Outstanding first half

Focusrite 24 April 2018 Update
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Focusrite

Outstanding first half

Interim results

Consumer electronics

24 April 2018

Price

420p

Market cap

£244m

Net cash (£m) at 28 February 2018

19.7

Shares in issue

58.1m

Free float

59%

Code

TUNE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.1

20.4

105.8

Rel (local)

1.1

25.7

98.4

52-week high/low

481.5p

212.5p

Business description

Focusrite is a global music and audio products group that develops and markets hardware and software products, used by both audio professionals and amateurs to realise the high-quality production of recorded and live sound.

Next events

Pre-close

September 2018

Final results

November 2018

Analysts

Paul Hickman

+44 (0)20 3681 2501

Neil Shah

+44 (0)20 3077 5715

FocusriteFocusrite is a research client of Edison Investment Research Limited

Focusrite has delivered an outstanding first half with substantial growth on all metrics, across all territories and in both product brand groups. Constant currency revenue growth of 26% is double that of FY17 although, after an unprecedented pre-Christmas period, it is possible that the shape of trading may be becoming more seasonal. The company has net cash of c £20m, and the share price appears to discount a return on that.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV/EBITDA
(x)

Yield
(%)

08/16

54.3

7.7

11.8

2.0

35.6

23.3

0.5

08/17

66.1

9.5

14.8

2.7

28.4

17.5

0.6

08/18e

75.4

10.8

16.3

3.0

25.7

15.2

0.7

08/19e

80.0

11.5

17.0

3.3

24.8

14.7

0.8

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

Interim results: Outstanding growth on all measures

A clean set of H1 results shows consistent and substantial organic growth across the business. Revenue, at £38.8m, beat pre-close guidance of £38.0m, growing by 21.2% y-o-y, with sterling strength masking 26% constant currency revenue growth, twice what it was in FY17. EBITDA grew by 30.0% and operating profit by 36.3%. Operating margin improved from 14.3% to 16.0%, driving 27% growth in pre-tax profit. Net cash has grown since year end by £5.6m to £19.7m.

Impressive trading performance in all categories

Like many much larger companies, Focusrite has a largely international market, with c 85% of revenues outside the UK. Regionally, constant currency growth is in impressive double figures across the board, with the lowest region being 19% in Europe, Africa and the Middle East. Here all the major territories (UK, Germany and mainland Europe) were in solid growth. By division, there has also been consistent growth, with Focusrite division growing revenue at 23% and Novation by 19%.

Forecast upgrade of 5% PBT may be cautious

It is possible that first-half strength may reflect a change in the seasonal shape of sales. In the light of that possibility we carry forward the H1 revenue beat of £0.8m (compared with the March trading statement), resulting in a 4.5% improvement at PBT level for FY18e. We cautiously leave our expectation for H2 effectively unchanged. If our caution is unnecessary, there should be further upside to our FY18 forecast. For FY19e we upgrade our PBT forecast by 3.5%.

Valuation: Cash is the key

On a DCF basis, the current share price is equivalent to a medium-term organic growth rate of about 12%. On a peer group comparison, the picture is mixed: the shares trade at a 1% P/E discount for FY18e but a 31% premium for FY19e, and an EV/EBITDA premium of 23% for FY18e and 34% for FY19e. The missing element is excess cash, where the market appears to be discounting investment of the net cash balance at a c 15% return.

Interim results: 27% pre-tax growth despite £ strength

H1 results show consistent and substantial organic growth across the business. Revenue grew by 21.2% y-o-y, EBITDA by 30.0% and operating profit by 36.3%. Operating margin improved from 14.3% to 16.0%, driving a 27% growth in pre-tax profit. There were no exceptional items in either year. Net cash has grown since year end by £5.6m to £19.7m.

Exhibit 1: Summary of results

£000s

H117

H217

FY17

H118

H1 y-o-y

Revenue by product type

Focusrite

20,856

23,696

44,552

25,693

23.2%

Novation

9,604

9,258

18,862

11,419

18.9%

Distribution

1,560

1,081

2,641

1,707

9.4%

Total

32,020

34,035

66,055

38,819

21.2%

Revenue by geography

USA

13,246

14,744

27,990

16,123

21.7%

Europe and Middle East

12,958

12,195

25,153

15,997

23.5%

Rest of World

5,816

6,317

12,912

6,699

15.2%

Revenue

32,020

34,035

66,055

38,819

21.2%

Gross profit

12,855

13,496

26,351

16,200

26.0%

Gross margin

40.1%

39.7%

39.9%

41.7%

3.9%

Adjusted EBITDA

6,131

6,978

13,109

7,969

30.0%

Adjusted EBITDA margin

19.1%

20.5%

19.8%

20.5%

7.2%

Operating profit

4,571

4,899

9,470

6,230

36.3%

Pre-tax profit

4,599

4,913

9,512

5,833

26.8%

EPS (p)

7.0

7.8

14.8

16.3

133.2%

Net cash

9,391

14,174

14,174

19,734

110.1%

Source: Focusrite, Edison Investment Research

Revenue: Currency movements mask underlying growth profile

Like many much larger companies Focusrite has a largely international market, with c 85% of revenues sourced outside the UK. The medium-term advantage of access to more buoyant consumer economies is arguably counterbalanced by short-term exchange rate risk, but in this period at least, relative sterling strength only serves to highlight that constant currency sales grew even faster than reported revenue, at 26% against the reported 21%.

Exhibit 2: Revenue by region and product area

Year to Aug (£m)

H117

H217

FY17

H118

H1 growth

H1 growth (CC)

Revenue by geography

US

13,246

14,744

27,990

16,123

21.7%

34%

EMEA

12,958

12,195

25,153

15,997

23.5%

19%

ROW

5,816

6,317

12,912

6,699

15.2%

26%

Revenue by segment

Focusrite

20,856

23,696

44,552

25,693

23.2%

Novation

9,604

9,258

18,862

11,419

18.9%

Distribution

1,560

1,081

2,641

1,707

9.4%

Revenue

32,020

34,035

66,055

38,819

21.2%

26%

Source: Focusrite

Revenue by region: Constant currency growth twice as fast as in FY17

Constant currency against reported revenue growth now shows an inverse trend compared with FY17. Then, constant currency sales grew by 13% (US: 18%, EMEA: 7% ROW 13%) which, translated to sterling, became 21.6%. In H118, similar sterling growth of 21.1% masks constant currency growth accelerating twice as fast as in FY17, at 26% as shown above.

Regionally, it is impressive that constant currency growth is well into double figures across the board, with the lowest being 19% in Europe, Africa and the Middle East. Here, management reports that all the major territories (UK, Germany and mainland Europe) were in solid growth.

The company noted an especially strong Christmas holiday season for the more consumer-priced products. It is possible that this strength may have altered the seasonal shape of sales.

Trading by product area: Strong and consistent

By division, there has also been consistent growth across the business, with Focusrite division growing revenue at 23% and Novation by 19%. This represents a narrowing of the growth profiles, where for FY17 the growth was 19% and 38% respectively.

Focusrite is seeing continued sales growth in the second generation of its keynote Scarlett range, but also reports 28% growth for the more sophisticated Clarett brand (for product group descriptions see our Outlook note published in November 2017). The Focusrite Professional division formed this year, which targets the very different requirements of major corporate customers of the Red and RedNet brands, is starting to succeed in winning sales, including a major contract in China, albeit its activities only account for c 6% of revenue at the moment.

Novation’s signature Launchpad model grew revenue by 26% y-o-y. The company has seen these instruments coming into wider demand from a broader and younger consumer group, who are not necessarily hardcore music hobbyists. For example, their accessibility on Amazon seems to have corresponded with a move by parents buying the product for their teenage children ahead of Christmas. Similarly, the company’s own website and others such as Gear4music create a sales platform that faces customers who would not necessarily know a physical music equipment dealer. Novation has also seen synthesizer sales up 90% y-o-y as its newly launched PEAK 8-voice model has gained rapid acceptance following launch in April 2017.

The AMPIFY brand’s music apps have reached 8.5m downloads compared with 7.5m in FY17, and they are growing at c 0.2m per month. Management believes that app sales are a supportive driver of hardware sales in both the Focusrite and Novation brands.

Balance sheet progress: working capital benefit hitting a peak

Net cash has increased by £5.6m since year end to £19.7m. This net cash inflow is the product of H1 EBITDA of £8.0m and working capital inflows of £1.0m, less capex of £2.0m, dividend payments of £1.0m, and smaller items. The inflow from working capital is likely to reverse to some extent in the full year. A stock increase of 7% to £10.9m is well below the 21% increase in revenue as a result of close management, but if continued could jeopardise stock availability. An increase in creditors of £2m was phased near the end of the period and will probably equalise in the second half.


Forecast: Upgrade with potential upside

We upgrade our PBT forecasts by 4.5% in FY18e and 3.5% in FY19e.

Exhibit 3: Forecast changes

£m

FY18e

FY19e

FY20e

Old

New

Change

Old

New

Change

Old

New

Change

Revenues

74.6

75.4

1.2%

79.9

80.0

0.2%

85.9

86.0

0.2%

Gross profit

31.0

31.5

1.4%

33.3

33.4

0.4%

35.9

35.9

0.2%

Gross margin

41.6%

41.7%

0.1%

41.6%

41.7%

0.1%

41.7%

41.7%

0.0%

Adjusted EBITDA

14.6

15.1

3.9%

15.4

15.7

2.0%

16.2

16.7

2.6%

Adjusted EBITDA margin

19.5%

20.1%

0.5%

19.2%

19.6%

0.3%

18.9%

19.4%

0.5%

Normalised operating profit

10.7

11.2

5.2%

11.1

11.5

3.6%

11.6

12.2

5.3%

Normalised PBT

10.4

10.8

4.5%

11.1

11.5

3.5%

11.6

12.2

5.2%

Normalised EPS (p)

15.9

16.3

2.6%

16.8

17.0

1.2%

17.2

17.6

2.2%

Net cash

20.4

20.8

2.0%

23.5

25.5

8.6%

27.4

30.1

9.8%

Source: Edison Investment Research

Essentially, we carry forward the H1 revenue beat of £0.8m at H1 (£30.8m compared with £30.0m expected at pre-close), resulting in a £0.4m improvement at PBT level. We cautiously leave our expectation for H2 unchanged since it is still possible that the trading strength experienced in H1 was a change in the seasonal shape of sales, and that the strong level of demand may not be sustained to the same extent in H2. If it is, there should be further upside to our FY18 forecast.

For FY19e we see a slightly stronger outlook for the € against sterling, resulting in marginally higher revenue and margin, despite any continuing weakness of the US$ in view of the company’s natural hedge. Combined with a slight reduction in our operating cost forecast, this results in a £0.4m or 3.5% upgrade in our PBT forecast.

The company has stated its intention to reduce dividend cover over time to between four and five times (FY17: 5.5 times). Our dividend forecast of 3.00p rising to 3.65p by FY20 is equivalent to cover of 5.4 times falling to 4.8 times over the same period.

Cash forecast upgrade

We increase our year-end net cash forecast from £20.4m to £20.8m, which reflects our profit upgrade. It also assumes that working capital will absorb £0.5m in the full year, much less than the 20% of revenue increase that management would consider normal, which would be approximately £2m.

Valuation: Market assumes cash reinvestment

Focusrite is market leader in its specialist field. Its rating is dependent on the market’s confidence in its ability to remain at the forefront of a competitive field of technical developments and to service a demanding user group. We believe the company is well placed to sustain this reputation over the medium term, and for this reason we use DCF techniques to evaluate the longer-term income stream available to investors. As a secondary metric, we consider valuation in relation to a peer group of smaller companies on near-term earnings expectations, although few of these are close peers. However, as discussed below, neither metric fully reflects the potential of the company’s excess cash of c £20m.

DCF valuation: Market is discounting substantial growth

Our DCF projection extends our forecasts out to 10 years with revenue growth fading in the last three years to a terminal rate of 2%. We assume a terminal EBITDA margin of 21% (as 19.8% was already achieved in 2017, this may be conservative) and capex investment at 7% of revenue, reducing to 5% in the terminal period. We assume an equity-only cost of capital of 8.4% (risk-free rate 3%, risk premium 6%, beta 0.9).

The key assumption is the medium-term sustainable revenue growth rate. Here, the current share price is equivalent to a medium-term growth rate of about 12%. In the past three years revenue has grown at 17%, 13% and 22% respectively, which makes such an assumption eminently reasonable; however, whether that level of growth can be sustained for up to seven years ahead is the key question. Exhibit 4 below shows the share price implication of alternative sales growth rates, as well as terminal margin assumptions.

Exhibit 4: Sensitivity to medium-term growth rate and terminal margin

Sales growth FY21-27

8%

10%

12%

14%

16%

Terminal margin

23.0%

502

502

502

502

502

22.0%

478

478

478

478

478

21.0%

454

454

454

454

454

20.0%

430

430

430

430

430

19.0%

406

406

406

406

406

Source: Edison

Peer group reference: Mixed picture

Focusrite does not have a direct peer, but we compare it with UK smaller-cap tech, electronics and consumer companies in relevant subsectors, as well as relevant companies in US and European markets. This is far from an exact comparison, but does give some context in terms of market valuations in adjacent sectors.

Exhibit 5: Peer valuations

P/E (x)

EV/EBITDA (x)

EV/Sales (x)

Aug-18

Aug-19

Aug-18

Aug-19

Aug-18

Aug-19

Universal Electronics

18.1

12.9

10.3

7.7

0.8

Tivo

8.2

10.6

8.9

3.0

2.9

Morgan Advanced Materials

11.7

13.2

7.1

7.5

1.6

1.5

Photo-Me International

16.2

15.1

7.6

7.1

3.5

3.3

Oxford Instruments

17.0

15.8

10.8

10.4

2.9

2.9

Bang & Olufsen

65.6

24.3

13.4

10.0

0.4

0.4

XP Power

21.6

20.0

15.6

14.4

5.1

4.9

Avid Technology

24.7

10.0

7.9

0.4

Gooch & Housego

25.7

23.6

14.5

13.7

3.8

3.7

Dialight

25.0

14.2

11.5

7.6

1.2

1.2

Quixant

25.8

23.2

18.7

16.7

3.0

2.7

Judges Scientific

21.0

17.6

12.9

12.5

2.7

2.6

B&C Speakers

17.7

12.7

3.0

2.8

Trakm8 Holdings

10.8

6.4

1.4

Gear4music Holdings

72.9

49.5

35.0

26.1

2.6

2.0

Average

27.6

20.0

13.2

11.7

2.4

2.6

Focusrite

27.3

26.2

16.1

15.6

3.2

3.1

Premium/(discount)

(1.2%)

31.1%

22.6%

33.7%

37.2%

18.7%

Source: Bloomberg, based on market prices at 19 April 2018. Note: All companies calendarised to August.

Focusrite trades on a 1% P/E discount for FY18e but a 31% premium for FY19e. On an EV/EBITDA basis the company trades at a premium of 23% for FY18e and 34% for FY19e. On an EV/Sales basis the company also trades at a premium to the peer group.

The missing valuation piece: Excess cash

While our metrics on the face of it do not point to valuation at or above current market levels, what is left out of the equation is how Focusrite’s excess cash of £19.7m may be utilised.

Focusrite generated high average ROCE rates of 44.7% in FY17 and we forecast 51.0% in FY18. On an untaxed basis those rates would be 49.7% and 58.0% respectively.

Exhibit 2: Return on capital employed

£m

2016

2017

2018e

Return

EBITA

7,140

9,470

11,224

Tax Charge

(811)

(955)

(1347)

Tax Rate

11.4%

10.1%

12.0%

Total Return

6,329

8,515

9,877

Capital employed (year-end)

Shareholders’ equity

25,020

32,884

40,797

Net cash

5,606

14,174

20,783

Total Capital Employed

19,414

18,710

20,014

Average Capital Employed

19,062

19,362

Pre-tax return on capital employed

49.7%

58.0%

Post tax return on capital employed

44.7%

51.0%

Source: Edison Investment Research

It is not likely that the company could generate returns from an acquisition equivalent to those of the business it has grown itself. However, using a range of lower ROCE rates, the excess cash would imply additional value as follows:

Exhibit 3: Potential value impact of excess cash (£m/ p per share)

ROCE

10%

15%

20%

Excess cash

19.7

19.7

19.7

Post-tax earnings

2.0

3.0

3.9

Incremental EPS

3.4

5.0

6.7

Pro forma FY19 EPS

20.3

22.0

23.7

Peer P/E

20.0

20.0

20.0

Implied share valuation (p)

406

440

474

Source: Edison Investment Research

Similarly, the effect on our DCF of adding £3.3m (the pre-tax equivalent of the £3.0m in the 15% column above) to our EBITDA, and removing net cash, would be to value the shares at 452p, assuming only annual revenue growth of 8% between FY21 and FY25.

Rather than an assumption of higher organic growth over time, we suggest it is likely that the market is discounting a valuation that assumes utilisation of the cash balance along these lines.

Exhibit 8: Financial summary

£'000s

2016

2017

2018e

2019e

2020e

31-August

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

54,301

66,055

75,412

80,022

86,023

Cost of Sales

(33,439)

(39,704)

(43,930)

(46,615)

(50,111)

Gross Profit

20,862

26,351

31,482

33,406

35,912

EBITDA

 

 

10,249

13,109

15,128

15,662

16,660

Operating profit (before amort. and except).

 

7,677

9,470

11,224

11,465

12,183

Amortisation of acquired intangibles

0

0

0

0

0

Exceptionals

(537)

0

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

7,140

9,470

11,224

11,465

12,183

Net Interest

(14)

42

(387)

50

50

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

7,663

9,512

10,837

11,515

12,233

Profit Before Tax (reported)

 

 

7,126

9,512

10,837

11,515

12,233

Reported tax

(870)

(959)

(1,300)

(1,555)

(1,835)

Profit After Tax (norm)

6,793

8,553

9,536

9,961

10,398

Profit After Tax (reported)

6,256

8,553

9,536

9,961

10,398

Minority interests

0

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

6,900

8,553

9,536

9,961

10,398

Net income (reported)

6,256

8,553

9,536

9,961

10,398

Basic average number of shares outstanding (m)

53.2

55.4

56.7

56.7

56.7

EPS - basic normalised (p)

 

 

13.0

15.4

16.8

17.6

18.3

EPS - normalised (p)

 

 

11.8

14.8

16.3

17.0

17.6

EPS - basic reported (p)

 

 

11.8

15.4

16.8

17.6

18.3

Dividend per share (p)

2.0

2.7

3.0

3.3

3.7

Revenue growth (%)

13.1

21.6

14.2

6.1

7.5

Gross Margin (%)

38.4

39.9

41.7

41.7

41.7

EBITDA Margin (%)

18.9

19.8

20.1

19.6

19.4

Normalised Operating Margin

14.1

14.3

14.9

14.3

14.2

BALANCE SHEET

Fixed Assets

 

 

6,367

6,332

6,940

8,138

9,462

Intangible Assets

4,792

4,963

5,737

7,107

8,579

Tangible Assets

1,575

1,369

1,203

1,031

883

Investments & other

0

0

0

0

0

Current Assets

 

 

28,191

36,126

43,719

50,746

57,870

Stocks

11,361

9,000

10,952

11,622

12,494

Debtors

11,224

12,952

11,983

13,593

15,319

Cash & cash equivalents

5,606

14,174

20,783

25,531

30,058

Other

0

0

0

0

0

Current Liabilities

 

 

(9,256)

(8,663)

(9,575)

(9,939)

(10,443)

Creditors

(8,612)

(8,204)

(9,318)

(9,632)

(10,080)

Tax and social security

(644)

(459)

(257)

(307)

(363)

Short term borrowings

0

0

0

0

0

Other

0

0

0

0

0

Long Term Liabilities

 

 

(282)

(245)

(287)

(361)

(440)

Long term borrowings

0

0

0

0

0

Other long term liabilities

(282)

(245)

(287)

(361)

(440)

Net Assets

 

 

25,020

33,550

40,797

48,585

56,449

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

25,020

33,550

40,797

48,585

56,449

CASH FLOW

Op Cash Flow before WC and tax

10,249

13,109

15,128

15,662

16,660

Working capital

(6,009)

407

(536)

(1,965)

(2,150)

Exceptional & other

(417)

137

(0)

(0)

(0)

Tax

(165)

(633)

(1,300)

(1,555)

(1,835)

Net operating cash flow

 

 

3,658

13,020

13,292

12,143

12,674

Capex

(3,675)

(3,614)

(4,594)

(5,557)

(6,095)

Acquisitions/disposals

0

0

0

0

0

Net interest

(111)

(42)

(387)

50

50

Equity financing

172

258

0

0

0

Dividends

(976)

(1,138)

(1,702)

(1,888)

(2,103)

Other

365

84

0

0

0

Net Cash Flow

(567)

8,568

6,609

4,748

4,526

Opening net debt/(cash)

 

 

(6,173)

(5,606)

(14,174)

(20,783)

(25,531)

FX

0

0

0

0

0

Other non-cash movements

0

0

0

0

0

Closing net debt/(cash)

 

 

(5,606)

(14,174)

(20,783)

(25,531)

(30,058)

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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 Pty 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 Focusrite and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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