Second half strength supports the strategy

Focusrite 22 November 2016 Update

Focusrite

Second half strength supports the strategy

Final results

Consumer electronics

22 November 2016

Price

165p

Market cap

£91m

Net cash (£m) at end FY16

5.6

Shares in issue

58.1m

Free float

39%

Code

TUNE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.5)

3.5

5.8

Rel (local)

1.8

4.8

(0.3)

52-week high/low

190p

138p

Business description

Focusrite is a global music and audio products group supplying hardware and software products used by professional and amateur musicians, which enables the high-quality production of music.

Next events

Capital markets day

Interim results

6 December 2016

April 2017

Analysts

Paul Hickman

+44 (0)20 3681 2501

Jane Anscombe

+44 (0)20 3077 5740

Focusrite is a research client of Edison Investment Research Limited

Focusrite has beaten our FY16 estimates, resulting in forecast upgrades. More importantly, perhaps, developments in the second half support our confidence in the strategy of expanding its markets and ranges with innovative and disruptive products. These include the successful launch of the second-generation Scarlett, confirming the sustained brand strength of the products, and the growing strength of the Far East where the company has a strategic geographical focus. We increase our DCF valuation to 214p.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV:EBITDA

(x)

Yield
(%)

08/15

48.0

7.2

10.5

1.8

15.7

9.6

1.1

08/16

54.3

7.7

11.8

2.0

14.0

8.8

1.2

08/17e

62.6

8.0

12.1

2.1

13.6

8.1

1.3

08/18e

68.3

8.8

13.3

2.3

12.4

7.1

1.4

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

Full-year results beat forecast

Focusrite has exceeded our forecast, with 12.5% earnings per share growth representing a 10% beat to our number (11.8p versus our 10.7p) and PBT of £7.7m a 7% beat. Q4 revenue was higher than we expected due to volume and currency effects. Despite sourcing its product in the Far East, priced in US$, around 80% of revenues are international, and US$ and euro strength against sterling is marginally helpful to results.

Business developments show strategy on course

Two developments since our initiation report of 14 September show the strategy is working. Firstly, the success of Scarlett second-generation launch in June drove a late boost to results and indicates the sustainability of the company’s model. Scarlett is the global brand leader in the personal sub-$500 market and the popularity of its upgraded products demonstrates that the product area can preserve and extend its market. Secondly, strong H2 revenue growth in Rest of the World and the US, at 27% and 23% respectively, shows success in both strategically important geographies.

Forecast upgrades

Our upgrades to forecasts effectively represent a roll-forward of the FY16 over-performance. We upgrade both our FY17 and FY18 EPS forecasts by 5%. We assume 15% y-o-y revenue growth in FY17 and 9% in FY18.

Increased valuation

We believe Focusrite is well placed to achieve sustained earnings and dividend growth based on its ability to remain at the forefront of its competitive and technical market. We use a DCF projection to value resulting cash flows, producing a valuation of 214p/share, up from 202p. This would put the shares on an FY17e P/E of 17.7x and EV/EBITDA of 10.7x.

Review of FY16 results

Exhibit 1: Summary of performance

£m

FY15 actual

FY16 actual

Growth

FY16 forecast

Actual vs forecast

Revenue

48.0

54.3

13.1%

54.0

0.5%

Gross profit

18.6

20.9

11.9%

20.3

2.5%

Gross margin

38.8%

38.4%

-0.4pp

37.7%

0.8pp

Adjusted EBITDA

9.3

10.2

10.2%

9.8

4.4%

Adjusted EBITDA margin

19.4%

18.9%

-2.5pp

18.2%

0.7pp

Pre-tax profit

7.2

7.7

6.6%

7.1

7.3%

EPS (p)

10.5

11.8

12.5%

10.7

10.2%

Source: Focusrite, Edison Investment Research

Two significant points stand out from the full-year results. Firstly, they demonstrate very strong growth coming through in the second half around the key second-generation Scarlett launch, which represented eight of the 16 launches in an active programme in FY16 (see Exhibit 2).

Secondly, second half growth was particularly strong in the Rest of the World and the US, at 27% and 23% respectively (Exhibit 2). Focusrite has a strategic focus on the Far East, opening a Hong Kong sales and marketing office to help grow the region during the year. Regional sales increased 2% to 19% of the company’s total. The US saw a strong take-up of the Scarlett second-generation launch.

Margins remain firm after allowing for the effect of currency. A stronger US$ against sterling is negative to the margin percentage, but only slightly so on the cash margin. The stronger euro is positive to both. Net, there is a marginal benefit from a weaker pound.

Pre-tax profit of £7.7m beat our forecast by 7% and EPS of 11.8p by 10%. Revenue growth of 13.1% to £54.3m was in line with pre-close guidance. Gross margin, although declining as expected year-on-year due to the stronger US$, was better than our forecast because of the late boost in the euro. This fed through to a similar beat on the EBITDA margin which, after depreciation and amortisation that was slightly below forecast, drove the better pre-tax result.

Exhibit 2: Half yearly results

£'000

H115

H215

FY15

H116

H216

2016

H1 y-o-y

H2 y-o-y

FY y-o-y

Revenue by product type

Focusrite

15,330

15,857

31,187

16,946

20,617

37,563

10.5%

30.0%

20.4%

Novation

6,831

7,338

14,169

7,287

6,396

13,683

6.7%

-12.8%

-3.4%

Distribution

1,637

1,036

2,673

1,647

1,408

3,055

0.6%

35.9%

14.3%

Total

23,798

24,231

48,029

25,880

28,421

54,301

8.7%

17.3%

13.1%

Revenue by geography

US

8,476

10,022

18,498

9,069

12,313

21,382

7.0%

22.9%

15.6%

Europe and Middle East

11,659

9,801

21,460

12,064

10,518

22,582

3.5%

7.3%

5.2%

Rest of World

3,663

4,408

8,071

4,747

5,590

10,337

29.6%

26.8%

28.1%

Total

23,798

24,231

48,029

25,880

28,421

54,301

8.7%

17.3%

13.1%

Gross profit

9,369

9,279

18,648

10,305

10,557

20,862

10.0%

13.8%

11.9%

Gross margin

39.4%

38.3%

38.8%

39.8%

37.1%

38.4%

0.4pp

-1.1pp

-0.4pp

Adjusted EBITDA

4,677

4,625

9,302

4,821

5,428

10,249

3.1%

17.4%

10.2%

Adjusted EBITDA margin

19.7%

19.1%

19.4%

18.6%

19.1%

18.9%

-1.0pp

0.0pp

-0.5pp

Operating profit

3,662

3,362

7,024

3,692

3,985

7,677

0.8%

18.5%

9.3%

Pre-tax profit

4,190

2,998

7,188

2,969

4,694

7,663

-29.1%

56.6%

6.6%

EPS (p)

6.0

4.5

10.5

4.6

7.2

11.8

-23.4%

60.0%

12.5%

Cash

4,725

6,173

6,173

3,952

5,606

5,606

-16.4%

-9.2%

-9.2%

Source: Focusrite, Edison Investment Research

Revenue growth of 13.1% was led by the Focusrite brand group in the second half, reflecting the success of the launch of the second-generation Scarlett range, the company’s largest brand family. The year also saw launches of the Clarett and Red ranges ($500-4,000), which we discussed in our initiation note, together with launches of products in the RedNet professional range, where customers include Microsoft and Disney.

The Novation group saw a revenue decline in H2 against 36% growth in H215, when the Launchpad Pro was launched and in contrast to H1, which saw the launch of the innovative Circuit instrument. However, Novation product registrations continued to increase, suggesting that the decline was the result of stock management by dealers rather than lack of customer demand. Distribution revenue strengthened markedly in H2 as more dealers bought KRK monitors, which the company distributes in the UK, reinforcing an overall stronger rate of growth later in the year.

The 40bp decline in gross margin can be attributed to the weakness of sterling against the US$ in the second half. The company’s revenue is c 50% and cost of sale is c 100% in US$, creating a good natural hedge; however, the resulting increase in sales and cost of sale produce a lower percentage margin despite the fact that there is little cash exposure.

The net effect of these factors was a boost to EBITDA growth in H2, to 17% against 3% in H1 (which had been affected by weakness in Q1 and also the fact that the company stopped shipping the older generation of the Scarlett range a few months ahead of the June second-generation launch, so that the channel was ready to accept the new product). The same effect is seen at operating profit level (18% against 1%). However, at PBT and EPS level, this was distorted between the two halves by the fair valuation process in relation to FX hedging instruments but, as expected, this had little effect in the year as a whole.

Changes in cash

Focusrite has no borrowings, and cash declined over the year by £0.4m to £5.6m. This was mainly as a result of decisions to increase stock holdings on new products, but also reflected an agreed change in payment terms to a large customer. Both of these are likely to be one-time effects.

Outlook and changes to forecasts

The strong performance in the second half supports our confidence in the company’s strategy, which we set out in our September initiation note. Developments of the strategy already included the launch of the Blocs Wave app in H1 and the launch of the company’s first webstore.

Our upgrades to forecasts effectively represent a roll-forward of the FY16 over-performance.

Exhibit 3: Changes to forecasts

FY17e old

FY17e new

change

FY18e old

FY18e new

change

£m

Revenues

61.1

62.6

2.5%

67.3

68.3

1.6%

Gross profit

22.2

23.2

4.2%

24.5

25.7

5.1%

Gross margin

36.4%

37.0%

0.6pp

36.4%

37.7%

1.3pp

Adjusted EBITDA

10.7

10.9

2.3%

11.8

12.0

1.5%

Adjusted EBITDA margin

17.5%

17.4%

0.0pp

17.5%

17.5%

0.0pp

Normalised operating profit

7.7

8.0

4.0%

8.5

8.8

3.6%

Normalised PBT

7.7

8.0

4.0%

8.5

8.8

3.6%

Normalised EPS (c)

11.5

12.1

5.4%

12.7

13.3

4.6%

Net cash

7.2

7.5

3.0%

10.2

10.6

4.4%

Source: Edison Investment Research

We are upgrading our FY17 EBITDA forecast by 2% and our EPS forecast by 5%. Although we assume 8% underlying revenue growth, the effect of weakening sterling against the company’s predominantly international markets is to amplify that to total revenue growth of 15%. However, to the extent the c 50% of revenue that is in US$ is matched against close to 100% of product cost, that currency effect is reduced at gross profit level. A small increase in gross margin carries through from FY16, and this drives the upgrades to PBT and cash. We do not forecast a geared effect from the increase at PBT and earnings level as we anticipate slightly higher central cost inflation, including the Asia office and eCommerce inititative.

For FY18 we upgrade PBT and EPS by 4% and 5% respectively. Again, we cautiously assume 8% underlying revenue growth, but with less fluctuation in currencies than in FY17, the total revenue increase is 9%. The increase in gross margin that we anticipate is largely the result of the 2017 euro hedging at £/€1.28 on 75% of European revenue reverting to spot, which we assume at £/€1.21. Once more, we assume higher cost inflation, which limits the assumed flow-through of higher margins to pre-tax profit and earnings.

Valuation

We believe Focusrite is well placed to achieve sustained earnings and dividend growth based on its ability to remain at the forefront of its competitive and technical market. We use a DCF projection to place a value on the longer-term income stream available to investors. Although there are few close peers, we also consider valuation relative to a group of smaller companies on near-term earnings expectations.

DCF valuation of 214p

Our DCF projection extends our forecast using similar revenue growth and margin assumptions for two years, and out to 10 years on growth, fading in the last three years to a terminal rate of 2%. We assume terminal EBITDA margin of 19.0% (2019e: 16.9%) and capex investment at 7% of revenue, reducing to 6% 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), resulting in a valuation of 214p/share (of which 129p is in the terminal value). Our previous valuation was 202p. This would put the shares on an FY17e P/E of 17.7x and EV/EBITDA of 10.7x. Varying the cost of capital and the terminal growth assumption would give the following ranges:

Exhibit 4: DCF assumption scenario analysis (p)

------------------------------------------------------Terminal growth rate---------------------------------------------------

Cost of capital

0.0%

1.0%

2.0%

3.0%

4.0%

10.0%

147

155

166

179

198

9.0%

167

178

193

213

241

8.0%

192

208

230

260

306

7.0%

225

249

282

332

415

Source: Edison Investment Research

Varying our assumed sales growth and margin assumptions affects the valuation as follows:

Exhibit 5: Growth and margin assumption scenario analysis

---------------------------------------------Sales growth 2019-20e---------------------------------------------------

6%

7%

8%

9%

10%

Margin change pa 2020-25e

0.6pp

205

218

232

246

262

0.5pp

197

209

223

237

252

0.4pp

189

201

214

227

242

0.3pp

181

193

205

218

232

0.2pp

173

184

196

209

222

Source: Edison Investment Research

In addition, our valuation would change by c ±40p for every 1pp change in our discount rate.

Peer group comparison

In our view the London small-cap market is the most appropriate context for Focusrite. As there is no close peer here, we define the relevant group as other UK smaller tech, electronics and consumer companies in relevant subsectors, as well as relevant companies in US and European markets. Although far from exact, this gives some context in terms of market valuations in adjacent sectors.

Focusrite trades at an average 15% P/E discount and an average c 7% EV/EBITDA premium to the group, which is slightly inconclusive, but suggests that the lower P/E rating reflects its favourable cash-rich capital structure and low tax rate resulting from its ongoing investment in R&D. Adjusting to the group in both calendar years on average values Focusrite shares at 197p on a P/E basis and 166p on an EV/EBITDA basis, an average of 181p. EV/Sales at around 1.5x is in line with peers.

Exhibit 6: Peer valuation

Calendarised

Country

Price

Market cap

EV

P/E (x)

EV/Sales (x)

EV/EBITDA (x)

CCYm

£m

£m

2016

2017

2016

2017

2016

2017

Universal Electronics

US

68.8

1003

771

769

23.5

19.2

1.5

1.3

13.6

10.9

Tivo

US

21.1

2523

1,940

2,435

10.4

8.0

3.6

2.7

9.7

6.4

Morgan Adv. Materials

UK

276.3

800

800

1,123

13.9

12.9

0.9

0.9

6.3

5.9

Photo-Me International

UK

143.1

541

541

453

17.9

16.8

1.8

1.7

6.0

6.0

E2V Technologies

UK

182.4

387

387

417

12.3

11.4

1.2

1.1

5.4

5.0

Oxford Instruments

UK

612.0

356

356

540

12.4

11.5

1.1

1.0

7.3

6.7

DTS

US

42.5

760

760

856

19.0

16.7

N/A

N/A

N/A

N/A

XP Power

UK

1723.0

335

335

340

16.1

15.0

2.2

2.0

8.3

7.6

Avid Technology

US

5.0

201

155

219

2.9

38.1

N/A

N/A

N/A

N/A

Gooch & Housego

UK

996.5

235

235

209

23.2

20.6

2.0

1.7

9.9

8.3

TT Electronics

UK

132.4

220

220

303

12.7

11.4

0.4

0.4

4.8

4.4

Dialight

UK

692.0

229

229

234

33.7

21.3

1.1

1.0

11.1

8.2

Quixant

UK

282.5

185

185

193

22.0

19.5

2.3

2.0

13.2

11.1

Judges Scientific

UK

1345.0

82

82

89

14.9

12.8

1.2

1.1

6.7

6.0

B&C Speakers

IT

7.5

83

69

67

12.9

12.0

2.0

1.9

8.0

7.6

Trakm8 Holdings

UK

172.5

56

56

58

11.8

9.9

1.3

1.2

6.3

5.2

Gear4music (Holdings)*

UK

417.5

84

84

92

60.5

38.7

1.3

0.9

26.7

17.9

Average

16.2

16.1

1.6

1.4

8.3

7.1

Focusrite

UK 

167

97

97

91

14.0

13.3

1.6

1.4

8.7

7.8

Premium/(discount)

-13.6%

-17.0%

-1.8%

-4.7%

4.1%

10.7%

Source: Bloomberg. LSE subsectors Electrical Components & Equipment, Computer Hardware, Recreational Products; relevant audio/video companies from US and European markets. Market cap £25m-1bn. Note: Outliers excluded from table. Prices as at 17 November 2016. *Outlier, excluded.

Exhibit 7: Financial summary

£'000s

2015

2016

2017e

2018e

2019e

31-August

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

48,029

54,301

62,600

68,342

73,809

Cost of Sales

(29,381)

(33,439)

(39,448)

(42,604)

(46,012)

Gross Profit

18,648

20,862

23,152

25,738

27,797

EBITDA

 

 

9,302

10,249

10,918

11,953

12,510

Normalised operating profit

 

 

7,024

7,677

8,042

8,815

9,012

Amortisation of acquired intangibles

0

0

0

0

0

Exceptionals

(704)

(537)

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

6,320

7,140

8,042

8,815

9,012

Net Interest

164

(14)

0

0

0

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

7,188

7,663

8,042

8,815

9,012

Profit Before Tax (reported)

 

 

6,484

7,126

8,042

8,815

9,012

Reported tax

(1,022)

(870)

(965)

(1,058)

(1,352)

Profit After Tax (norm)

6,166

6,793

7,077

7,757

7,660

Profit After Tax (reported)

5,462

6,256

7,077

7,757

7,660

Minority interests

0

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

6,166

6,900

7,077

7,757

7,660

Net income (reported)

5,462

6,256

7,077

7,757

7,660

Basic average number of shares outstanding (m)

52.4

53.2

54.1

55.1

55.1

EPS - basic normalised (p)

 

 

11.8

13.0

13.1

14.1

13.9

EPS - diluted normalised (p)

 

 

10.5

11.8

12.1

13.3

13.1

EPS - basic reported (p)

 

 

10.4

11.8

13.1

14.1

13.9

Dividend (p)

1.80

1.95

2.10

2.25

2.40

Revenue growth (%)

17.2

13.1

15.3

9.2

0.0

Gross Margin (%)

38.8

38.4

37.0

37.7

37.7

EBITDA Margin (%)

19.4

18.9

17.4

17.5

16.9

Normalised Operating Margin

14.6

14.1

12.8

12.9

12.2

BALANCE SHEET

Fixed Assets

 

 

5,264

6,367

7,597

9,020

10,448

Intangible Assets

3,941

4,792

5,498

6,506

7,534

Tangible Assets

1,323

1,575

2,099

2,513

2,914

Investments & other

0

0

0

0

0

Current Assets

 

 

22,766

28,191

34,472

40,272

45,798

Stocks

8,633

11,361

14,158

15,407

16,640

Debtors

7,737

11,224

12,863

14,230

15,368

Cash & cash equivalents

6,173

5,606

7,451

10,635

13,790

Other

223

0

0

0

0

Current Liabilities

 

 

(8,809)

(9,256)

(10,911)

(11,733)

(12,799)

Creditors

(8,406)

(8,612)

(10,267)

(11,089)

(11,976)

Tax and social security

(403)

(644)

(644)

(644)

(823)

Short term borrowings

0

0

0

0

0

Other

0

0

0

0

0

Long Term Liabilities

 

 

(743)

(282)

(328)

(393)

(459)

Long term borrowings

0

0

0

0

0

Other long term liabilities

(743)

(282)

(328)

(393)

(459)

Net Assets

 

 

18,478

25,020

30,831

37,167

42,989

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

18,478

25,020

30,831

37,167

42,989

CASH FLOW

Op Cash Flow before WC and tax

9,302

10,249

10,918

11,953

12,510

Working capital

(1,689)

(6,009)

(2,781)

(1,795)

(1,484)

Exceptional & other

(591)

(417)

(0)

(0)

(0)

Tax

(838)

(165)

(965)

(1,058)

(1,352)

Net operating cash flow

 

 

6,184

3,658

7,172

9,100

9,674

Capex

(3,559)

(3,675)

(4,191)

(4,677)

(5,173)

Acquisitions/disposals

0

0

0

0

0

Net interest

6

(111)

0

0

0

Equity financing

0

172

0

0

0

Dividends

(314)

(976)

(1,136)

(1,239)

(1,346)

Other

53

365

0

0

0

Net Cash Flow

2,370

(567)

1,845

3,184

3,155

Opening net debt/(cash)

 

 

(3,803)

(6,173)

(5,606)

(7,451)

(10,635)

FX

0

0

0

0

0

Other non-cash movements

0

0

0

0

0

Closing net debt/(cash)

 

 

(6,173)

(5,606)

(7,451)

(10,635)

(13,790)

Source: Focusrite, Edison Investment Research

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. 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 2016 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 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 2016. “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)48 948 555

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)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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. 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 2016 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 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 2016. “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)48 948 555

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)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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