cannabis-plant-highres

Cocoon, a next-gen self-service platform

Australis Capital 1 November 2019 Update
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Australis Capital

Cocoon, a next-gen self-service platform

Business update

Pharma & biotech

1 November 2019

Price

C$0.62

Market cap

C$104m

C$1.35/US$

Net cash ($m) at 30 June 2019

23.17

Shares in issue

167.43m

Free float

97.3%

Code

AUSA

Primary exchange

CSE

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(9.6)

(34.9)

(62.5)

Rel (local)

(11.4)

(36.1)

(66.5)

52-week high/low

C$1.3

C$0.4

Business description

Australis Capital is focused on US cannabis assets and is acquiring a range of low-valuation cannabis assets that it believes will have staying power in the rapidly developing cannabis market. The company’s goal is to form these assets into a fully operational and integrated US cannabis business.

Next events

Green Therapeutics deal closes

Late 2019

Analyst

Nathaniel Calloway

+1 646 653 7036

Australis Capital is a research client of Edison Investment Research Limited

On 29 October 2019, Australis announced the formation a new subsidiary, Cocoon Technology, which will develop a self-service kiosk (CocoonPod) for the cannabis industry. Each device will handle all aspects of consumer interaction including ID processing, payment and rewards, with integration into dispensary retail platforms for order fulfillment and reporting. Moreover, Australis will integrate Cocoon with its existing mobile platform to provide a loyalty program and likely other features.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(C$)

DPS
(C$)

P/E
(x)

Yield
(%)

03/19

0.1

(3.5)

(0.04)

0.0

N/A

N/A

03/20e

0.3

(3.6)

(0.02)

0.0

N/A

N/A

03/21e

0.3

(6.5)

(0.04)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Bringing automation to dispensaries

The goal with Cocoon is to provide the same level of automation in customer interaction in the cannabis industry that we have grown to expect in other retail outlets. The customer completes the ordering and payment process at the kiosk and an employee then delivers the product. The value proposition for automated customer interaction is well established and we believe there is an immediate market for solutions in this industry.

Integrated marketing and rewards

Part of this planned platform includes integration with the company’s Coil cannabis tracking app, rebranded CocoonRewards. The app was developed at the company’s rthm subsidiary and provides users with tools to track their favorite strains, find them at partnered dispensaries and earn rewards. CocoonRewards could be integrated with Cocoon inventory systems to direct customers to the closest kiosk with their desired strain, providing immediate marketing and customer retention benefits to partnered dispensaries and producers.

Cocoon consistent with Australis investment strategy

The formation of Cocoon Technology is consistent with Australis’ key investment strategies, which include investing in more durable assets such as technology. There is still a high degree of uncertainty in the cannabis markets in any given state, but investments in technology such as rthm, Wagner Dimas and now Cocoon provide a method of capitalizing on the growth of the industry without being tied to the cannabis supply chain or to a particular geography.

Valuation: Market pullback leads to slim premium

The pullback in cannabis stocks continues and has brought the Australis market cap much closer to our adjusted nominal value (C$91.0m). The company trades at only a 14% premium on basic shares (45% on diluted shares). This valuation implies that the premium is justified if the company can produce a 14% annual rate of return, which we believe it will far exceed if it delivers on its investment strategy.

Bringing automation to dispensary fulfilment

At its core, CocoonPod is a point-of-sale (POS) system aimed at streamlining the cannabis ordering and fulfilment process by providing an interface to select the desired products and pay. In an ideal use scenario, the customer enters a dispensary and approaches a kiosk, where they select their product. The customer is then prompted for payment and receives a receipt, while the order is simultaneously routed to staff to complete. When the order is ready, the customer can collect it from the counter and leave. In geographies where it is appropriate based on regulations, the kiosk can also potentially carry out ID verification or log visits to further streamline the process and reduce staff engagement. Also, in the event that cannabis is decriminalized nationally, or credit and debit card services become more broadly allowed, the kiosk can be updated with this functionality.

Like an ATM at a bank, this product would allow customers with routine requests to fulfil their order quickly and avoid longer queues, while retaining the option of personal assistance. We expect this to be an attractive option in locations where queues have been a problem. For instance, the small number of Massachusetts dispensaries that have been licensed to date have been plagued with long queues that could be at least partially addressed with automation. This product will likely gain the most immediate traction in the small number of very high-volume dispensaries that aim to benefit the most from streamlining fulfilment. There may also be potential in the future for this system to be used in dispensaries with a low footprint to enable an increase in customer throughput that would otherwise be impossible.

The company has not yet published the exact pricing model for the product, but has suggested in the news release that it will include both the cost of capital equipment and a fraction of revenue generated by the machine. We would expect the revenue share to be small (low single digits) given the margin pressure on the business and the fact that the system must be more cost-efficient than human workers. We would expect the capital equipment costs to be in the range of $10,000 to $15,000, which is closer in price point to a bank ATM than other POS kiosks, given that it will be designed with higher controls in place and the capacity to handle large amounts of cash.

Mobile connectivity and marketing

The company has described its plans to integrate Cocoon with its existing cannabis tracking app, Coil. Coil already allows customers to track different strains and find these strains at participating dispensaries. The combination of this functionality with a POS system could potentially enable payment via mobile to ‘pre-order’ the desired product before entering the store, and even further reduce waiting times. Moreover, the combined product provides a wide range of marketing opportunities. Because Cocoon will be fulfilling orders, it can communicate details such as pricing changes and sales to carriers of the app, without any additional steps. We believe the loyalty program has a much higher probability of success when paired with Cocoon. Right now it is a standalone product, and we expect better uptake and utilization when bundled with an integrated product.

Partnership with a seasoned developer from the casino industry

Cocoon is the product of a development partnership with Passport Technology. Passport is primarily a developer of self-service cash access devices and kiosks for use in the casino industry, and this partnership reflects Australis management’s existing expertise in that space. The casino market is similar to cannabis in terms of its high degree of regulation and oversight, which gives us confidence that Passport will be able to maintain compliance with the various regulations that may affect device function and reporting. Although they present a hurdle, these regulations may also prove to be protective against future competition. The precise details of the agreement have not been made public.

Market hurdles and competition

There are very few other companies developing products that are directly analogous to Cocoon. There have been multiple previous attempts to streamline the cannabis fulfilment process, but by and large these systems have focused on automated vending. A 2018 article in Marijuana Business Daily describes feedback from dispensary operators: vending machines plagued with ‘technical glitches, such as jams or returning incorrect change’. The article also highlights issues with maintenance and oversight that absorbed staff time, limiting the benefits of the products. Cocoon avoids many of these issues by not tackling vending, and we are confident that the expertise of Passport will help avoid some of the maintenance and support through thoughtful development.

The closest comparator of which we are aware is Grasshopper, which has developed a kiosk (as well as other cannabis-centric fulfilment products) that it markets as the ‘only compliant automated retail system in the cannabis industry’ (although we cannot verify this claim). The kiosk integrates with the company’s other platform components, including integration with the Grasshopper app, which allows individuals to search for locations and pay through the app.

Valuation

Valuations in the cannabis industry have been brought down significantly by the market. The Cannabis ETF HMMJ is the lowest it has been since 2017. Australis has been similarly affected, as has Body and Mind (BaM, in which Australis owns 38m shares), which has reduced our adjusted nominal value of the Australis portfolio to C$91.0m. Australis is currently trading at just a 14% premium to this value (based on basic shares). It is worth noting that in our adjusted nominal value, only BaM is marked to market and the remainder of the portfolio is valued at cost. The current premium on the fully diluted market cap (C$132m, 45%) implies just a 14% annual growth rate will justify this valuation. Compare this to our estimates of 24% annual growth in the cannabis market as a whole. We have significant confidence in the company’s ability to produce better returns than the current market valuation implies.

We should note that our valuation does not include Cocoon at this time due to the lack of detail on the terms of the deal with Passport. However, as we value the assets at cost for our analysis, if the company paid cash, this would have no net impact on our analysis.

Exhibit 1: Australis portfolio

Asset

Nominal value (C$m)

Adjusted nominal value (C$m)

rthm

3.86

 

Body & Mind

17.03

37.03

Wagner Dimas

3.00

 

Quality Green

2.00

 

Folium Biosciences

3.99

 

Mr. Natural

1.21

 

Green Therapeutics *

12.50

 

 

 

Core portfolio value

43.59

63.59

Legacy portfolio (Australis holdings & SubTerra)

4.23

4.23

Cash for investing

12.36

12.36

Other Cash

10.80

10.80

Total value

70.99

90.99

Source: Australis Capital reports, Edison Investment Research. Note: *Definitive agreement signed.

Exhibit 2: Australis market valuation

Shares outstanding (m)

167.43

Share price (C$)

0.62

Market cap (C$m)

103.81

 

 

Dilutive warrants and options (m)

44.64

Weighted average exercise price (C$)

0.43

Diluted shares (m)

212.07

Diluted market cap (C$m)

131.49

Source: Australis Capital reports, Edison Investment Research.

Financials

The company reported an operational loss of C$2.8m for Q120, which was largely offset by non-operational items, including a C$2.0m recognition of a deferred gain (reported net loss of C$259k). The largest change to operational expenses for the most recent quarter was share-based payments of C$1.2m, up from C$677k for the whole of FY19. We have carried the new rate of share-based payments forward in our projections. We have adjusted some of our accounting, which has taken C$20m capex associated with the grow facility build-out in North Las Vegas, and moved that value to investment activity as we expect it to be deployed through subsidiaries. These amounts are provisional.

We expect to update our forecasts with the launch and traction of the various brands and services that Australis is offering, including the new Cocoon partnership. We expect some time will be needed to develop and prototype the CocoonPod, but that first sales may be possible in CY20.

Exhibit 3: Financial summary

C$000s

2019

2020e

2021e

Year end 31 March

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

129.8

270.6

270.6

Cost of Sales

0.0

0.0

0.0

Gross Profit

129.8

270.6

270.6

EBITDA

 

 

(3,606.8)

(6,238.1)

(6,238.1)

Normalised operating profit

 

 

(3,616.8)

(6,448.3)

(6,448.3)

Amortization of acquired intangibles

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

Share-based payments

(677.5)

(3,753.1)

(3,753.1)

Reported operating profit

(4,294.4)

(10,201.3)

(10,201.3)

Net Interest and financial income

284.9

2,819.4

(45.1)

Joint ventures & associates (post tax)

0.0

0.0

0.0

Exceptionals

(161.7)

0.0

0.0

Profit Before Tax (norm)

 

 

(3,493.7)

(3,628.9)

(6,493.4)

Profit Before Tax (reported)

 

 

(4,171.2)

(7,382.0)

(10,246.4)

Reported tax

0.0

0.0

0.0

Profit After Tax (norm)

(3,493.7)

(3,628.9)

(6,493.4)

Profit After Tax (reported)

(4,171.2)

(7,382.0)

(10,246.4)

Minority interests

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

Net income (normalised)

(3,493.7)

(3,628.9)

(6,493.4)

Net income (reported)

(4,171.2)

(7,382.0)

(10,246.4)

Basic average number of shares outstanding (m)

94

167

176

EPS - basic normalised (C$)

 

 

(0.04)

(0.02)

(0.04)

EPS - diluted normalised (C$)

 

 

(0.04)

(0.02)

(0.04)

EPS - basic reported (C$)

 

 

(0.04)

(0.04)

(0.06)

Dividend (C$)

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

36,939.9

55,547.7

55,337.5

Intangible Assets

4,048.0

3,086.6

3,086.6

Tangible Assets

120.5

7,249.8

7,039.7

Investments & other

32,771.4

45,211.2

45,211.2

Current Assets

 

 

28,111.5

18,608.1

12,324.9

Stocks

0.0

0.0

0.0

Debtors

273.7

273.7

273.7

Cash & cash equivalents

24,515.5

15,286.8

9,003.6

Other

3,322.3

3,047.7

3,047.7

Current Liabilities

 

 

(1,864.5)

(3,119.1)

(3,119.1)

Creditors

(1,864.5)

(3,119.1)

(3,119.1)

Tax and social security

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

Other

0.0

0.0

0.0

Long Term Liabilities

 

 

(2,512.6)

(1,305.0)

(1,305.0)

Long term borrowings

0.0

0.0

0.0

Other long-term liabilities

(2,512.6)

(1,305.0)

(1,305.0)

Net Assets

 

 

60,674.3

69,731.8

63,238.4

Minority interests

0.0

0.0

0.0

Shareholders' equity

 

 

60,674.3

69,731.8

63,238.4

CASH FLOW

Op Cash Flow before WC and tax

(3,606.8)

(6,238.1)

(6,238.1)

Working capital

833.9

(417.8)

0.0

Exceptional & other

(33.1)

3,780.8

(45.1)

Tax

0.0

0.0

0.0

Net operating cash flow

 

 

(2,806.0)

(2,875.2)

(6,283.2)

Capex

(130.6)

(17.3)

0.0

Acquisitions/disposals

(15,789.3)

(24,489.8)

0.0

Net interest

0.0

0.0

0.0

Equity financing

52,386.7

12,822.8

0.0

Dividends

0.0

0.0

0.0

Other

(9,438.5)

5,330.8

0.0

Net Cash Flow

24,222.3

(9,228.7)

(6,283.2)

Opening net debt/(cash)

 

 

0.0

(24,515.5)

(15,286.8)

FX

293.2

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(24,515.5)

(15,286.8)

(9,003.6)

Source: Australis Capital reports, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Australis Capital and prepared and issued by Edison, in consideration of a fee payable by Australis Capital. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Australis Capital and prepared and issued by Edison, in consideration of a fee payable by Australis Capital. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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