Identifying opportunities in a highly rated market

Flavours and fragrances 18 June 2015

Flavours and fragrances

Identifying opportunities in a highly rated market

Consumer

1 June 2015

Companies in this report

Givaudan (GIVN VX)

Symrise (SY1 GR)

IFF (IFF US)

DSM (DSM NA)

Croda (CRDA LN)

Kerry Group (KYG ID)

Robertet (RBT FP)

Frutarom (FRUT IT)

Treatt (TET LN)*

Naturex (NRX FP)

GLG Life Tech (GLG CN)*

PureCircle (PURE LN)

Evolva (EVE SW)*

*Edison research clients

Analysts

Victoria Pease

+44 (020) 3077 5700

Paul Hickman

+44 (020) 3681 2501

For institutional enquiries contact:

Jeremy Silewicz

+44(0)20 3077 5704

jsilewicz@edisongroup.com

The massive sector re-rating over the past three years reflects the industry’s many attractive qualities – 3.5% annual structural growth, significant barriers to entry and high cash conversion rates. However, at current valuations, stock selection is of increased importance. In addition, although stretched valuations mean fewer opportunities for transformational M&A deals, we expect continued consolidation.

Attractive investment qualities…

Investor interest has been driven by the sector’s numerous defensive qualities. Barriers to entry include investment in R&D, regulatory expertise and the fact that established companies are locked into their customers' supply chains. Typically, the vital active flavours and fragrances (F&F) ingredient consists of merely 1-5% of a customer’s overall cost. An additional bonus is that, through these customers, the F&F industry is able to expand geographically without committing capital, hence high ROCE and cash conversion rates.

…but stretched valuations mean higher risk

At current valuations, there is not much room for disappointment. The key question is whether the sector’s high margins are sustainable. This is particularly pertinent when compared to the lower returns of their own sophisticated customers. Furthermore, across the sector, recent results suggest that the market may not continue growing at the same rate, particularly in mature economies. Inevitably, the winners will need to gain market share and diversify into complementary products.

A consolidating $18bn dollar market

M&A has long been a feature of this industry, with the result that two-thirds of the market is now dominated by four players (Givaudan, IFF, Symrise and the privately owned Firmenich). Highly rated paper provides an opportunity to purchase growth and some companies are continuing their acquisition strategies (eg Kerry, Frutarom). The biggest challenge will be finding willing sellers at competitive prices.

On relative valuation, a few opportunities remain

Among the large companies, we note that IFF trades at a c 15% discount to its direct peers, which seems unwarranted given its high-quality business model. DSM and Naturex are potential turnaround plays and, among the smaller companies, Treatt trades 20% below our fair value of 190p. The three stevia-related companies in this report (GLG, Evolva and PureCircle) are at valuations that reflect their earlier stage of product development.

Exhibit 1: A snapshot of global F&F companies

Company

Description

Key financials

Investment case

Givaudan
GIVN VX
CHF1,722

Corporate overview

Bull

Founded 250 years ago, Givaudan is the world’s leading F&F company, with above 25% market share. Growth has been via consistent organic development and strategic M&A. Acquisitions include FIS (Nestle flavours) in 2002, IBF (US fermentation) in 2003, Quest International in 2007 and Soliance (sustainable cosmetic ingredients) in 2014.

2015e CHFm
Mkt cap: 15,900
Net debt: 517
Revenues: 4,343
EBIT: 767
PBT: 694

Strong balance sheet, stable cash flow and progressive 3% dividend yield.

Ability to continue bolt-on M&A deals.

Slowing organic growth compensated by margin accretion, helped by stabilising raw material prices.

Markets

Bear

In Flavours (52% sales), end-customers include beverages, savoury, snacks, sweet goods and dairy. In Fragrances (48% sales), customers are in personal, home and laundry care brands, as well as prestige perfumes. In 2014 mature markets (US, Europe, Japan) represented 54% sales. Developing markets (Asia Pacific, Latin America and Eastern Europe) accounted for 46% of annual sales. The sales mix is expected to continue changing as growth in emerging markets outpaces the rest.

Weak recent l-f-l growth, particularly in mature markets.

Recent weakness in China suggests a market slowdown, as well as increased competition.

Strengthening Swiss franc may affect translation, as well as competitive pricing.

Catalysts

H1 results (17 July), H1 investor conference (27 August).

Symrise
SY1 GR
€57.95

Corporate overview

Bull

With a market share of 12%, Symrise is the world’s fourth largest supplier in the F&F market. The company was founded in 2003 by the merger of Haarmann & Reimer (ex-Bayer) and Dragoco, both based in Holzminden (Germany), with an IPO in 2006. Recent acquisitions include Flavours Direct (UK seasonings) in 2005, Kaden Biochemicals (speciality botanical extracts) in 2006 and Diana Group (natural flavours and pet food) in 2014.

2015e €m
Mkt cap: 7,522
Net debt: 1,177
Revenues: 2,614
EBIT: 436
PBT: 386

Outpacing the market, with continued solid customer demand. 2020 targets reiterated.

Global presence and diversified portfolio leads to continued growth opportunities.

Diana acquisition is an entry into pet and baby food.

Markets

Bear

The company’s 30,000 products are primarily produced from natural raw materials (vanilla, citrus, blossoms, plant or animal materials). Sales mix in 2014 was flavours 54%, scent and care 46%.

Mature markets comprised 53% of sales. Emerging markets are expected to grow to more than 50% of group sales by 2020.

Volatile raw material costs, particularly natural-based materials (citrus, vanilla) affect margins.

USD FX changes could affect US expansion plans.

Management reiterated that there is limited margin upside in the business.

Catalyst

Capital Markets Day (12 June).

IFF
IFF US
US$119.0

Corporate overview

Bull

With a market share of 16%, IFF is the second largest supplier in the F&F market. It was created from a merger in 1958 and has been listed since 1964. The acquisition in 2000 of Bush Boake Allen made IFF the largest F&F company for many years. IFF acquired Aromor (a private Israeli company) in 2014 and Ottens (US flavours) in 2015.

2015e US$m
Mkt cap: 9,605
Net debt: 430
Revenues: 3,116
EBIT: 630
PBT: 580

Superior organic growth, as company continues to gain market share, particularly in emerging markets.

Strong balance sheet and high returns on capital, with progressive dividend policy.

Recent results demonstrated resilience and defensive nature of the business.

Market

Bear

In 2014, fragrances (beauty, fabric, home care, fine fragrances, ingredients, personal wash) comprised 53% sales, with flavours (beverages, sweet, dairy, savoury, vanilla, strawberry, FlavourFit) at 47%. Following a $320m investment into emerging markets over the past five years, IFF is the market leader in terms of percentage of sales to emerging markets, which equate to 50% of group revenues.

Q1 showed intensifying FX headwinds.

Further margin progression is dependent on successful delivery of efficiency measures.

After a strong 2014, l-f-l growth is increasingly difficult to achieve.

Catalyst

NY Investor Conference (2 June).

DSM
DSM NA
€53.99

Corporate overview

Bull

Royal DSM is a global science-based company active in health, nutrition and materials. Established in 1902, it has undergone numerous transformations. Most recently, it acquired Kensey Nash (US biomedical) and Cargill's (cultures and enzymes) in 2012, Tortuga (Brazilian nutritional supplements) in 2013, and Aland (Hong Kong vitamin C) in 2015. It is also forming a partnership with CVC, with a view to exiting non-core businesses (composite resins).

2015e €m
Mkt cap: 9,795
Net debt: 2,230
Revenues: 8,480
EBIT: 609
PBT: 501

Continued restructuring, as evidenced by formation of a JV (DPX), where there is IPO potential.

If the company can exit its more volatile businesses, a pure-play nutrition company may benefit from high peer group valuation comparisons.

More cost-cutting expected.

Market

Bear

DSM's global end-markets include food and dietary supplements, personal care, feed, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. Nutrition (animal and human) comprises 64% of sales, and performance materials (plastics) comprises 34% sales. In 2014, emerging markets comprised 43% of group sales, compared to 41% the year before.

Sluggish western food and beverage markets.

US multivitamin market remains weak, and fish oil input costs affect the omega market.

Falling cash flows could threaten dividend cover.

Catalysts

Q2 results (4 August), Q3 results (3 November), Capital Markets Day (4 November).

Croda
CRDA LN
£29.25

Corporate overview

Bull

Croda is a UK speciality chemicals business, with a focus on developing and delivering innovative ingredients sustainably.

It was founded in 1925 and floated in 1964. Recent acquisitions include Sederma (skincare) in 1997 and ICI’s Uniqema business (manufacturing) in 2006.

2015e £m
Mkt cap: 3,971
Net debt: 184
Revenues: 1,087
EBIT: 267
PBT: 253

Company is returning to stronger organic growth after a period of disappointing figures.

Investments over the past five years have left the company with a stronger platform for growth. Croda’s cost base is showing signs of deflation.

Strong balance sheet and potential return of capital.

Markets

Bear

The business is split into three core segments: Personal Care (35% of sales), Life Sciences (20% of sales), Performance Technologies (34% of sales) and Industrial Chemicals (11% of sales).

Geographically, Croda is consolidating its position in Western Europe (37% of sales), expanding in North America (26% of sales) and expanding in Emerging Markets (37% of group sales).

Subdued demand in Europe, which is a core element of sales.

Limited order book visibility.

Valuation distorted by bid speculation.

Catalysts

Interim results (21 July), Q3 update (5 November).

Kerry Group
KYG ID
€68.00

Corporate overview

Bull

Kerry was founded in 1972 and floated on the Dublin stock exchange in 1986. Since 2000, the company has made 150 acquisitions, with a particular focus on the food ingredients market. The company is undergoing a €350m corporate restructuring (Kerry Connect). After a relatively quiet two-year M&A period, the company is now looking at new acquisition opportunities.

2015e €m
Mkt cap: 11,959
Net debt: 891
Revenues: 5,937
EBIT: 671
PBT: 606

Company aims to continue making accretive acquisitions. This is aided by an attractive corporate tax rate.

Recent disposals mean that the consumer business has been almost fully repositioned.

Key markets showing some recent improvement, with particular growth in emerging markets.

Markets

Bear

Ingredients and Flavours (savoury, dairy, beverage, cereal, pharma, regional technologies) comprise 75% of sales, with consumer foods as the remaining business.

EMEA accounts for 38% of sales, Americas for 44% and Asia Pacific comprises 18% of group sales. The company aims to grow its emerging market revenues from 25% of group total in 2014 to 30% by 2017.

Potential increased tax regulation would have a significant adverse impact on results.

Cash conversion much lower in 2014 due to increased WC and one-off opening of R&D centre.

Organic growth profile remains lower than F&F peer group.

Catalyst

Deutsche Bank Conference (9 June), H1 results
(6 August).

Robertet
RBT FP
€212.00

Corporate overview

Bull

Created in 1850, Robertet is a leading player in natural ingredients, with approximately 3% of the global F&F market. The company listed in Paris in 1992.

2013a €m
Mkt cap: 507
Net debt: 27
Revenues: 390
EBIT: 39
PBT: 39

High-end established perfume and natural aromatics business.

Possible M&A target by larger corporations seeking to enter the higher-end spectrum of F&F.

Markets

Bear

Robertet’s principal activities are the production and distribution of aromatic products. Sales are 45% food flavouring, 35% for perfumes and 20% for natural aromatic product industry.

The group operates in Asia (15% sales), the US (31%), South America (8%), the Middle East (7%) and Europe (39%).

Family-controlled business, with lack of liquidity and very little information in the stock market.

Lack of scale. Continuous investment required to keep pace with larger competitors.

Slower growth, due to mature market exposure.

Catalyst

N/A

Frutarom
FRUT IT
ILS15,200

Corporate overview

Bull

Established in 1933, Frutarom is a flavours business based in Israel, with listings in Tel Aviv (since 1996) and London (since 2006).

The company is highly acquisitive and since 1990 it has acquired 39 businesses globally (and 5 already in 2015). Its major shareholder (37%) is ICC Industries, a New York-based holding company.

2015e US$m
Mkt cap: 2,300
Net debt: 168
Revenues: 853
EBIT: 130
PBT: 125

Deal pipeline remains strong. Company benefits from efficient tax structure.

Strong revenue guidance, largely driven by acquisitions.

Private label, mid-sized customers proving to be a strong market for natural and healthy solutions.

Markets

Bear

Frutarom operates in two divisions: Flavours comprises 72% of group sales (flavours, savoury solutions, seasonings and food systems) and Fine Ingredients accounts for 20% of sales (natural flavour extracts, functional food ingredients, speciality oils, citrus and aroma chemicals). In 2014 Western Europe comprised 34% of group sales (from 51% in 2010) and emerging markets accounted for 46% of group sales (vs 27% in 2010).

Acquisitions inherently difficult to model and forecast.

Execution and integration risk associated with M&A.

Investors may be disappointed if company is unable to source competitively priced deals.

Catalyst

NA

Treatt
TET LN
£1.52

Corporate overview

Bull

Treatt began trading in essential oils in 1886, and expanded gradually over a century into other areas (chemical sales, contract compounding and distillation). The company listed on LSE in 1989. In 2007, it acquired Earthoil (organic oils in the US and Kenya).

2015e £m
Mkt cap: 78
Net debt: 9
Revenues: 84
EBIT: N/A
PBT: 8

Strong acceleration in operating performance.

Clearly defined strategy already bearing fruit.

Good medium-term earnings visibility through a combination of growth and self-help cost savings.

Markets

Bear

Treatt provides innovative ingredient solutions from its manufacturing bases in Europe, North America and Africa, principally for the flavours and fragrance industries, and multinational consumer goods companies, with particular emphasis on the beverage sector. Revenues by geography are UK 13%, Europe 27%, Americas 37% and RoW 23%.

Uncertainty and execution risk over two to three years relating to UK head office and plant relocation.

Products are relatively low on the F&F value chain, so higher valuation may not be justified.

Volatile commodity prices, specifically orange oil.

Catalyst

FY results (8 December 2015)

Naturex
NRX FP
€63.00

Corporate overview

Bull

Naturex was established in 1992 and is the global leader in speciality plant-based natural ingredients.

It listed in Paris in 1996. Since 2002, it has been highly acquisitive, and in May 2014 it doubled its food and beverage business in the US with the acquisition of Vegetable Juices Inc.

2015e €m
Mkt cap: 579
Net debt: 151
Revenues:369
EBIT: 32
PBT: 26

Departure of the chairman (and former CEO) and his son (CFO) should lead to fresh strategy and potential further realignment of shareholder and management interests.

Has been perceived as a potential bid target, especially after Diana (its key peer) was acquired by Symrise in 2014.

Leading niche position in natural ingredients.

Markets

Bear

Naturex produces and sells 100% natural vegetable ingredients, extracts, pigments and antioxidants. Food & Beverage comprise 65% of group revenues, while nutrition and health comprise 30%, Personal care accounts for 2% and toll manufacturing 3%. Geographic sales: Asia Pacific 13%, EMEA 43% and Americas 44%. Emerging markets in total comprise 19% of group revenue.

Investor confidence has been eroded from past track record and may take time to recover.

Disappointing Food & Beverage Q1 sales, especially in Europe.

Negative organic growth affects the ability to return operating margins to historical levels.

Catalyst

2020 strategic plan (30 June).

GLG Life Tech
GLG CN
C$0.35

Corporate overview

Bull

GLG Life Tech is a TSX-listed vertically integrated supplier of stevia-derived extracts primarily for use as low-calorie, high-intensity sweeteners (HIS) in the food and beverage industries. It sources stevia in China and processes extracts at its China-based facilities. In 2014 it began to produce Luo Han Guo (LHG) extracts, which we expect will account for c 25% of 2015 sales.

2015e C$m
Mkt cap: 13
Net debt: 94.9
Revenue: 47.4
EBIT: (3.6)
PBT: (16.5)

Proprietary stevia leaf (H3, H4, Super RA, “RebC Gold”) should increase extract yields and drive efficiency and market share gains.

Reputation boosted by FDA GRAS letters of no objection for multiple stevia and LHG extracts.

Increasing consumer interest for naturally sourced low-calorie sweeteners should fuel double-digit, long-term industry growth.

Markets

Bear

More than 90% of 2014 revenue consisted of stevia extract sales. 58% of 2014 revenue was sold to China-based customers, with 42% to international customers (mostly developed markets). In Q115, international customers accounted for 82% of revenue, driven by LHG growth. We assume GLG will secure 15% of the global stevia market by 2020 (the market value of which we estimate will exceed US$500m by then).

High leverage ratio, with majority of $107m Q115 net debt due within 12 months and under negotiation with creditors for refinancing.

Operating losses between 2011-14 largely due to industry overcapacity; we do not anticipate return to consistently positive EBITDA before 2016.

Dependence on commodity (stevia) market prices.

Catalyst

Q2 results (August 2015).

PureCircle
PURE LN
£4.28

Corporate overview

Bull

Incorporated in 2001, PureCircle is an investment holding company and one of the largest producers of high-purity stevia ingredients for the global food and beverage industry. In 2012, it entered a JV with Coca-Cola to investigate new forms of stevia. It is currently expanding its production capacity (expected in 2017).

2015e £m
Mkt cap: 727
Net debt: 53
Revenues: 133
EBIT: 21

PBT: 12

Market leader (75% of market) in stevia, which is rapidly becoming a mainstream calorie-reducing natural sweetener.

Recent equity funding enables significant expansion, which is a constraint on other players.

Long-term growth opportunity of 30% CAGR.

Markets

Bear

PureCircle estimates that the stevia market will grow from $250m in 2014 to a multi-billion dollar market within a few years.

The group’s markets are based in the Americas (75% sales), EMEA (10% sales) and Asia Pacific (15% sales).

Early days for the stevia market, resulting in a lack of visibility with short-term order flow.

Given the higher demand, Chinese leaf prices have risen considerably (75% of variable costs).

Significant fixed costs – very operationally geared.

Catalysts

FY15 results (September 2015)

Evolva

Corporate overview

Bull

EVE SW
CHF1.79

Evolva was founded in 2004 to commercialise its yeast technology platform and listed in 2009. Evolva acquired Allylix in December 2014 to strengthen its position as a leader in high-tech fermentation.

2015e CHFm
Mkt cap: 586
Net cash: 58.4
Revenues: 15.7
EBIT: (26.4)
PBT: (21.2)

Evolva and its partner Cargill will be launching the better-tasting stevia sweeteners (RebD and RebM) in 2016.

There is increasing demand for natural sweeteners.

Evolva has collaborations with Ajinomoto, BASF, Cargill, IFF, L’Oréal, Roquette and Takasago.

Markets

Bear

The company develops ways of producing nutritional and consumer products using yeast fermentation. It launched resveratrol and vanillin (with IFF) in 2014 and is in the process of launching nootkatone and valencene. In 2016, Evolva aims to launch a range of stevia sweeteners with its partner Cargill, primarily for use in beverages.

The company is still loss-making and is expected to require additional financing, which might be dilutive.

Scaling up from lab to commercial production can be challenging and a source of delays.

The field of high tech fermentation is a new area, and its potential is yet to be proven.

Catalysts

Finalisation of a JV with Cargill to co-commercialise stevia sweeteners in H215. Stevia and saffron launches (2016).

Source: Bloomberg consensus, Edison Investment Research estimates

Valuation

Exhibit 2: F&F peer group valuations

Company

Market cap

P/E (x)

EV/EBITDA (x)

Yield (%)

(m)

2015e

2016e

2017e

2015e

2016e

2017e

2015e

2016e

2017e

Givaudan

CHF15,900

25.6

23.0

21.6

16.2

15.3

14.4

3.1

3.3

3.6

Symrise

€7,522

25.7

23.5

21.5

15.0

14.1

13.1

1.6

1.7

1.9

IFF

US$9,605

21.9

20.0

18.0

14.3

13.3

12.2

1.6

1.8

2.0

DSM

€9,795

20.6

18.2

15.9

10.8

10.5

9.8

3.2

3.3

3.4

Croda

£3,971

21.7

20.3

19.2

13.6

12.7

12.0

2.4

2.5

2.6

Kerry Group

€11,959

22.5

20.4

18.4

16.5

15.3

14.1

0.7

0.8

0.9

Robertet

€507

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Frutarom

US$2,300

23.4

21.1

19.0

15.3

13.9

11.9

0.7

0.8

1.4

Treatt

£78

13.9

13.1

12.6

9.0

8.4

8.0

2.8

3.0

3.2

Naturex

€579

35.0

25.4

19.9

14.9

13.0

11.2

0.2

0.2

0.2

GLG Life Tech

CAD 13

N/A

N/A

N/A

N/A

N/A

N/A

0

0

0

PureCircle

£727

84.8

34.7

20.7

40.6

23.0

15.1

0

0

0

Evolva

CHF 586

N/A

N/A

N/A

N/A

N/A

N/A

0

0

0

Source: Bloomberg consensus. Note: Prices as at 29 May 2015.

Relative valuation provides opportunities

Given its many attractive investment qualities, the sector has experienced significant multiple expansion over the past few years. From the valuation table above, we observe a few notable outliers:

IFF trades at a c 15% P/E discount to its direct peers (Givaudan and Symrise), which seems unwarranted given its very strong business profile.

DSM appears potentially attractive as a turnaround play and, should the company be successful in realigning it business, we expect its valuation to more closely track the sector.

Treatt continues to trade at a significant discount to the sector and 20% below our fair value of 190p.

Stevia companies (PureCircle, Evolva and GLG) have far greater growth potential, but are clearly at the more speculative end of the spectrum.

F&F transaction multiples

Exhibit 3: F&F selected transaction multiples

Year

Buyer

Target

Value

EV/EBITDA (x)

EV/Sales (x)

2006

Croda

Uniqema

£410m

8.4

0.6

2006

Givaudan

Quest (ICI)

£1.2bn

16.9

2.1

2010

DSM

Martek

€790m

8.2

2.1

2011

Dupont

Danisco

US$6.3bn

12.1

2.3

2011

Kerry

Cargill Flavours

US$230m

N/A

1.2

2011

Cargill

Provimi

€1.5bn

11.6

1.1

2012

DSM

Ocean Nutrition Canada

C$540m

9.8

2.8

2012

DSM

Tortuga

€440m

7.8

1.2

2013

Symrise

Belmay

US$100m

9.0

1.7

2013

Naturex

Vegetable Juices

US$90m

12.0

2.1

2014

ADM

Wild

€2.3bn

14.2*

2.3

2014

Frutarom

Montana Food

US$35m

N/A

0.7

2014

Symrise

Diana

€1.3bn

14.5

3.0

2015

Frutarom

Sonarome

US$28.6m

N/A

2.4

2015

IFF

Ottens

US$190m

N/A

3.0

Source: Company reports, Edison Investment Research estimates. Note: *2015 forward estimated EV/EBITDA.

The F&F sector has been consolidating for decades, with the result that four main players now comprise two-thirds of the market. While anti-trust and valuation issues may prevent mergers in the top four, we expect them individually to continue looking at ways to gain market share (as well as diversify into complementary products) through continued bolt-on acquisitions.

In terms of transaction prices, 2014 witnessed a few large and extremely expensive acquisitions, notably Wild and Diana, which sold for over 14x EV/EBITDA. The challenge for buyers of strategic assets will be to find willing sellers at competitive prices.

The valuations seem more compelling among the smaller transactions, although this may also reflect the quality of the acquired assets. We note that Frutarom has already acquired five small businesses in 2015 and tends to pay c 1-2x EV/Sales and c 7x EV/EBITDA, which is considerably lower than the high-profile deals last year.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2015 Edison Investment Research Limited. All rights reserved. This report has been 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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). It is not intended for retail clients. 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 2015. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Share this with friends and colleagues