Maintaining profitability

EMIS Group 5 September 2017 Update
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EMIS Group

Maintaining profitability

H117 results

Software & comp services

5 September 2017

Price

914p

Market cap

£579m

Net cash (£m) at end H117

10.5

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.8)

(2.8)

(10.0)

Rel (local)

(2.5)

(1.1)

(16.7)

52-week high/low

1019.0p

807.0p

Business description

EMIS is a clinical software supplier to the primary care market in the UK (supplying over 50% of UK GP practices), a software supplier to UK pharmacies, and through several acquisitions also supplies specialist and acute care software.

Next event

Trading update

January 2018

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

EMIS Group is a research client of Edison Investment Research Limited

EMIS reported a solid H117 despite pressure on revenues and profitability in several business areas. With management expectations maintained, our adjusted operating profit forecasts are substantially unchanged. Over the medium term, we expect the new CEO to make investment/divestment decisions to ensure the group is able to maintain growth and profitability despite the challenging NHS funding backdrop.

Year end

Revenue (£m)

PBT*
(£m)

Dil EPS*
(p)

EMIS adj. dil. EPS** (p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

158.7

39.2

49.4

49.2

23.4

18.4

2.6

12/17e

165.0

37.0

45.7

46.8

25.8

20.0

2.8

12/18e

173.7

40.4

49.7

51.3

26.8

18.3

2.9

12/19e

183.5

45.1

55.6

57.2

27.8

16.4

3.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EMIS adjusted EPS – cash accounts for development costs and excludes exceptional items and amortisation of acquired intangibles.

Adjusting the cost base to reflect market pressures

EMIS generated flat H117 revenues year-on-year on an organic basis and a small decline in adjusted operating profit. Cost reductions arising from the reorganisation programme partially offset the additional investment made in the Patient business. Budgetary pressures within the NHS continued to hold back revenues in the Acute business and depressed growth in Primary Care. Market share improved in Primary and Community Care and is set to increase in Community Pharmacy.

New CEO takes opportunity to review strategy

The recently appointed CEO is taking the opportunity to review the structure of the group to assess which businesses are core to the group’s future. Over time, we expect decisions to be made regarding the future of the Specialist & Care and Acute businesses. Options include additional investment to drive organic growth, acquisitions to strengthen market positions in focus areas or divestment of businesses that are unlikely to reach sustainable profitability. Budgetary pressures and organisational change are constant factors within the NHS and in our view, it is crucial that the group is able to operate profitably in this environment.

Forecasts and valuation: Earnings growth is key

Our forecasts are substantially unchanged for FY17, bar an additional £1m in restructuring costs. We have reduced our FY18 revenue forecast by 1% although operating profit is essentially flat. With a slightly lower tax rate, adjusted FY18 EPS increases by 0.4%. We introduce FY19 forecasts for 5.7% revenue growth, 11.4% adjusted operating profit growth and adjusted EPS growth of 11.6%. We increase our dividend forecasts to reflect the higher interim dividend. EMIS is trading on 20x FY17e EPS, at a c 20% discount to its peer group median. Although EMIS is more profitable than its peers, the forecast decline in earnings in FY17 is weighing on the valuation. Evidence of a resumption in earnings growth will be key to share price upside – in the short term, this could include improvement in Acute and Specialist & Care, and in the longer term, evidence that the investment in Patient is paying off. Strong cash generation underpins the nearly 3% dividend yield.

Review of H117 results

Exhibit 1: Half-yearly results highlights

£m

H116

H117

YoY

Revenues

78.7

79.2

0.7%

Gross margin

91.2%

90.1%

(1.1%)

EBITDA

24.8

23.5

(5.3%)

EBITDA margin

31.6%

29.7%

(1.9%)

Normalised operating profit

17.9

16.7

(6.6%)

EMIS adjusted operating profit*

17.7

17.5

(1.0%)

Reported operating profit

12.1

10.5

(13.8%)

Normalised operating profit margin

22.8%

21.1%

(1.6%)

EMIS adjusted operating profit margin

22.5%

22.1%

(0.4%)

Reported operating profit margin

15.4%

13.2%

(2.2%)

Net interest income

(0.2)

(0.2)

(35.1%)

Normalised PBT

18.0

16.9

(5.7%)

Reported PBT

12.2

10.7

(12.4%)

Tax

(2.4)

(2.1)

(14.0%)

Normalised net income

14.1

13.2

(6.9%)

EMIS adjusted net income

13.9

13.9

0.2%

Reported net income

9.4

8.2

(11.9%)

Normalised dil. EPS (p)

22.4

20.9

(6.9%)

EMIS adjusted dil. EPS (p)

22.1

22.1

0.0%

Reported basic EPS (p)

14.9

13.1

(12.0%)

Net cash

0.7

10.5

1397%

Source: EMIS, Edison Investment Research. *Note: EMIS adjusted operating profit, EMIS adjusted EPS – cash accounts for development costs and excludes exceptional items and amortisation of acquired intangibles.

EMIS reported 0.7% year-on-year revenue growth in H117. Excluding the £0.5m contributed by the acquisition of Intrelate (December 2016), revenues were flat year-on-year. Recurring revenues grew 4% to make up 84% of revenues. Adjusted operating profit was marginally lower y-o-y due to increased investment in the Patient business. Excluding the additional investment, adjusted operating profit was 4% higher y-o-y. The tax rate of 19.2% was close to the statutory rate for the period. Overall, this resulted in flat adjusted net income y-o-y. Normalised operating profit and net income reduced year-on-year, reflecting the increase in amortisation of capitalised development costs (H116 £3.0m, H117 £3.3m) at the same time as a decrease in capitalised development costs (H116 £2.9m, H117 £2.1m). The company had previously flagged its reorganisation programme – this incurred exceptional costs of £2.5m in H117.

The company closed the period with cash of £10.5m and no debt. The company also secured a new revolving credit facility with Barclays and Lloyds at a reduced cost. The initial facility is for £30m over three years with an accordion arrangement to increase it to £60m with options to extend to a maximum of five years.

An interim dividend of 12.9p (+10% y-o-y) was announced, higher than our forecast of 12.2p. The company expects to match this for the final dividend, making a full year dividend of 25.8p compared to our previous forecast of 24.4p.

Divisional performance: Cost control maintains profitability

EMIS reported divisional results according to the new company structure for the first time (Exhibit 2). The Primary, Community & Acute Care (PCA) division reported a 3% revenue decline, as the Acute business continued to suffer from NHS funding pressures. In addition, discretionary spending in Primary Care came under pressure and hosting revenues declined. Despite this, the company managed to improve profitability, with PCA adjusted operating profit 5% higher and the adjusted operating margin expanding from 25.4% to 27.5%.

Community Pharmacy achieved a solid performance, with 5% revenue growth resulting in 16% growth in adjusted operating profit.

Specialist & Care saw 19% revenue growth as several screening contracts won in 2016 were implemented. This brought with it additional costs, resulting in a small adjusted operating loss.

The Patient division has been split out for the first time. The increase in revenues was more than offset by the increase in investment to build the business, resulting in a loss of £0.33m on revenues of £1.45m.

Exhibit 2: Divisional performance (£m)

Revenues

H116

H117

y-o-y

Primary, Community & Acute Care

60.26

58.48

(2.9%)

Community Pharmacy

10.35

10.85

4.9%

Specialist & Care

7.05

8.41

19.4%

Patient

1.02

1.45

41.7%

Total

78.67

79.19

0.7%

Adjusted operating profit

 

 

 

Primary, Community & Acute Care

15.30

16.11

5.3%

Community Pharmacy

2.21

2.58

16.5%

Specialist & Care

0.37

(0.06)

(114.9%)

Patient

0.55

(0.33)

(159.8%)

Central costs

(0.74)

(0.79)

7.9%

Total adjusted operating profit

17.69

17.51

(1.0%)

Reported operating profit

 

 

 

Primary, Community & Acute Care

9.73

9.76

0.4%

Community Pharmacy

2.71

2.21

(18.6%)

Specialist & Care

(0.11)

(0.39)

243.8%

Patient

0.55

(0.33)

(159.8%)

Central costs

(0.74)

(0.79)

7.9%

Total reported operating profit

12.14

10.47

(13.8%)

Adjusted operating margin

 

 

 

Primary, Community & Acute Care

25.4%

27.5%

2.2%

Community Pharmacy

21.4%

23.8%

2.4%

Specialist & Care

5.2%

(0.7%)

(5.9%)

Patient

53.6%

(22.6%)

(76.3%)

Total adjusted operating margin

22.5%

22.1%

(0.4%)

Source: EMIS

Business update

Primary, Community & Acute Care – mixed performance

The business has been restructured to bring the Acute business under the same leadership as Primary Care and Child, Community & Mental Health (CCMH). The majority of the reorganisation was completed in H117; in H2 the company will focus on putting in place the right processes to improve accountability.

In Primary Care, the company achieved a small increase in market share from 55% to 56%. The roll-out of EMIS Web in Northern Ireland is underway, with 23 practices live at the end of H1. More than a quarter of CCGs use EMIS Web exclusively in all GP practices in their area (from 51 to 57 CCGs over the course of H1). The company noted that discretionary spending available under the GP System of Choice framework (GPSoC) was tightened up from 1 January 2017, which had a negative effect on revenues in H1.

With two new contracts won in H1, CCMH increased market share from 16% to 18% and is on the way to meeting its 20% target for the end of FY17.

The Acute business continued to feel the pressure from NHS budget constraints. Revenues declined 14% y-o-y, mainly due to a lower level of non-recurring implementation work. The business won several smaller contracts for hospital pharmacy systems, bed management and emergency care. The division continues to work with the University Hospital Southampton on its global digital exemplar project.

Community Pharmacy – solid H1

Community Pharmacy maintained its market share of 37%, with a small increase in the total estate from 5,091 to 5,120. The roll-out of ProScript Connect to Celesio’s independent estate is about to start, to be followed by roll-out to the Lloyds Pharmacies’ estate, which should take the company’s market share to c 50% once complete (target FY19). 284 existing customers had been upgraded to ProScript Connect by the end of H117.

Pharmacies have not been immune from the budgetary pressures affecting the NHS – the government has reduced by 7% the fees earned by pharmacies for issuing prescriptions. EMIS believes its software can help pharmacies to offer additional services (eg flu jab, monitoring services) to patients to generate alternative revenue streams.

Specialist & Care – gaining share, but not yet profitable

The Care eye-screening business took its market share from 18% to 26% over the period as it implemented five contracts it won in 2016. These contracts incurred start-up costs in the form of additional staff and extra equipment to support the service. The company expects that profitability should improve over the life of the contracts. The company had previously announced that it had given 12 months’ notice on a loss-making contract. This should have a positive impact on profitability from H218.

The company had previously noted that the Specialist software business was bidding for Public Health England’s national screening platform; it has just announced that it was not selected. As the new contract is implemented, this is likely to reduce EMIS’ market share. However, management does not expect the new national screening platform to be live soon, as it understands that the winning bidder does not yet have working software.

Patient – development well underway

A management team is now in place and the new website was launched in August. Further development is underway to enable fully responsive, multi-device functionality for Patient.info and Patient Access by the end of 2017. During 2018, the focus will be on completing the e-commerce platform. The company expects to be able to deliver the development work more cheaply than originally planned, as it expects to be able to use its in-house development team in Chennai rather than third-party providers for more of the work than originally expected. Rather than reducing the absolute amount invested in Patient, it is likely to result in faster delivery of projects.

New CEO outlines strategy

Andy Thorburn, the recently appointed CEO, outlined his views on the strategic direction of the company. He believes that EMIS should aim to have a number one or strong number two position in each business area in which it operates. Some parts of the company (CCMH, Acute, EMIS Care) are not currently in this position, and the challenge now is to decide whether to focus investment on these areas to grow share organically or via acquisition, to enter into partnerships, or whether to exit from certain business areas.

Outlook and changes to forecasts

The company has guided to FY17 revenues of c £165m with adjusted operating profit in the region of £37m. We have revised our forecasts to reflect the new divisional reporting structure as well as H1 results. We have increased exceptional costs by £1m in FY17 to £5m (the company guided to a total cost of £4-6m for the reorganisation programme). Despite slightly lower revenue forecasts in FY17 and FY18, we assume that the reorganisation programme will enable the company to maintain profitability.

Exhibit 3: Changes to forecasts

£000s

FY17e

FY17e

Change

y-o-y

FY18e

FY18e

Change

y-o-y

FY19e

y-o-y

Old

New

Old

New

New

Revenues

166,168

164,955

-0.7%

3.9%

175,354

173,684

-1.0%

5.3%

183,534

5.7%

Normalised operating profit

36,960

36,562

-1.1%

-6.0%

39,794

39,809

0.0%

8.9%

44,451

11.7%

Reported operating profit

25,263

23,844

-5.6%

1.3%

32,097

32,091

0.0%

34.6%

36,733

14.5%

Adjusted R&D operating profit

37,496

37,275

-0.6%

-3.8%

40,854

40,814

-0.1%

9.5%

45,463

11.4%

Normalised EPS (p)

46.0

45.7

-0.7%

-7.6%

49.4

49.7

0.6%

8.8%

55.6

11.9%

Reported EPS (p)

31.3

29.6

-5.4%

-2.6%

39.8

40.0

0.5%

35.1%

46.0

14.8%

Adjusted R&D EPS (p)

46.8

46.8

0.0%

-4.9%

51.1

51.3

0.4%

9.6%

57.2

11.6%

Net cash

8,300

7,162

-13.7%

N/A

26,237

23,929

-8.8%

234.1%

43,970

83.8%

Source: Edison Investment Research

Valuation

On earnings multiples, EMIS trades at a discount to both the mean and median of its peer group, despite forecasts for it to achieve margins at the top end of the peer group. We believe this is due to the combination of lower than average revenue growth leading to lower earnings growth. With recurring revenues at 84% and a strong balance sheet, we expect the company to be able to maintain its above average dividend yield.

Exhibit 4: Valuation multiples

 

 

EV/sales (x)

P/E (x)

EV/EBIT (x)

EV/EBITDA (x)

y/e

2016

2017e

2018e

2016

2017e

2018e

2016

2017e

2018e

2016

2017e

2018e

EMIS

31-Dec

3.7

3.6

3.4

18.4

20.0

18.3

15.1

16.1

14.8

11.3

11.7

10.9

EMIS (cash R&D)

3.7

3.6

3.4

18.5

19.5

17.8

15.2

15.8

14.4

 

 

 

AllScripts

31-Dec

2.6

2.2

1.9

24.0

21.4

17.8

18.3

16.0

13.6

13.2

11.3

9.8

athenahealth

31-Dec

5.4

4.8

4.2

74.3

76.0

58.8

44.2

43.4

34.2

23.0

22.8

18.7

Cegedim

31-Dec

1.5

1.4

1.3

N/A

19.6

13.3

24.6

20.8

15.6

10.2

9.5

8.1

Cerner

31-Dec

4.7

4.3

4.0

29.7

27.3

24.7

19.9

18.4

16.4

14.6

13.2

12.1

Craneware

30-Jun

6.9

6.1

5.3

35.4

31.1

26.7

25.0

21.7

18.7

22.0

19.2

16.5

CompuGroup

31-Dec

5.2

4.6

3.6

51.2

25.6

17.5

35.8

26.7

17.5

23.1

19.9

14.2

Nexus

31-Dec

3.4

3.1

2.9

46.8

34.2

27.5

33.5

25.7

20.1

18.7

15.0

12.8

Quality Systems

31-Mar

2.0

1.9

1.9

19.2

23.5

20.7

13.3

15.9

10.8

12.4

11.6

Servelec

31-Dec

3.2

2.8

2.6

18.0

14.7

13.6

13.5

11.2

10.1

12.5

10.5

9.7

Average

 

3.9

3.5

3.1

37.3

30.4

24.5

25.4

22.2

18.3

16.5

14.9

12.6

Median

3.4

3.1

2.9

32.6

25.6

20.7

24.6

20.8

17.0

14.6

13.2

12.1

Source: Edison Investment Research, Bloomberg (as at 4 September).

Exhibit 5: Performance metrics

 

EBIT margin

EBITDA margin

Rev growth

Div yield

EPS growth

2016

2017e

2018e

2016

2017e

2018e

2016

2017e

2018e

2016

2017e

2018e

2016

2017e

2018e

EMIS

24.5%

22.2%

22.9%

32.9%

30.5%

31.1%

1.8%

3.9%

5.3%

2.6%

2.8%

2.9%

7.4%

-7.6%

8.8%

EMIS (cash R&D)

24.4%

22.6%

23.5%

-4.9%

9.6%

 

 

AllScripts

14.1%

14.1%

14.2%

19.6%

20.0%

19.7%

11.8%

14.9%

16.5%

0.0%

0.0%

0.0%

17.0%

12.4%

20.2%

athenahealth

12.2%

11.0%

12.3%

23.5%

20.9%

22.5%

17.1%

13.2%

13.6%

0.0%

0.0%

0.0%

40.7%

-2.2%

29.2%

Cegedim

6.1%

6.8%

8.6%

14.8%

14.9%

16.5%

3.4%

6.4%

6.2%

0.0%

0.7%

1.5%

-156%

-278%

47.0%

Cerner

23.6%

23.5%

24.4%

32.2%

32.8%

33.0%

8.4%

8.5%

8.3%

0.0%

0.0%

0.0%

9.0%

8.7%

10.5%

Craneware

27.8%

27.9%

28.3%

31.5%

31.5%

31.9%

16.7%

14.4%

14.7%

1.5%

1.6%

1.7%

10.4%

14.1%

16.3%

CompuGroup

14.6%

17.4%

20.4%

22.7%

23.4%

25.2%

3.1%

12.7%

30.1%

0.7%

0.8%

1.0%

18.8%

100.4%

46.2%

Nexus

10.3%

12.1%

14.3%

18.4%

20.8%

22.6%

10.0%

10.9%

7.9%

0.6%

0.7%

0.7%

9.6%

36.9%

24.6%

Quality Systems

15.0%

12.2%

N/A

18.5%

15.7%

16.2%

3.5%

2.9%

3.8%

3.3%

0.0%

0.0%

13.9%

-18.2%

13.6%

Servelec

23.9%

25.5%

26.2%

25.8%

27.2%

27.3%

-3.3%

13.6%

7.6%

1.9%

2.0%

2.2%

-11.0%

22.4%

8.6%

 

 

Average

16.4%

16.7%

18.6%

23.0%

23.0%

23.9%

7.9%

10.8%

12.1%

0.9%

0.6%

0.8%

13.5%*

21.8%*

21.1%*

Median

14.6%

14.1%

17.4%

22.7%

20.9%

22.6%

8.4%

12.7%

8.3%

0.6%

0.7%

0.7%

10.4%

12.4%

20.2%

Source: Edison Investment Research, Bloomberg (as at 4 September). Note: *excludes Cegedim.

Exhibit 6: Financial summary

£000s

2014

2015

2016

2017e

2018e

2019e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

137,639

155,898

158,712

164,955

173,684

183,534

Cost of Sales

(12,782)

(12,955)

(14,151)

(15,440)

(17,229)

(18,665)

Gross Profit

124,857

142,943

144,561

149,515

156,455

164,868

EBITDA

 

 

47,645

51,964

52,288

50,275

54,022

58,764

Operating Profit (before amort. of acq. intang, SBP and except.)

34,787

37,123

38,897

36,562

39,809

44,451

EMIS adjusted operating profit

 

 

32,639

36,553

38,753

37,275

40,814

45,463

Amortisation of acquired intangibles

(6,269)

(6,509)

(6,639)

(6,718)

(6,718)

(6,718)

Exceptionals

873

(18,500)

(6,714)

(5,000)

0

0

Share-based payments

(270)

(684)

(473)

(1,000)

(1,000)

(1,000)

Operating Profit

29,121

11,430

25,071

23,844

32,091

36,733

Net Interest

(543)

(449)

(237)

(150)

(50)

0

Profit Before Tax (norm)

 

 

34,206

36,625

39,159

37,012

40,359

45,051

Profit Before Tax (FRS 3)

 

 

28,540

10,932

25,333

24,294

32,641

37,333

Tax

(5,719)

(5,558)

(5,208)

(4,859)

(6,528)

(7,467)

Profit After Tax (norm)

27,617

29,801

32,175

29,610

32,287

36,041

Profit After Tax (FRS3)

22,821

5,374

20,125

19,435

26,113

29,867

Average Number of Shares Outstanding (m)

62.8

62.7

62.8

62.9

62.9

62.9

EPS - normalised & diluted (p)

 

 

42.8

46.0

49.4

45.7

49.7

55.6

EPS - EMIS adjusted & diluted (p)

 

 

39.4

45.1

49.2

46.8

51.3

57.2

EPS - FRS 3 (p)

 

 

35.3

7.2

30.4

29.6

40.0

46.0

Dividend (p)

18.4

21.2

23.4

25.8

26.8

27.8

Gross Margin (%)

90.7%

91.7%

91.1%

90.6%

90.1%

89.8%

EBITDA Margin (%)

34.6%

33.3%

32.9%

30.5%

31.1%

32.0%

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

25.3%

23.8%

24.5%

22.2%

22.9%

24.2%

BALANCE SHEET

Fixed Assets

 

 

166,415

143,546

133,292

125,361

116,930

108,399

Intangible Assets

139,397

121,383

110,953

102,122

92,991

83,860

Tangible Assets

24,313

22,032

22,187

23,087

23,787

24,387

Other fixed assets

2,705

131

152

152

152

152

Current Assets

 

 

37,221

39,800

46,088

50,103

69,046

91,542

Stocks

1,550

1,206

1,815

1,815

1,815

1,815

Debtors

28,732

33,893

39,970

41,126

43,302

45,758

Cash

6,939

4,701

4,303

7,162

23,929

43,970

Current Liabilities

 

 

(67,665)

(63,819)

(56,158)

(50,925)

(53,518)

(56,445)

Creditors

(54,763)

(51,960)

(51,425)

(50,925)

(53,518)

(56,445)

Short term borrowings

(12,902)

(11,859)

(4,733)

0

0

0

Long Term Liabilities

 

 

(21,063)

(12,481)

(9,080)

(9,080)

(9,080)

(9,080)

Long term borrowings

(5,854)

(1,951)

0

0

0

0

Other long term liabilities

(15,209)

(10,530)

(9,080)

(9,080)

(9,080)

(9,080)

Net Assets

 

 

114,908

107,046

114,142

115,459

123,378

134,417

CASH FLOW

Operating Cash Flow

 

 

44,856

42,711

43,657

43,619

54,439

59,235

Net Interest

(445)

(422)

(324)

(50)

50

100

Tax

(5,247)

(6,896)

(7,655)

(7,402)

(8,072)

(9,010)

Capex

(15,161)

(14,058)

(12,084)

(12,500)

(12,500)

(12,500)

Acquisitions/disposals

(9,959)

(4,587)

(1,790)

0

0

0

Financing

(1,578)

492

881

(500)

(500)

(500)

Dividends

(10,792)

(14,532)

(14,006)

(15,575)

(16,651)

(17,284)

Net Cash Flow

1,674

2,708

8,679

7,592

16,767

20,041

Opening net debt/(cash)

 

 

13,491

11,817

9,109

430

(7,162)

(23,929)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

11,817

9,109

430

(7,162)

(23,929)

(43,970)

Source: EMIS, Edison Investment Research.

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 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EMIS Group 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 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). 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 2017. “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 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EMIS Group 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 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). 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 2017. “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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