: Bundesliga performance since 1995

Source: Bundesliga

Head coach: Peter Stöger joined Dortmund in December 2017, almost immediately after leaving Köln which he had managed since 2013. He took Köln to promotion to the Bundesliga in his first season with the club and back into European competition in 2017/18 for the first time for 25 years. Previously he enjoyed a long and successful association with Austria Wien, both as a player and then as coach and sporting director. He also won an Austrian league title with Rapid Wien which he represented in a European Cup Winners’ Cup final. He was a regular Austrian international (65 caps, including the 1998 World Cup). He is 51 and his contract at Dortmund runs until June.

Sporting director: Michael Zorc (55) has spent his whole career at Dortmund, first as player for 17 years (Bundesliga appearance record), culminating in the Bundesliga and Champions League success of the mid 1990s and then as sports director since 1998. His contract has just been extended to 2021.

Exhibit 3: BVB squad participation in 2017-18 season (43 matches: 29 Bundesliga, six Champions League, four Europa League, three German Cup and one Supercup)

Nationality

Age**

At BVB since

From

Contract expiry

Matches started

Goals§

Goalkeeper

Roman Bürki

Sui*

26

2015

Freiburg

2021

42

-

Roman Weidenfeller

Ger*

37

2002

Kaiserslautern

2018

1

-

Defenders

Sokratis Papastathopoulos

Gre*

29

2013

Werder Bremen

2019

37

3

Ömer Toprak

Tur*

28

2017

Bayer Leverkusen

2021

26

-

Lukasz Piszczek

Pol*

32

2010

Hertha Berlin

2020

26

-

Marcel Schmelzer

Ger*

29

2005

BVB U19

2021

22

1

Jeremy Toljan

Ger

23

2017

Hoffenheim

2022

19

1

Marc Bartra

Sp*

26

2016

Barcelona

2020****

17

4

Dan-Axel Zagadou

Fr

18

2017

PSG

2022

10

1

Raphaël Guerreiro

Por*

22

2016

Lorient

2020

9

2

Manuel Akanji

Sw*

22

2018

Basel

2022

6

-

Jan-Niklas Beste

Ger

18

2016

BVB U19

2018

1

-

Midfield***

Christian Pulisic

US*

18

2014

BVB U19

2020

30

5

Mario Götze

Ger*

25

2016

Bayern Munich

2020

23

2

Julian Weigl

Ger*

21

2015

1860 München

2021

22

1

Gonzalo Castro

Ger*

30

2015

Bayer Leverkusen

2020

22

1

Shinji Kagawa

Jap*

28

2014

Manchester United

2020

19

6

Nuri Sahin

Tur*

28

2013

Real Madrid

2019

19

2

Mahmoud Dahoud

Ger

21

2017

Borussia M’gladbach

2022

18

-

Jadon Sancho

Eng

17

2017

Manchester City U18

2020

3

-

Forwards

Pierre-Emerick Aubameyang

Gab*

28

2013

St Etienne

2021*****

24

21

Andrey Yarmalenko

Ukr*

27

2017

Dynamo Kiev

2021

19

6

Maximilian Philipp

Ger

23

2017

Freiburg

2022

15

7

Andrë Schürrle

Ger*

25

2016

Wolfsburg

2021

15

3

Michy Batshuayi

Bel*

24

2018

Chelsea (on loan)

2018

12

9

Marco Reus

Ger*

28

2012

Borussia M’gladbach

2023

9

3

Alexander Isak

Swe

17

2017

AIK Solna

2022

2

1

Source: Bundesliga, BVB. Note: *Full international; **age at start of season; ***also one start by Dembélé, sold to Barcelona August 2017 and four starts by Subotic, sold to St Etienne January 2018; ****sold to Real Betis January 2018; *****sold to Arsenal January 2018; § excludes four goals in Supercup penalty shootout and two own goals; bold: acquisitions this season.

The current squad of 28 has an average age of 25, which is similar to that of closest Bundesliga rivals, and includes a dozen current full internationals. Participation this season by matches started is shown in Exhibit 3, which also highlights key changes for 2017/18, notably Yarmalenko and Philipp replacing Dembélé in attack and Toprak and Dahoud coming in for Ginter and Bender. However, arguably even more significant is the change that did not happen in August, ie retention of Aubameyang despite intense speculation. His goal-scoring (21 in all competitions) remained exceptional until his exit in January, which prompted the arrival of Batshuayi on loan from Chelsea.

Exhibit 4: The race for 2018/19 Champions League

Source: Bundesliga

The performance this season has been remarkably mixed, seen in Exhibit 4. Top of Bundesliga after seven games (record start for coach Peter Bosz), then eight matches without a win, leading to Bosz’s departure in December, and a more impressive start (13 league games undefeated apart from a recent dismal 6-0 loss to Bayern) under Peter Stöger. With just five matches to go, Dortmund is now third in the Bundesliga, so well placed for the Champions League next season (top four qualify directly under the new format). However, a tougher schedule (Bundesliga points total of outstanding opponents) than immediate rivals Schalke and Leipzig (Exhibit 4) and only a narrow advantage ensure “a race to the end,” per coach Stöger. By contrast, this season’s results in European competition were uniformly poor, ie only two points from Champions League in stark contrast to a group win last season, followed by a bumpy run in Europa League, when the team rode its luck against Atalanta only to disappoint against Salzburg in the round of 16.

Well-defined strategy

After its financial troubles (see page 9), Dortmund has successfully concentrated on developing core revenue sources such as broadcasting, advertising, match operations and merchandising. Management is similarly intent on maximising success on the field without taking on new debt, while achieving a balance between financial and sporting interests.

Squad development: Exhibit 5 shows that BVB continues to adhere to its aim of putting together a competitive team with a focus on promising young players and on a tight budget. Identification of up-and-coming players at minimal cost (even free) and their development at the BVB Academy are to the fore, underpinning a healthy potential surplus to book value, as estimated by www.transfermarkt.de. Given an enviable development record with Lewandowski, Aubameyang, Reus and Dembélé, there is excitement both about Pulisic and Weigl (highlighted) as established first-team regulars despite their youth and the potential of teenage newcomers Isak and Sancho after impressive debuts. On disposals, management has achieved a balance with considered sales, be it “too good an offer to refuse” (Dembélé) or rationalisation of an oversupplied midfield or defence. Despite wariness at his loss, this may also apply to Aubameyang, given a good price and a strained relationship with the club.

Exhibit 5: Significant player transactions

Recent €10m+ disposals

Date

Age at signing

Cost (€m)

Transfer fee (€m)

Buyer

Mats Hummels

2016

27

4

35

Bayern Munich

Ilkay Gündogan

2016

25

5

27

Manchester City

Henrikh Mikhitaryan

2016

27

27

42

Manchester United

Ciro Immobile

2016

25

18

11

Sevilla

Ousmane Dembélé

2017

20

15

105

Barcelona

Sven Bender

2017

28

Free

12

Bayer Leverkusen

Matthias Ginter

2017

23

10

17

Bor. M’Gladbach

Emre Mor

2017

20

10

13

Celta Vigo

Adrián Ramos

2017

31

10

12

Chongqing

Marc Bartra

2018

27

10

15

Real Betis

Pierre-Emerick Aubameyang

2018

28

13

64

Arsenal

Total estimated realised surplus to cost before depreciation c €230m

Current squad development

Under 26 at signing*

Date

Age at signing

Transfer fee (€m)

Current value (est) (€m)

Contract expiry

Marcel Schmelzer

2008

20

Free

7

2021

Marco Reus

2012

23

17

35

2023

Sokratis Papastathopoulos

2013

25

10

22

2019

Christian Pulisic

2014

16

Free

45

2020

Shinji Kagawa

2014

25

8

13

2020

Julian Weigl

2015

19

3

30

2021

Mario Götze

2016

24

22

20

2020

Raphaël Guerreiro

2016

22

12

20

2020

André Schürrle

2016

25

30

18

2021

Maximilian Philipp

2017

23

20

20

2022

Mahmoud Dahoud

2017

21

12

18

2022

Manuel Akanji

2018

22

21

20

2022

Youth development:

Alexander Isak

2017

17

9

6

2022

Jadon Sancho

2017

17

9

8

2020

Dan-Axel Zagadou

2017

18

Free

5

2022

Sergio Gómez

2018

17

3

2

2021

Source: www.transfermarkt.de. Note: *excludes transfer fees under €10m without likely major value uplift.

Dortmund’s positive reconciliation of conflicting interests is further highlighted by the disparity in its net transfer balance (amount received less paid) with those of certain fellow Champions League regulars. Exhibit 6 shows the last five seasons. The comparison with Bayern is telling as Bundesliga performance is also noted. While Dortmund has ensured European football at a fraction of Bayern’s net spend and easily outpaced other domestic rivals (over the last five years 14% more Bundesliga points than nearest, Bayer Leverkusen), there is a glaring 25% points inferiority to Bayern, with the recent 6-0 “thrashing” (www.bundesliga.com) by the new Bundesliga champions an unwelcome reminder.

Exhibit 6: Net transfer balances since 2013/14 of selected Champions League regulars

Cumulative since 2013/14

€m

2013/14

2014/15

2015/16

2016/17

2017/18

Net balance

Bundesliga rank (points)

Borussia Dortmund

-6 (2)

-61 (7)

+18 (2)

-11 (3)

+129 (3)

69

2 (310)

Bayern Munich

-23 (1)

-5 (1)

-47 (1)

-21 (1)

-86 (1)

-182

1 (411)

Manchester City

-107

-59

-154

-180

-223

-723

Manchester United

-77

-143

-54

-138

-156

-568

Paris St. Germain

-109

-47

-96

-79

-145

-476

Barcelona

-73

-88

-14

-89

-93

-357

-

Chelsea

-60

-3

-3

-34

-65

-159

Juventus

12

-20

-77

-17

-5

-107

Real Madrid

-62

-11

-63

4

63

-69

-

Source: www.transfermarkt.de. Note: Bundesliga rank in brackets.

Brand development: The Borussia Dortmund brand is one of the company’s prime assets. It has been rated for 2017 by Brand Finance as the 11th most valuable football brand, unchanged in rank on 2016 but markedly higher in terms of value owing to renewed Champions League exposure. In addition to a global fan base (see below) average Bundesliga home match attendance of c 80,000 is consistently the highest in Europe. Reflecting the longstanding devotion of the club’s Westphalia heartland and epitomised by the fervent atmosphere of the Gelbe Wand (Yellow Wall) at the Südtribüne, the largest stadium standing area in the world, BVB’s brand image is one of intensity and loyalty, which is a powerful platform for advertising.

Management aims to monetise this as follows:

Advertising (27% of FY18e non-transfer revenue and +3% in FY17): typically long-term contracts with leading regional and international companies with a proven ability to renew at higher prices or market new opportunities. Principal sponsors are EVONIK (shirt, extended to 2025), SIGNAL IDUNA (stadium, extended to 2021) and PUMA (kit, until 2020). There are 12 BVB ChampionPartners (Opel, bwin, Eurowings, Brinkhoff’s, SIGNAL IDUNA, Sprehe, Sparda-Bank, unitymedia, Wilo, Hankook, THORN and ROWE) as well as about 50 lower-tier sponsors. This activity is outsourced to Lagardère, which receives commission on revenue generated.

Merchandising (11% of FY18e pre-transfer revenue and -1% in FY17): the award of licences and revenue from the sale of team merchandise. In addition to partners’ wholesale distribution channels, sales are made via a major FanWelt centre near the stadium, branded stores (FanShops) in Dortmund, sales kiosks at the stadium and e-commerce, www.bvbonlineshop.com (33% of FY17 sales).

New media: in promoting brand awareness, BVB continues to be very active on social media, attracting 1.2m new followers across all its platforms in H118 alone. While Facebook remains the mainstay (currently 15.4m ‘likes’ on the official fan page), the strongest growth has been on Instagram (since June 2017 followers up 20% at 5m) and on Twitter (3.2m followers). However, both are small compared with Chelsea and Arsenal, which have respectively 48m and 38m Facebook ‘likes’ and 11m Instagram followers, which confirms encouraging scope for Dortmund. Asia is proving especially receptive, highlighted by a live stream to around half a million people during the 2016 tour of China and a 25% rise in followers on Sina Weibo in H118, boosted by the successful 2017 return visit and the launch of the company’s Chinese language website. BVB’s own app still enjoys strong demand (usage up 6% in H118), as does the dedicated web portal, meinBVB.de.

Pay TV: in 2011 the company was the first Bundesliga club to offer its own TV package in co-operation with Deutsche Telekom. The subscription channel BVB Total shows club videos, Bundesliga matches and all other competitive matches in full length. Current subscription costs are €4.95 for a month or €39.09 for a year.

Match day operations (13% of FY18e pre-transfer revenue and -6% in FY17): management regards SIGNAL IDUNA PARK, Germany’s largest football stadium with capacity for 81,360, as its most valuable asset apart from the team. Known as the Westfalenstadion until 2005, the facility was built for the 1974 World Cup but has since been extensively enlarged and modernised. With home matches sold out and a policy of inflation based pricing as a community club (indeed FY17 saw a price freeze), the scope for ticketing revenue growth seems limited. Apparent underachievement with the likes of Arsenal and Manchester United, where ticketing was 24% and 19% respectively of FY17 revenue, is thus unfair; Bayern Munich’s 17% revenue share (FY16) is a better comparative. Two-thirds of capacity is pre-sold as season tickets, which brings revenue visibility, and an annual footfall of 1.4m spectators at Bundesliga games alone brings ancillary income from merchandising and catering. The stadium is not multi-functional.

Broadcasting (37% of FY18e pre-transfer revenue and +52% in FY17): marketing of media rights is conducted centrally by the Bundesliga and UEFA, hence outside company control. However, the system of revenue distribution to clubs is defined well in advance, with the Bundesliga agreeing in 2016 the sale of rights for four seasons from 2017/18 and UEFA selling rights on a three-year basis, effective 2018/19. The new Bundesliga deal (still predominantly with Sky Deutschland but no longer exclusively) is worth an extra 85%, ie c €1.15bn income pa. As for average attendance, the Bundesliga (41,000) is much higher than the Premier League (36,000), La Liga (28,000) and Serie A (22,000). UEFA has yet to announce distribution to clubs for the next Champions League cycle but promised on announcement of the competition’s reform that it will be ‘increased significantly’ (our FY19e forecast assumes a rise of about a third in BVB Champions League revenues). The new format, notably more ‘big name’ clubs and staggered viewing times, is aimed at boosting the appeal to broadcasters.

Management

The company’s senior management (see below) is backed by highly experienced management of the non-sports businesses and coaching staff.

Chief executive: Hans-Joachim Watzke. Before his appointment in 2005 Mr Watzke was treasurer of the football club. His contract was recently extended to 2022. He is also the owner-founder of Watex, a leading manufacturer of protective clothing for industrial workers and firefighters.

Chief financial officer: Thomas Treß was appointed second managing director in 2005 and has been responsible for finance since 2006. His contract has also been extended to 2022. He was previously a partner at RölfsPartner, one of the leading business consultancies in Germany. He was awarded “CFO of the year 2013” by the German “FINANCE-Magazine.”

Sales and marketing and digitalisation: Carsten Cramer recently became a further managing director, having served as sales and marketing director since 2010. He joined from leading sports marketing agency Sportfive (now Lagardère Sports) where he served latterly as a team leader at BVB and then as senior vice-president with nationwide duties.

Sensitivities

The company’s business operations are dependent on sporting success. Weak performance could cause revenue to fall and affect the ability to attract and retain players and coaches. Participation in lucrative UEFA competitions cannot be relied on, although the club has qualified regularly and will benefit from broader Champions League access for Bundesliga teams.

There is substantial reliance on player transfer earnings which are volatile and hard to predict.

While serious injuries cannot be foreseen, the club maintains a strong squad and minimises the risk of poor investment in new players by intensive scouting and medical examinations.

The company competes for a share of disposable consumer income, which may be eroded by economic downturn. However, attendance at home matches is resilient (much the highest in the Bundesliga) and ticket prices are lower than those of leading competitors. The increasing popularity of the Bundesliga is evident in a sharp rise in the value of future broadcast rights.

Dortmund is dependent on the strength and perception of its brand. While damage may impair its ability to attract sponsors, the company invests heavily to ensure consistent quality.

Long-term contracts with major sponsors give security independent of sporting performance.

Dortmund is subject to external governing bodies, eg the Bundesliga, DFB, UEFA and FIFA, which may change the structure of German and European football. In terms of finances, the company is in tune with a market subject to growing regulation, notably the break-even requirement for participation in UEFA competitions.

Negotiation and pricing of key media contracts are outside the company’s control and those contracts may change.

The company’s digital media strategy is still developing. Piracy and illegal live streaming may adversely affect its broadcasting and new media and mobile revenue.

The club is obliged to pay players and coaching staff in line with competitors. Labour costs have risen sharply in recent years, accounting in FY17 for over 50% of its revenue excluding transfers, which is similar to key peers.

Aware of a potential conflict between sporting objectives and financial requirements, management aims to ensure that cash flows stabilise at a positive level on a lasting basis.

Valuation

Among major listed peers, there is limited comparability with BVB in terms of valuation indicators. By far the largest by market cap, Manchester United and Arsenal offer very limited free float, while Juventus has a majority shareholder and sizable net debt. The failures of Arsenal and Olympique Lyonnais to qualify for current Champions League suggest a lower outturn this year but both have booked much higher year-on-year transfer profit. Against available peer numbers (consensus forecasts are not available for most) BVB is rated the lowest, even using normal FY19e.

Exhibit 7: Valuation comparison with major listed peers (EBITDA includes transfer activity)

Mkt cap

EV

EBITDA

EV/EBITDA

Pre-transfer

EV/pre-transfer

(x)

revenue

revenue (x)

Prospective

Borussia Dortmund

€471m

€423m

€85.0m

5.0

€375m

1.1

Manchester United

£2250m

£2550m*

£180.0m**

14.2

£580m**

4.4

Historic

Borussia Dortmund

€471m

€441m

€74.1m

6.0

€328m

1.3

Manchester United

£2250m

£2460m*

£210.7m

11.7

£581m

4.2

Arsenal

£2150m

£2200m

£144.3m

15.2

£423m

5.2

Juventus

€620m

€780m

€159.9m

4.9

€412m

1.9

Olympique Lyonnais

€168m

€367m

€51.0m

7.2

€198m

1.9

Source: Company accounts. Note: *$1.41/£. ** Mid-point of guidance at February 2018.

Value creation is emphasised by the company’s transfer policy, which is generating substantial hidden reserves in player values. The past two years saw average capital gains of c €63m (our estimate), even before the “exceptional” Dembélé transaction, and the scope for further gains is high. The surplus of market value to net player assets is c €240m if the reported December 2017 carrying value of €184m, which included Aubameyang, is set against sports website www.transfermarkt.de’s current valuation of €405m. Moreover, it necessarily does not allow for step-changes in the value of emerging talent, which Dortmund is so adept at identifying and which are attracting the attention of major clubs at ever younger ages. Potential prodigies such as Sancho, Isak and Gómez (Exhibit 5) may emulate the uplift (admittedly unrealised) of estimated €45m attributable to similarly youthful Pulisic, let alone the bumper return on Dembélé. Beyond this is the benefit of sustained transfer market buoyancy, highlighted by a doubling in spend by the five major European leagues over the last four years and by almost a third in 2017/18 alone (Exhibit 8)

Exhibit 8: Player transfer market spend by five major European leagues over last four years

This comes at a price in terms of player replacement but Dortmund is a net seller. More concerning is the threat of undue sporting detriment by disposals. With management’s objective to declare an annual net profit, the scale of intangible amortisation (over €60m pa) and operating cost pressures (marginal EBITDA in Q218 without the buttress of transfers) risks a disruptive volume of transactions. While we are satisfied, as above, that the company has the resources to meet such financial needs, it is reasonable to be wary about the sporting impact.

More immediately, our FY19 forecasts are subject to Champions League involvement next season (Europa seems almost assured as BVB now nine points clear of seventh place) as well as satisfactory appointment of a permanent coach and key striker. A strong end to the season could see both current interims (Stöger and Batshuayi) retained on a long-term basis.

The share price is at almost 50% discount to a simple sum-of-the-parts valuation of €9.50, based on estimated market value of players (€405m per www.transfermarkt.de), brand value (€420m at June 2017 per Brand Finance) and financial position (€48m net cash FY18e). Speculation about a change in ownership rules to allow investors to take majority stakes may have been calmed by the clubs’ recent vote to retain the so-called 50+1 rule, under which fee-paying club members must own more than 50% of voting rights. However, this may only be temporary as German clubs’ requirement to be competitive financially in Europe will not abate.

Financials

Borussia Dortmund’s turnaround has been remarkable. The company was at risk of bankruptcy in 2005, broadly attributed to extravagance, notably on foreign players, after Bundesliga success. New management (the current CEO and CFO) implemented a reorganisation programme, which included the restructuring of liabilities through a long-term fixed-interest loan from Morgan Stanley, cost-cutting and a strategy of revenue development and sustainable investment in players. Key initiatives included the repurchase of the stadium, eliminating high rental costs, and early repayment of the loan via a long-term agreement with marketing partner Sportfive, while early extension of flagship contracts endorsed the advertising strategy. Jürgen Klopp’s appointment as coach was in tune with management’s approach to player investment. A c €140m fundraising in 2014, backed by key sponsors and new partnerships, was a strong endorsement of strategy.

FY18e: H1 was a tale of two quarters (Exhibit 9). While Q118 was notable for the Dembélé transfer, which drove a doubling of EBITDA vs Q117, the following period was unaffected by transfers and saw a reduction in EBITDA (c €7m, relatively minor in full-year context) on flat revenue owing mainly to wage pressure, compounded by one-off severance costs related to the previous coach’s set-up. Other operating costs more than doubled largely owing to transfer-related expenses. In Q2 Champions League setbacks led to much lower (c 40%) international broadcasting income, albeit fortuitously redeemed by the initial benefit of the new deal on domestic TV marketing. While advertising remained encouraging (up 7%), marked by new Champion Partners Opel and bwin, there was a further decline in merchandising (down 24%), which is common across the league.

Despite such quarterly volatility, we retain our operational assumptions for this year. Our recent €37m EBITDA upgrade for H2 reflects January transfers (principally Aubameyang and Bartra) with no allowance for end of season dealings.

FY19e: we are now a little more cautious about transfer gains, given Aubameyang’s exit so soon after Dembélé. We assume FY19 transfers to be on a par with the average of the last three years, largely excluding the impact from exceptional Dembélé. However, management recently stated a need to adjust the squad, even if subject to the decisions of the new coach. Operationally, there should be a sizeable boost in broadcasting income (tba by UEFA – we assume up over a third on FY17) from the revamped Champions League; however, this is dependent on qualification over the remaining five Bundesliga games.

Exhibit 9: Revenue and profit analysis

Year end June (€m)

Q117

Q217

H217

FY17

Q118

Q218

H218e

FY18e

FY19e

Home matches:

Bundesliga

3

5

12

17

3

5

9

17

17

Champions League

1

2

2

5

1

2

-

3

4

Europa League

-

-

-

-

-

-

2

2

-

Domestic cups

1

1

1

3

1

-

-

1

2

Away matches:

Champions League

1

2

2

5

1

2

-

3

4

Europa League

-

-

-

-

-

-

2

2

-

Domestic cups

1

-

2+final

3+final

1

2

-

3

3

Revenue

Match operations:

Bundesliga

4.7e

8.2e

14.1e

27.0

4.8e

8.3e

13.9e

27.0

27.5

Champions League

1.9e

3.8e

3.8e

9.5

2.0e

3.9e

-

5.9

8.0

Europa League

-

-

-

-

-

-

4.0e

4.0

-

Domestic cups

1.1e

1.0e

3.2e

5.3

1.2e

0.5e

0.1e

1.8

3.5

Other

0.8e

0.8e

0.6e

2.2

2.6e

0.5e

1.2e

4.3

2.5

Total

8.5

13.8

21.6

43.9

10.6

13.2

19.2

43.0

41.5

Broadcasting:

Bundesliga

16.2

16.3

33.6

66.1

21.6

21.8

44.6

88.0

92.0

Champions League

19.6

14.0

16.5

50.1

18.9

8.5

-

27.4

68.0

Europa League

0.9

-

-

0.9

-

-

4.0

4.0

-

Domestic cups

1.6

(0.3)

7.3

8.6

1.8

1.5

0.3

3.6

4.5

Total

38.3

30.0

57.5

125.8

42.3

31.8

48.9

123.0

164.5

Advertising

17.8

22.3

47.3

87.4

21.3

23.9

50.8

96.0

99.0

Merchandising

9.2

14.0

16.3

39.5

8.7

10.7

17.6

37.0

37.0

Catering / other

7.8

7.4

16.7

31.9

5.8

7.2

19.0

32.0

33.0

Revenue before transfers

81.6

87.4

159.4

328.4

88.7

87.0

155.3

331.0

375.0

Transfers

45.2*

-

32.1

77.3

136.2**

-

73.8**

210.0**

75.0***

Total revenue

126.8

87.4

191.5

405.7

224.8

87.0

229.1

541.0

450.0

Other operating income

1.0

0.7

2.5

4.2

0.5

2.3

2.2

5.0

5.0

Labour costs

(38.4)

(43.8)

(95.7)

(177.9)

(43.9)

(50.4)

(100.7)

(195.0)

(205.0)

Share of revenue before transfers

47%

50%

60%

54%

49%

58%

65%

59%

55%

Material costs

(5.8)

(8.6)

(11.5)

(25.9)

(5.6)

(6.7)

(11.7)

(24.0)

(24.0)

Other operating costs

(43.4)

(25.9)

(62.7)

(132.0)

(94.4)

(29.8)

(67.8)

(192.0)

(141.0)

EBITDA

40.1

9.8

24.2

74.1

81.4

2.5

51.1

135.0

85.0

Source: Edison Investment Research. Note: Assuming Champions League round of 16 and DFB Cup semi-final. *Including disposal of Mkhitaryan. **Including disposals of Dembélé, Bender, Mor, Bartra and Aubameyang. ***Notional (assumed average of transfer revenue of three previous years excluding “exceptional” Dembélé and Aubameyang transactions).

Exhibit 10: Financial summary

€'000s

2016

2017

2018e

2019e

June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

376,300

405,700

541,000

450,000

EBITDA

 

 

86,700

74,100

135,000

85,000

Operating Profit (before amort. and except.)

75,900

62,600

123,000

73,000

Intangible Amortisation

(32,000)

(51,900)

(64,000)

(60,000)

Exceptionals

(7,500)

(100)

(1,100)

0

Other

0

0

0

0

Operating Profit

36,400

10,600

57,900

13,000

Net Interest

(2,100)

(1,500)

(3,000)

(2,000)

Other financial items

0

0

0

0

Profit Before Tax (norm)

 

 

73,800

61,100

120,000

71,000

Profit Before Tax (FRS 3)

 

 

34,300

9,100

54,900

11,000

Tax

(4,900)

(900)

(7,000)

(1,000)

Profit After Tax (norm)

62,700

51,900

102,000

60,400

Profit After Tax (FRS 3)

29,400

8,200

47,900

10,000

Average Number of Shares Outstanding (m)

92.0

92.0

92.0

92.0

EPS - normalised (c)

 

 

68.2

56.4

110.9

65.7

EPS - (IFRS) (c)

 

 

32.0

8.9

52.1

10.9

Dividend per share (c)

6.0

6.0

6.0

6.0

EBITDA Margin (%)

23.0

18.3

25.0

18.9

Operating Margin (before GW and except.) (%)

20.2

15.4

22.7

16.2

BALANCE SHEET

Fixed Assets

 

 

302,800

354,900

364,000

348,000

Intangible Assets

65,300

141,500

147,000

140,000

Tangible Assets

188,400

184,700

182,000

180,000

Investments

49,100

28,700

35,000

28,000

Current Assets

 

 

121,800

123,700

149,000

166,000

Stocks

10,200

9,000

10,000

10,000

Debtors

51,100

48,800

50,000

50,000

Cash

51,700

49,300

59,000

76,000

Other

8,800

16,600

30,000

30,000

Current Liabilities

 

 

(78,800)

(140,900)

(140,000)

(138,000)

Creditors

(76,200)

(130,600)

(137,000)

(135,000)

Short term borrowings

0

0

0

0

Finance leases

(2,600)

(10,300)

(3,000)

(3,000)

Long Term Liabilities

 

 

(36,200)

(25,400)

(18,000)

(18,000)

Long term borrowings

0

0

0

0

Finance leases

(19,000)

(8,700)

(8,000)

(8,000)

Other long term liabilities

(17,200)

(16,700)

(10,000)

(10,000)

Net Assets

 

 

309,600

312,300

355,000

358,000

CASH FLOW

Operating Cash Flow

 

 

44,400

12,200

1,000

30,000

Net Interest

(1,400)

(2,000)

(2,800)

(2,200)

Tax

(300)

(5,500)

(6,000)

(6,000)

Capex

(9,400)

(8,100)

(9,000)

(9,300)

Acquisitions/disposals

(20,500)

9,100

40,000

10,000

Financing

(7,700)

0

0

0

Dividends

(4,600)

(5,500)

(5,500)

(5,500)

Net Cash Flow

500

200

17,700

17,000

Opening net debt/(cash)

 

 

(29,600)

(30,100)

(30,300)

(48,000)

Finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(30,100)

(30,300)

(48,000)

(65,000)

Source: Company data, Edison Investment Research

Contact details

Revenue by geography

1 Rheinlanddamm 207-209

D-44137 Dortmund

Germany

+49 (0) 231 90 20 745
www.bvb.de/aktie

N/A

Contact details

1 Rheinlanddamm 207-209

D-44137 Dortmund

Germany

+49 (0) 231 90 20 745
www.bvb.de/aktie

Revenue by geography

N/A

Management team

Chief executive: Hans-Joachim Watzke

Chief financial officer: Thomas Treß

Before his appointment in 2005, Mr Watzke had been treasurer of the football club for four years. His contract as CEO has been extended to the end of 2022. He is also the owner-founder of Watex, a leading manufacturer of protective clothing for industrial workers and firefighters.

Thomas Treß was appointed second managing director in 2005 and has been responsible for finance since the start of 2006. His contract has been extended to June 2022. He was previously a partner at RölfsPartner, one of the leading business consultancies in Germany. He was awarded CFO of the year 2013 by the German FINANCE-Magazine.

Sales and marketing and digitalisation: Carsten Cramer

Carsten Cramer recently joined the board, having served as sales and marketing director since 2010. He was previously at leading sports marketing agency Sportfive (now Lagardère Sports) where he served latterly as a team leader at BVB and then as senior vice-president with nationwide duties.

Management team

Chief executive: Hans-Joachim Watzke

Before his appointment in 2005, Mr Watzke had been treasurer of the football club for four years. His contract as CEO has been extended to the end of 2022. He is also the owner-founder of Watex, a leading manufacturer of protective clothing for industrial workers and firefighters.

Chief financial officer: Thomas Treß

Thomas Treß was appointed second managing director in 2005 and has been responsible for finance since the start of 2006. His contract has been extended to June 2022. He was previously a partner at RölfsPartner, one of the leading business consultancies in Germany. He was awarded CFO of the year 2013 by the German FINANCE-Magazine.

Sales and marketing and digitalisation: Carsten Cramer

Carsten Cramer recently joined the board, having served as sales and marketing director since 2010. He was previously at leading sports marketing agency Sportfive (now Lagardère Sports) where he served latterly as a team leader at BVB and then as senior vice-president with nationwide duties.

Principal shareholders

(%)

Evonik Industries

14.8

Bernd Geske

9.2

Borussia Dortmund

5.5

SIGNAL IDUNA

5.4

PUMA SE

5.0

Companies named in this report

Bayern Munich, Real Madrid, Arsenal, Manchester United, Juventus, Atlético Madrid, Barcelona, PSG, Chelsea, PUMA, EVONIK, SIGNAL IDUNA

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors.
This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. . The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors.
This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. . The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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