Completion of financing heralds a new dawn

Leclanché 29 June 2018 Update
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Leclanché

Completion of financing heralds a new dawn

FY17 results

Alternative energy

 

29 June 2018

Price

CHF1.88

Market cap

CHF152m

Net debt (CHFm) at end Dec 2017 (including CHF22.7m convertible loan) before issue of 43.5m convertible loan in February 2018 and CHF20.0m convertible loan in June 2018

19.5

Shares in issue

80.7m

Free float

43%

Code

LECN

Primary exchange

SIX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.8)

0.5

(23.3)

Rel (local)

0.8

4.0

(17.7)

52-week high/low

CHF2.7

CHF1.6

Business description

Leclanché is a fully vertically integrated energy storage solution provider. It delivers a wide range of energy storage solutions for homes, small offices, large industries and electricity grids as well as hybridisation for mass transport systems such as bus fleets and ferries.

Next events

H118 results

September 2018

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Leclanché is a research client of Edison Investment Research Limited

As flagged in Leclanché’s March trading update, FY17 revenue development was held back by lack of funding. Management has recently completed a sequence of financing transactions that it estimates will be sufficient to take the company through to an EBITDA-positive position in FY20. We reinstate our estimates, which were withdrawn following the March trading update.

Year end

Revenue (CHFm)

EBITDA* (CHFm)

PBT* (CHFm)

EPS* (CHF)

DPS (CHF)

P/E (x)

12/16

28.1

(27.4)

(36.8)

(0.9)

0.0

N/A

12/17

11.7

(31.2)

(37.9)

(0.7)

0.0

N/A

12/18e

62.1

(18.5)

(29.7)

(0.4)

0.0

N/A

12/19e

101.2

(8.8)

(21.1)

(0.3)

0.0

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Treating outstanding loan notes as debt.

Progress held back during FY17 by access to finance

Revenues, excluding CHF3.5m grant income primarily for a European ferry project, halved year-on-year during FY17. Revenue growth would have been substantially stronger if Leclanché had secured sufficient funding to make faster progress on two large stationary energy storage projects in North America, which it expects to complete this year. EBIT loss widened, from CHF34.5m to CHF36.1m, as the restructuring and cost-reduction exercises taken in late FY16 and early FY17 were offset by higher consulting costs and commissions on financing. The financing situation did not prevent the company from adding to its pipeline of projects in both the stationary storage and e-transport sectors.

Recent financing supports volume ramp-up

Over the last six months management has secured c CHF94m funding, which it estimates is sufficient to fully finance Leclanché to positive EBITDA in FY20. This provides the cash to deliver on the pipeline of contracts already received for delivery during FY18, which total over 50MWh of capacity, representing CHF40-50m. These include a 33MWh battery storage plant in Cremzow, Germany, completion of two major energy storage projects in Canada and the US and projects with Skoda Electric and an Indian automotive integrator. We note that the bulk of the financing is through convertible loans from a shareholder who we estimate currently holds a 53% stake in the company. We estimate that these convertible loans would, if fully converted at the current share price, represent an additional 39.6m shares.

Valuation: Dependent on execution of projects

Our valuation is based on a DCF calculation, taking the growth rate adopted in our estimates and now applying a terminal growth rate of 3% and WACC of 10.0%, as we believe both the technology and Leclanché’s ability to execute on large projects are proven. This gives an indicative valuation of CHF2.51/share. Our previous indicative valuation of CHF4.34/share assumed substantially faster volume roll-out by working on large projects where Leclanché needed to find project finance and applied a WACC of 15% to reflect funding concerns, which we believe have now been resolved.

FY17 performance

Exhibit 1: Analysis of revenues by segment

Source: Company data. Note: *Excluding grants for e-mobility projects.

FY17 performance affected by lack of finance

Revenues, excluding CHF3.5m grant income primarily for a European ferry project, halved to CHF11.7m year-on-year during FY17. Lack of finance prevented the ramp-up in large-scale energy storage systems that management had expected, resulting in a fall in revenues from this sector from CHF20.4m in FY16 to CHF3.1m. Revenues from the commercial and industrial battery systems segment rose by 32% year-on-year to CHF6.0m, boosted by a subsidy in the Swiss canton of Vaud for energy storage systems deployed at the individual household level. Revenues from the energy efficiency solutions segment dropped by 22% to CHF2.2m as the business focused on more profitable lines. Revenues from e-transport, excluding CHF3.4m grant for the European ferry project that was classified as ‘other income’, were similar to FY16.

As in FY16, the cost of raw materials and consumables was roughly in line with revenues (including the ferry project) as the company worked on projects with low or negative margins to take market share (management has decided not to pursue this strategy). Personnel costs fell CHF1.5m to CHF17.9m as a result of the restructuring and cost-reduction exercises in late FY16 and early FY17. However, this was offset by a CHF3.0m increase in consulting costs to CHF5.2m and a CHF1.5m rise in commissions on financing to CHF2.1m, as a result of which EBIT loss widened from CHF34.5m to CHF36.1m. Net finance costs reduced from CHF3.2m to CHF2.6m because of lower levels of convertible loans.

Financing programme completed in June 2018

The 2017 cash flow was adversely affected by a CHF14.9m increase in working capital. Inventories rose CHF3.1m because of a build-up of modules for the Canadian project, which were mostly delivered in H118, and because modules delivered for the Cremzow project are treated as WIP until the revenue is recognised on completion of the project. Receivables increased by CHF8.3m because of the short-term loan related to the Canadian storage project and advances to suppliers. Payables decreased by CHF3.5m as financial constraints eased towards the year end. Capital expenditure, primarily on R&D equipment and two module assembly lines, one for stationary storage projects and the other for e-mobility projects, totalled CHF2.5m. Management was very active during the year, reducing indebtedness and raising additional finance. Although cash used in operating activities plus capex totalled CHF47.2m, net debt (including CHF24.1m convertible loans) increased by only CHF1.7m to CHF19.5m. The financing activity continued into Q218 (see Exhibit 2). Management notes it has sufficient funding to fully finance the company through to FY20, when it expects to be EBITDA positive.

Exhibit 2: Recent financing activity

Transaction

Value

Number of shares

Talisman – warrants exercise

CHF0.3m March 2017

0.2m new shares issued

Bridge loan – GP*

CHF2.7m March 2017

1% per month, maturity date extended to March 2020

Baring Asset Management – capital increase

CHF2.5m April 2017

1.0m new shares issued

Capital increase

CHF3.4m July 2017

1,750,001 new shares issued @CHF2.0/share

Mandatory convertible loan note – Bruellan

CHF 1.0m July 2017

Converted to 666,668 shares @ CHF1.50/share

Mandatory convertible loan note – Trialford

CHF0.5m July 2017

Converted to 333,334 shares @CHF1.50/share

Convertible Llan – ACE/JADE/LECN

CHF12.0m end H117

CHF11.8m end H117

Transferred to GP*, converted to 7,333,333 shares @ CHF1.50 in September and October 2017. Maturity date extended to 30 June 2018, value outstanding end FY17 CHF12.9m**

Mandatory convertible loan note – GP

CHF12.0m July 2017

Converted to 8,000,000 shares @ CHF1.50/share in September 2017

Mandatory convertible loan note – Bruellan

CHF3.0m July 2017

Converted to 2,000,00 shares @ CHF1.50/share in September 2017

Convertible loan – GP/JADE/LECN

CHF11.0m Sept 17

New agreement. 8%, maturity date September 2020

Mandatory convertible loan note – GP

CHF16.5m Dec 2017

Converted to 11.0m shares @ CHF1.50/share in February 2018

Convertible loan – GP

CHF43.5m Feb 18

CHF34.0m drawn down end April

CHF24.0m of this to be converted to equity, subject to takeover waiver

Loan – GP

CHF14.0m Feb18

To repay convertibles maturing June 2018

Convertible loan – GP

CHF20.0m June 2018

Details not disclosed

Conditional facility – GP

CHF50m June 2018

Facility provided for acquisitions and JVs on a ‘right-of-first-offer’ basis for GP <CHF20m allocated for Indian JV

Source: Edison Investment Research. Note: *Golden Partner. **Principal and interest.

As a result of this financing activity, Golden Partner, which is the ultimate holder of funds administered by Finexis, has substantially increased its stake in the company. At the end of FY17, it held 31.4m shares, representing a 45.1% stake. We estimate that, following the conversion of the CHF16.5m convertible loan in February 2018, this stake increased to 52.6%, hence the award of an exemption from a mandatory takeover at that time. We model the outstanding convertible loan as debt. Excluding the CHF11.8m that will be repaid in June 2018 this totals CHF74.5m, which is equivalent to 39.6m shares at the current share price. If these were all exercised, this would give Golden Partner and its associates a 68.2% stake in the company. Golden Partner has recently confirmed its plans to convert CHF20m of its debt to equity (this is in addition to the CHF16.5m converted in February). A further takeover waiver is being sought to cover this transaction, which we estimate will take Golden Partner’s shareholding to 59.0%. Golden Partner has also agreed to provide a conditional CHF50m facility for acquisitions and joint ventures; up to CHF20m has already been allocated to set up a JV in India. We note that Leclanché is acquiring an energy management software suite from a US vendor.

Outlook

Management notes it is working on a confirmed order book of over 50MWh, which is scheduled for delivery during FY18. This represents CHF40-50m of revenue. It expects the combination of revenue and margin growth to result in a break-even situation at EBITDA level in FY20 rather than late FY18/H119 as per our November note. It is focused on developing the utility scale generation and e-transport segments, which is where the largest growth opportunities are. We reinstate our estimates, which are based on the assumptions outlined below.

Utility Scale Generation and Microgrids

While the ramp-up in growth in large-scale energy storage systems that was expected during FY17 was held back by lack of financing, these projects have been delayed rather than awarded to competitors and additional work has been secured during the period. However, the total volume of confirmed orders is less than the 115MWh referred to in our November note because management has decided not to proceed with any projects where it needs to help provide finance. We note that Leclanché has demonstrated conclusively that it can deliver large-scale projects, having delivered 30MWh of capacity during FY16. Our estimates show the year-on-year increase in megawatt hours delivered: 70MWh in FY18, 100MWh in FY19 and 150MWh in FY20, converting to strong revenue growth throughout the forecast period. The committed projects detailed in Exhibit 1 underpin our FY18 estimates. Our view of growth in FY19 and FY20 is based on an order pipeline, which remains at the 450MWh level because projects where help with financing was required have been replaced by other activities.

Exhibit 3: Ongoing stationary storage projects

Project

Size

Notes

Cremzow, Germany

31MWh

Part of the primary control reserve mechanism in the state of Brandenburg, evening out imbalances between electricity generation and consumption to maintain grid stability. Leclanché is acting as turnkey systems integrator and engineering, procurement and construction contractor, integrating battery and power conversion systems and energy management software, as well as supplying the battery modules. First 2MW of plant was operational from April 2018. Completion by end 2018.

Marengo, Illinois

19.5MWh

Battery energy storage system for frequency regulation. Completion by end 2018.

IESO Basin 1 & 2, Ontario

13.8MWh

Battery storage system to support grid stabilisation and resiliency. Completion by end Q318.

SWB Bremen, Germany

15MWh

Hybrid storage system with a battery energy storage system and heating system. Commissioning Autumn 2018.

Romande Energie, Switzerland

5 MWh

Storage for photo-voltaic solar integration.

Canadian Solar, Ottawa

2.8MWh

Provision of grid ancillary services for IESO, connected directly to the provincial transmission grid.

Source: Company data

E-transport

Leclanché is involved in a range of projects in the e-transport sector. Our estimates show segmental revenues ramping up from CHF1.0m in FY18 to CHF16.9m in FY19 and CHF17.9m in FY20 as two key projects transition to volume production (one with Skoda Electric, the other with an Indian automotive integrator). Assuming trials of the technology are successful and the Indian integrator rolls out its network of fast-charging points as planned, the annual volume delivered for this project would be 90-150MWh (equivalent to 3,000-5,000 Nissan Leafs) from FY20 onwards.

Commercial and industrial battery systems

Management expects revenues from the Swiss army to continue at around FY16 levels during the forecast period. We expect this to be supplemented by revenues from the material handling segment and sales of the energy storage systems suitable for individual homes and businesses. We note that Leclanché’s PowerPack energy storage solution for households with solar panels was the first to meet the requirements of a subsidy provided by the canton of Vaud.

Efficiency solutions

Leclanché is engaged in initiatives that will expand both the portfolio of third-party batteries it offers and the sales channels. Management expects these will deliver segmental growth through to FY20.

Revisions to estimates

Revenues: we assume that now the company has resolved its funding issues, the sales pipeline will convert more rapidly, resulting in strong revenue growth throughout the forecast period and a break-even position in FY20. The main reason for the reduction in our revenue estimates is management’s decision not to pursue projects where it would need to help provide financing.

Gross margin: noting that management has decided not to pursue projects without a satisfactory gross margin, we model 10% margin on stationary systems in FY18, rising to 20% in FY19 as module production is brought in-house.

Capex: our model allocates CHF14.0m for capex in FY18, CHF12m of which is to rebuild the equipment damaged in the fire and CHF1m to upgrade the enterprise resource planning system. The CHF5.5m capex allocated for FY19 includes c CHF2m expanding battery production capacity in Germany and c CHF2m establishing a module assembly line elsewhere (probably in China or India) to serve local projects.

Financing: our model treats all of the outstanding convertible loans as debt. We assume the interest relating to this debt is added to the principal.

Exhibit 4: Changes to estimates

FY17

FY18e

FY19e

FY20e

Actual

Old

% change

New

Old

% change

New

Old

% change

New

Group revenues (CHFm)

11.7

28.1

58.3%

62.1

114.7

45.9%

101.2

184.9

45.3%

137.0

Group EBITDA (CHFm)

(31.2)

(18.4)

69.3%

(18.5)

1.4

N/A

(8.8)

17.1

N/A

0.1

Group PBT (CHFm)

(37.9)

(22.6)

67.5%

(29.7)

(2.6)

N/A

(21.1)

13.8

N/A

(12.1)

EPS (CHF)

(0.7)

(0.4)

N/A

(0.4)

0.0

N/A

(0.3)

0.2

N/A

(0.2)

Net debt at year end (CHFm)

19.5

4.6

323.5%

37.3

19.0

96.3

69.7

23.5

196.6

93.9

Source: Company data, Edison Investment Research

Valuation

Exhibit 5: DCF analysis, CHF/share

Low case

Base case

High case

Discount rate

Discount rate

Discount rate

9.0%

10.0%

13.0%

9.0%

10.0%

13.0%

9.0%

10.0%

13.0%

Terminal growth

1.0%

1.75

1.25

0.29

2.37

1.79

0.67

2.98

2.32

1.04

2.0%

2.13

1.52

0.41

2.80

2.11

0.81

3.48

2.68

1.20

3.0%

2.63

1.88

0.56

3.39

2.51

0.98

4.15

3.15

1.39

4.0%

3.34

2.35

0.74

4.20

3.06

1.19

5.08

3.77

1.63

5.0%

4.41

3.01

0.96

5.43

3.82

1.44

6.48

4.64

1.92

Source: Edison Investment Research

Because Leclanché’s revised strategy has not yet generated operating profits, the use of peer-based multiples is limited as a valuation methodology. Moreover, while management has good visibility of projects totalling over 1GWh of capacity, there remains considerable uncertainty as to how quickly it will be able to deliver on the projects. Given this level of uncertainty, we present a scenario analysis with the base case adopting the rate of revenue growth and costs as shown in our estimates from 2018 to 2020. Using this as our basis, we model potential revenues and EBITDA out to 2027, assuming that a substantial proportion of battery cell manufacture from FY20 onwards will be carried out by local partners for projects in China or India, thus reducing capex, and that large projects will be funded by third parties. Applying a terminal growth rate of 3% and WACC of 10%, our base case gives an indicative valuation of CHF2.51/share. Our previous indicative valuation of CHF4.34/share assumed that Leclanché would be able to work with third parties to create special purpose vehicles for financing large projects, thus delivering substantially faster volume ramp-up. This previous valuation also applied a WACC of 15% to reflect the risk associated with completing the financing for Leclanché itself, which has now been secured, and finding financing for large projects, which are no longer included in the cash-flow projections.

Clearly there is no certainty that the individual projects contributing towards the revenue growth adopted in our valuation will progress as expected. However, we note the technology being deployed is proven and Leclanché has already demonstrated it can deliver on large projects. While there remains a risk that individual projects may not come to fruition, there is rising demand for battery energy storage for both stationary grid-related and e-transport applications, with very few companies able to offer the battery modules, energy management software and engineering, procurement and construction services as Leclanché can. This puts it in a good place to win work on alternative projects. Given the lower levels of funding risk, we now adopt a WACC of 10% for our indicative valuation.

The current share price suggests the market is assuming a slower growth rate than that adopted in our estimates. Our reverse DCF calculation generates an indicative value similar to the current share price when revenues are scaled back by 5%. This indicates the potential for substantial share price appreciation as Leclanché demonstrates it is able to convert the existing pipeline and achieve the growth rate shown in our estimates. Conversely, scaling up revenues by 5% gives an indicative value of CHF3.15/share.

Exhibit 6: Financial summary

CHFm

2016

2017

2018e

2019e

2020e

Year-end Dec

PROFIT & LOSS

Revenue

 

 

28.1

11.7

62.1

101.2

137.0

Cost of Sales

(26.2)

(15.7)

(47.2)

(71.3)

(96.2)

Gross Profit

1.9

(4.0)

14.9

29.9

40.8

EBITDA

 

 

(27.4)

(31.2)

(18.5)

(8.8)

0.1

Operating Profit (pre amort. of acq intangibles & SBP)

 

(33.6)

(35.4)

(21.4)

(12.1)

(3.2)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Share-based payments

(1.0)

(0.7)

(0.7)

(0.7)

(0.7)

Exceptionals

0.0

0.0

0.0

0.0

0.0

Operating Profit

(34.5)

(36.1)

(22.1)

(12.8)

(3.8)

Net Interest

(3.2)

(2.5)

(8.3)

(9.0)

(9.0)

Profit Before Tax (norm)

 

 

(36.8)

(37.9)

(29.7)

(21.1)

(12.1)

Profit Before Tax (FRS 3)

 

 

(37.8)

(38.5)

(30.4)

(21.8)

(12.8)

Tax

0.6

0.1

0.0

0.0

0.0

Profit After Tax (norm)

(36.3)

(37.8)

(29.7)

(21.1)

(12.1)

Profit After Tax (FRS 3)

(37.2)

(38.5)

(30.4)

(21.8)

(12.8)

Minority interest

0.0

0.0

0.0

0.0

0.0

Net income (norm)

(36.3)

(37.8)

(29.7)

(21.1)

(12.1)

Net income (FRS 3)

(37.2)

(38.5)

(30.4)

(21.8)

(12.8)

Average Number of Shares Outstanding (m)

42.7

55.3

75.2

80.7

80.7

EPS - normalised (CHFc)

 

 

(85.0)

(68.4)

(39.5)

(26.1)

(15.0)

EPS - normalised fully diluted (CHFc)

 

 

(85.0)

(68.4)

(39.5)

(26.0)

(14.9)

EPS - FRS 3 (CHFc)

 

 

(87.2)

(69.6)

(40.4)

(26.8)

(15.7)

Dividend per share (CHFc)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

6.8

N/A

24.0

29.6

29.8

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

16.9

16.6

27.7

30.0

32.3

Intangible Assets

6.9

4.5

3.9

3.3

2.7

Tangible Assets and Deferred tax assets

10.0

12.1

23.8

26.7

29.6

Current Assets

 

 

35.6

52.1

86.9

78.8

79.1

Stocks

9.6

12.7

17.0

27.7

37.5

Debtors

21.5

32.8

11.9

16.6

22.5

Cash

4.5

6.6

58.0

34.4

19.0

Current Liabilities

 

 

(46.2)

(35.7)

(11.1)

(17.5)

(23.4)

Creditors including tax, social security and provisions

(23.9)

(20.6)

(10.5)

(16.9)

(22.8)

Short term borrowings

(22.3)

(15.1)

(0.6)

(0.6)

(0.6)

Long Term Liabilities

 

 

(11.6)

(22.1)

(105.8)

(114.6)

(123.5)

Long term borrowings*

0.0

(11.0)

(94.7)

(103.5)

(112.4)

Retirement benefit obligation

(9.5)

(8.5)

(8.5)

(8.5)

(8.5)

Other long term liabilities

(2.1)

(2.6)

(2.6)

(2.6)

(2.6)

Net Assets

 

 

(5.3)

11.0

(2.2)

(23.3)

(35.4)

Minority interest

0.0

0.0

0.0

0.0

0.0

Shareholders equity

 

 

(5.3)

11.0

(2.2)

(23.3)

(35.4)

CASH FLOW

Operating Cash Flow

 

 

(34.2)

(44.6)

(12.1)

(17.9)

(9.7)

Net Interest

(0.1)

(0.1)

(0.1)

(0.1)

(0.1)

Tax

0.0

0.1

0.0

0.0

0.0

Investment activities

1.6

(6.6)

(14.0)

(5.6)

(5.6)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Equity financing and other financing activities

3.9

6.5

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

(28.7)

(44.7)

(26.2)

(23.6)

(15.4)

Opening net debt/(cash)

 

 

5.3

17.8

19.5

37.3

69.7

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other**

(16.2)

(43.0)

(8.3)

8.9

8.9

Closing net debt/(cash)

 

 

17.8

19.5

37.3

69.7

93.9

Source: Company data, Edison Investment Research. Note: *Treating all outstanding convertible loan notes as debt, including CHF24m where approval is sought from the Swiss Takeover Board for conversion. Excluding conditional facility from GP. **Other relates to convertible notes movements and accrued interest.

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DISCLAIMER Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Leclanché 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. 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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 Leclanché 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 AustraliaThe 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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