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Strong growth in profits as expected

Carclo 15 June 2017 Update
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Carclo

Strong growth in profits as expected

FY17 results

Tech hardware & equipment

15 June 2017

Price

152.00p

Market cap

£111m

Net debt (£m) at end March 2017

26.0

Shares in issue

73.0m

Free float

93.1%

Code

CAR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.0

14.0

(2.9)

Rel (local)

0.4

11.4

(22.7)

52-week high/low

163.8p

112.0p

Business description

Carclo is a specialist in high-precision plastic moulding principally in healthcare, optical and automotive applications. Its two main end-markets are high-volume medical consumables and low-volume, very high-value automotive lighting, typically for supercars.

Next events

AGM

7 September 2017

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Carclo is a research client of Edison Investment Research Limited

Carclo has refocused investment in its established businesses (Technical Plastics and LED Technologies), where a differentiated offer and long-term relationships with customers provide good earnings visibility and higher probability of a sustainable return. This strategy delivered strong revenue and profits growth during FY17. This growth appears set to continue, underpinned by contracts with blue-chip customers. We increase our estimates of revenues attributable to Technical Plastics while slightly reducing PBT and EPS to reflect higher IAS 19 finance charges. We raise our indicative valuation to 181-191p (previously 153-162p).

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

119.0

8.8

10.1

0.9

15.0

0.6

03/17

138.3

11.0

12.1

0.0

12.6

N/A

03/18e

148.1

12.5

12.9

0.0

11.8

N/A

03/19e

159.6

15.0

15.2

3.9

10.0

2.6

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

Operating divisions continue to perform well

Group revenues grew by 16% year-on-year during FY17 to £138.3m as a result of good growth in both Technical Plastics (CTP) and LED Technologies, helped by favourable currency translation. Adjusted for constant currency, the 10% revenue increase was in line with our £130.0m estimate. Underlying operating margin rose by 60bp to 9.0%. Pre-exceptional PBT increased by 26% to £11.0m, slightly ahead of our £10.7m estimate. We expect growth during the forecast period to be driven by investment in capacity at CTP, which is underpinned by customer contracts, and new programme wins at Wipac, which now has three mid-volume projects to work on.

Strengthening platform for future growth

The two acquisitions that took place during FY17 have already started to show their worth. US-based Precision Tool and Die (PTD), acquired in October, has fulfilled its role of providing tool making capability for existing CTP customers. Czech-based FLTC, acquired in March 2017, added over 30 designers to the Wipac team, enabling it to work on multiple mid-volume programmes in parallel. We nudge up our FY18 and FY19 revenue estimates, leave EBIT estimates unchanged and reduce PBT and EPS by c 2% to reflect higher IAS 19 finance charges.

Valuation: Auto contracts to close valuation gap

We use a sum-of-the-parts methodology with three sets of sample peers drawn from medical device manufacturing (mean EV/EBITDA 9.9x), automotive (mean EV/EBITDA 6.8x) and aerospace (mean EV/EBITDA 9.0x) to reflect the diversity of Carclo’s operations. This gives an indicative valuation range of 181-191p (previously 153-162p), which is equivalent to an EV/EBITDA range of 8.2-8.6x. Newsflow regarding further automotive contract wins should help close the valuation gap.

Divisional review

Exhibit 1: Segmental analysis

£m

2015

2016

2017

2018e

2019e

CTP

64.3

70.5

87.8

95.0

102.5

LED Technologies

34.1

40.5

43.4

46.1

50.0

Aerospace

6.3

6.4

7.0

7.0

7.0

Discontinued

2.9

1.6

0.0

0.0

0.0

Group revenues

107.5

119.0

138.3

148.1

159.6

CTP

5.4

6.2

8.7

10.0

11.9

LED Technologies

4.4

5.4

5.9

6.6

7.3

Aerospace

1.6

1.3

1.3

1.2

1.2

Discontinued

(1.4)

(0.1)

0.0

0.0

0.0

Unallocated

(2.2)

(2.7)

(3.4)

(3.5)

(3.5)

Group pre-exceptional EBIT

7.8

10.0

12.5

14.3

16.8

Exceptionals

(31.7)

(4.9)

(0.5)

0.0

0.0

Reported Group EBIT

(23.9)

5.2

12.0

14.3

16.8

Source: Carclo data, Edison Investment Research

Technical Plastics (CTP): 64% revenues, 55% EBIT FY17

Technical Plastics revenues rose by 25% year-on-year (13% in constant currency) to £87.8m, driven by demand from larger medical device customers that are thinking on a global scale and are keen to work with suppliers that also have global footprints. Growth in the UK was helped by a new programme with Becton Dickinson. Growth in the US was driven by multiple new programmes made possible by investment in capacity at the site in Latrobe, Pennsylvania, during FY15 and at Tucson, Arizona, during FY16. The facility in Taicang, China, which was completed during H216, is performing well as production capacity for the anchor global medical device customer was expanded during the year and a further five new medical programmes were secured. Overall, new business wins reached a record level during the year. Pre-exceptional EBIT grew by 41% to £8.7m. Operating margins increased from 8.8% to 9.9% (10.2% in constant currency), approaching management’s medium-term target of 10%, because of improved efficiencies in the US.

Looking forward, revenue growth is linked to investment in capacity. Expansion is always underpinned by existing customer awards while creating space to secure new customers and product lines in future. The project to double the capacity of the facility in Bangalore to meet expected demand from its major electronics customer for technical parts and assemblies is on track for completion during the summer of 2017. The first phase of expansion at Mitcham in the UK was completed during H217 and the second phase, which is required to support the manufacture of part of Becton Dickinson’s Vystra disposable pen, will be completed later in calendar 2017, ahead of volume production in calendar 2018. Construction of a white room moulding unit at the Tucson site to support work for a West Coast US medical customer was also completed in H217. The next big development is likely to be expansion of capacity at PTD following its acquisition in October 2016.

The PTD business has been successfully integrated into the CTP operation and is fulfilling the acquisition objectives. The division has won several tool making projects for existing CTP customers and a manufacturing project.

Noting the strong divisional growth during FY17, we raise our FY18 divisional revenue estimate from £87.3m to £95.0m and our FY19 estimate from £97.9m to £102.5m. We increase our divisional operating profit estimate by £0.5m in both FY18 and FY19. This is balanced by a corresponding increase in unallocated costs and small reduction in Aerospace EBIT (see below).

LED Technologies: 31% revenues, 37% EBIT FY17

LED Technologies revenues grew by 7% year-on-year to £43.4m, supported by the eight new supercar programmes won during FY15 entering production. There was little impact from currency movements. Divisional operating profit grew by 10% to £5.9m reflecting a sustained shift to higher-margin contracts and efficient ramp up of production programmes. Both Wipac and the Optics businesses contributed to the improvement in revenues and profits. Wipac was awarded multiple new vehicle programmes during the period, including the Aston Martin DB11 grand tourer coupe, and McLaren 570S coupe. Work on the first mid-volume programme (ie 10,000 to 30,000 vehicles pa), which included the delivery of several pre-production variants, progressed according to plan. The manufacturing release date of the vehicle is unchanged at late calendar 2019.

Looking forward, growth is dependent on continuing to secure new projects. In April 2017 Wipac announced it had secured a second mid-volume programme for daytime running lights for a hybrid vehicle for a European automotive manufacturer. The group is targeting winning another mid-volume programme during calendar 2018. Management is addressing this shift into mid-volume projects in two ways. Firstly, it has boosted the number of designers that can work on projects through the acquisition of FLTC, an independent automotive design company based in Czech Republic (now Wipac Czech) in March 2017, thus adding over 30 designers in one go. This means that Wipac will be able to work on more low- and medium-volume prestige car projects simultaneously. Wipac’s ability to expand had previously been limited by the rate at which it could find suitably qualified and experienced staff in the UK. The acquisition was a key factor in Wipac winning the hybrid vehicle mid-volume contract. Secondly, Wipac is creating three dedicated mid-volume production cells at its Buckingham facility, two for the mid-volume programmes already mentioned, and one for a programme that was awarded during FY17 where the anticipated volumes are now expected to fall into the “mid-volume” category. Optics moulding is being transferred from the site to CTP’s Czech site to release manufacturing space and support Optics margins. During calendar 2017 Wipac will construct a dedicated 1,000m2 warehouse next to the existing Buckingham facility and transfer all existing warehousing into the new building, freeing space for a further three mid-volume production cells to meet the group’s stated targets. In the medium term, management intends to extend the main Buckingham factory to meet customer demand.

Noting that all major programmes are on track, we leave our divisional revenue estimate unchanged giving relatively modest divisional revenue growth of 6.2% and 8.5% in FY18 and FY19, respectively. We expect substantially stronger revenue growth in FY20, which is when volume manufacturing for the first mid-volume programme kicks in, although we are not issuing estimates for the year at this stage. We leave our divisional revenue estimates unchanged and nudge our divisional EBIT estimate up by £0.2m in FY18 and £0.3m in FY18.

Aerospace: 5% revenues, 8% EBIT FY17

Divisional revenues grew by 10% year-on-year to £7.0m while operating profits were flat at £1.3m. This reflects the substitution of some sales of control cables, which is a declining market, for lower-margin precision machined components. Overall, the market remains stable and the business is highly cash generative. Noting the shift in product mix to lower-margin work, we adjust our divisional revenue estimates so that there is no growth in FY18 and FY19 rather than modest year-on-year growth and reduce both our FY18 and FY19 divisional EBIT estimates by £0.2m.

Group performance

FY17 earnings growth driven by two core businesses

Group revenues grew by 16% year-on-year during FY17 to £138.3m. This was the result of strong growth in both the core businesses, particularly CTP, an estimated £3m attributable to the PTD acquisition and the impact of weaker sterling on the retranslation of overseas sales. Revenues increased by 10% in constant currency, in line with our £130.0m estimate. Pre-exceptional EBIT rose by 25% (22% constant currency) to £12.5m with underlying operating margin rising by 60bp to 9.0%. Financing charges increased by £0.2m to £1.5m because of an increase in the non-cash charge (£0.8m FY17 vs £0.4m FY16) relating to the IAS 19 pension deficit, though net bank interest reduced by £0.2m to £0.7m. Pre-exceptional PBT rose by 26% to £11.0m, slightly ahead of our £10.7m estimate, with the difference attributable to currency translation effects. EPS (adjusted for exceptional items) increased more slowly, by 20% to 12.1p, because of the dilutive impact of the October placing.

Revisions to estimates

Exhibit 2: Changes to estimates

FY17

FY18e

FY19e

Old

Actual

Change
(%)

Old

New

Change
(%)

Old

New

Change
(%)

Group revenues (£m)

130.0

138.3

6.4%

140.6

148.1

5.3%

155.3

159.6

2.8%

Group EBIT (£m)

11.8

12.0

1.7%

14.3

14.3

0.0%

16.8

16.8

0.0%

Group adjusted PBT (£m)

10.7

11.0

3.4%

12.7

12.5

(2.0)%

15.3

15.0

(1.8)%

Group adjusted EPS (p)

11.6

12.1

4.3%

13.1

12.9

(1.8)%

15.5

15.2

(1.7)%

Group DPS (p)

0.0

0.0

0.0%

0.0

0.0

0.0%

0.0

3.9

N/A

Source: Edison Investment Research

The modest increase in FY18 and FY19 CTP revenue estimates results in a small uplift to group FY18 and FY19 estimates. The EBIT estimates for these two years are not changed. However, a small increase in IAS 19 finance charges has resulted in a modest reduction in group PBT and EPS estimates in both years. Noting management’s stated intention to reinstate the dividend in FY19 provided that this is sustainable and legally possible (see below), we amend our FY19 DPS estimate accordingly.

The revisions give group revenue growth during FY18 and FY19 of 7% and 8%, respectively. This growth is underpinned by the combination of expansion in capacity at CTP and growth at Wipac from the new programmes secured during FY17. The improvements in operating margins modelled for the two core businesses result in a 0.7pp rise in group operating margin to 9.7% in FY18, followed by a 0.9pp rise in FY19.

Cash flow and balance sheet

Cash generated being reinvested to support growth

Net debt increased by £1.3m during FY17 to £26.0m, in line with our £25.6m estimate. Working capital rose by £6.7m, partly reflecting increased revenues across CTP and Wipac, partly an increase in debtors relating to the first mid-volume vehicle programme. This is because Wipac is booking revenues for the design phase of the mid-volume programme but, unlike supercar programmes, will not get paid for this work until the start of the tooling phase, which is typically 18-24 months after the start of the programme. Capital expenditure was similar to the previous year (£7.9m FY17 vs £8.3m FY16). £6.4m of this investment was for CTP, with almost half allocated for expansion in the UK. There was also significant investment in production equipment to support increased activity at Wipac. The debt position was improved by the placing in October 2016, which raised £7.7m (net) at 120p/share. £4.6m (including working capital adjustment) of this was used to finance the initial consideration payable for PTP, the remainder to repay part of the group’s medium-term loan facility and invest in capacity. The £1.0m cash consideration for FLTC was funded from the group’s short-term debt facilities. Management notes that the group has total bank facilities of £41.0m and has good headroom on its main banking covenant limits. Management’s own target is a net debt to EBITDA ratio of 1.5x in the medium term. It achieved 1.51x at end FY17 compared with 1.77x at end FY16. The gearing at end FY17 (59%) was distorted by the size of the pension liability, which has been adversely affected by changes in bond rates (see below). Interest cover was a comfortable 8.1x.

The continued investment in capex (which we estimate at £12.5m in FY18 and £9.0m in FY19 if investment in capitalised R&D is excluded) is expected to drive increased profits, supporting a decrease in net debt to £21.6m at end FY19. Before that point, however, the £3.4m increase in working capital during FY18 associated with developing the tooling for mid-volume programmes ahead of manufacture, together with relatively high levels of capex, is expected to result in a £2.0m increase in debt during FY18 to £28.0m at the year end.

Pension deficit reduced sharply from H117 position

During FY17 the deficit, as calculated under IAS 19, increased from £18.9m to £27.0m net of deferred tax as a result of a decrease in corporate bond yields from 3.5% to 2.6%. This position is a substantial improvement compared with the deficit of £42.6m reported at the interims, reflecting the modest improvement in bond yields since September when the discount rate had dropped to a low of 2.1% following the EU referendum vote. In September the scale of the deficit had eliminated the available distributable reserves thus making dividend distribution legally impossible, so only the interim dividend was paid for FY16 and no further payments made after that. The board has stated its intention of resuming dividend payments in FY19 provided that bond yields at that time are at an appropriate level to ensure that any reinstatement is sustainable. At the interims management noted that this would require bond yields to rise well above 3% as each 0.25% pa decrease in the discount rate increases the scheme liabilities by c £7m.The board continues to take steps to maximise the distributable reserves in the plc.

The level of payments into the pension scheme was agreed with scheme trustees in March 2015 and will be reviewed at the next triennial valuation, which is scheduled for March 2018. We model payments for FY18 and FY19 at a level similar to FY17 (£1.2m).

Valuation

Examination of the comparators (Exhibit 3) shows that Carclo is trading on multiples that are substantially lower than those for healthcare companies. We therefore run a sum-of-the-parts calculation to determine an indicative FY18 P/E multiple for Carclo, as this methodology acknowledges that around half of its divisional operating profit is attributable to the sale of products to the global healthcare industry. Where available, the P/E multiple applied to each division is the mean for each sector, as shown in Exhibit 4. There are a number of companies manufacturing high-volume medical products but the key one of relevance, which we use in the sum-of-the-parts calculation, is Gerresheimer, as its products are primarily for use in the medical/pharmaceutical test facilities, rather than for patient care (Ambu, Coloplast and Straumann). As can be seen from Exhibit 3, the latter trade on much higher multiples. This sample is therefore not used in the sum-of-the-parts calculation. As shown in Exhibit 4, the weighted average P/E multiple derived from the P/E multiples for the three sectors is 16.5x.

Applying this weighted average P/E multiple of 16.5x to Carclo’s FY18 EPS (12.9p) gives an indicative valuation of 212.5p. We think that Carclo’s relatively small market capitalisation merits some discount to this. However, the implied discount (45%) to the indicative valuation of 212.5p with a current share price of 147p is, in our opinion, too severe given the stability provided by long-term customer relationships combined with potential for growth in Carclo’s two main divisions. Applying an arbitrary 10-15% discount gives a valuation range of 181-191p (see Exhibit 4). To cross-check, we apply the same methodology to calculate a blended sum-of-the-parts using the year two EV/EBITDA multiple from our sample of peers in the three segments. Our indicative value range of 181-191p gives a range of year 1 EV/EBITDA multiples of 8.2-8.6x (see Exhibit 3). The lower bound (8.2x) is equivalent to the blended year 1 EV/EBITDA multiple with a 6% discount applied. The upper bound (8.6x) is equivalent to the blended year 1 EV/EBITDA multiple with a 1% discount. Our valuation range was previously 153-162p/share. This increase reflects a substantial uplift in the average P/E multiples for automotive companies. We see potential for share price appreciation towards the undiscounted indicative value of 212.5p as the mid-volume programmes start to pass into production in FY20.

Exhibit 3: Peer multiples

Name

Market Cap m ($)

EV/Sales 1FY (x)

EV/Sales 2FY (x)

EV/EBITDA 1FY (x)

EV/EBITDA 2FY (x)

PE 1FY (x)

PE 2FY (x)

CARCLO at current share price of 147p

136

0.9

0.8

6.9

6.0

11.4

9.7

CARCLO at 181p

168

1.1

1.0

8.2

7.1

14.0

11.9

CARCLO at 191p

178

1.1

1.0

8.6

7.4

14.9

12.6

Healthcare: patient implants and disposables

AMBU A/S-B

3,294

9.5

8.2

38.9

30.8

59.9

45.0

COLOPLAST-B

18,652

7.9

7.4

21.7

19.8

30.5

27.4

STRAUMANN HOLDING AG-REG

8,804

8.1

7.4

27.4

24.4

36.4

31.9

Healthcare: drug delivery and packaging

GERRESHEIMER AG

2,628

2.2

2.2

9.9

9.5

17.2

15.9

Automotive

AMERICAN AXLE & MFG HOLDINGS

1,817

0.5

0.4

2.7

2.4

4.8

4.7

BORGWARNER INC

9,266

1.2

1.2

7.3

6.9

12.3

11.5

BREMBO SPA

4,966

1.9

1.8

9.8

9.1

17.5

16.4

DELPHI AUTOMOTIVE PLC

22,814

1.6

1.5

9.0

8.5

12.9

11.8

FAURECIA

7,246

0.4

0.4

3.9

3.6

11.3

10.0

HALDEX AB

589

1.2

1.1

12.9

9.8

23.5

19.9

HELLA KGAA HUECK & CO

5,599

0.8

0.8

6.0

5.4

14.2

12.6

LEONI AG

1,788

0.4

0.4

5.8

5.4

13.1

11.5

MAGNA INTERNATIONAL INC

17,405

0.5

0.5

5.0

4.7

7.9

7.0

PARAGON AG

344

2.8

2.3

17.3

14.0

52.5

38.0

VALEO SA

16,490

0.8

0.7

6.3

5.5

14.0

12.2

VISTEON CORP

3,176

1.0

0.9

8.2

7.6

17.3

15.0

Mean

1.1

1.0

6.8

6.3

15.1

13.4

Aerospace

FACC AG

370

0.8

0.8

10.3

8.2

24.2

16.9

LATECOERE

465

0.7

0.7

8.9

8.6

16.5

15.3

SENIOR PLC

1,266

1.2

1.2

9.9

9.0

17.7

15.5

TT ELECTRONICS PLC

424

0.7

0.6

6.8

6.4

15.1

13.7

Mean

0.8

0.8

9.0

8.0

18.4

15.4

Source: Bloomberg, Edison Investment Research Prices at 13 June 2017
Grey shading indicates exclusion from mean

The share price has picked up from the low of 110p in November 2016 as investors now recognise that the withdrawal of dividend payments announced in August does not imply problems with underlying trading performance and profits. Newsflow regarding further automotive programmes should help close the valuation gap.

Exhibit 4: SOTP indicative valuation

Division

% FY18e EBIT

P/E

%FY18e EBIT

EV/EBITDA

CTP (Healthcare drug delivery and packaging peers)

55.9%

17.2x

55.9%

9.9x

LED (Automotive peers)

37.3%

15.1x

37.3%

6.8x

Aerospace (Aerospace peers)

6.8%

18.4x

6.8%

9.0x

Blended P/E

16.5x

8.7x

FY18e EPS

12.9p

Undiscounted indicative value

212.5p

8.7x

Indicative value applying a 1% discount

210.3p

8.6x

Indicative value applying an 6% discount

199.7p

8.2x

Indicative value applying a 10% discount

191.2p

7.8x

Indicative value applying a 15% discount

180.6p

7.4x

Source: Edison Investment Research

Exhibit 5: Financial summary

£'000s

2016

2017

2018e

2019e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

118,974

138,282

148,122

159,586

EBITDA

 

 

13,840

17,033

19,346

22,348

Operating Profit (before amort. and except.)

10,034

12,498

14,346

16,848

Intangible Amortisation

0

0

0

0

Exceptionals

(4,857)

(541)

0

0

Other

0

0

0

0

Operating Profit

5,177

11,957

14,346

16,848

Net Interest

(1,282)

(1,479)

(1,850)

(1,870)

Profit Before Tax (norm)

 

 

8,752

11,019

12,496

14,978

Profit Before Tax (FRS 3)

 

 

3,895

10,478

12,496

14,978

Tax

(1,708)

(2,496)

(3,124)

(3,894)

Profit After Tax (norm)

6,692

8,418

9,372

11,084

Profit After Tax (FRS 3)

2,187

7,982

9,372

11,084

Average Number of Shares Outstanding (m)

66.2

69.4

73.0

73.0

EPS - normalised (p)

 

 

10.1

12.1

12.9

15.2

EPS - normalised fully diluted (p)

 

 

10.1

12.1

12.9

15.2

EPS - (IFRS) (p)

 

 

3.3

11.5

12.9

15.2

Dividend per share (p)

0.9

0.0

0.0

3.9

EBITDA Margin (%)

11.6

12.3

13.1

14.0

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

8.4

9.0

9.7

10.6

BALANCE SHEET

Fixed Assets

 

 

66,660

80,085

87,885

91,685

Intangible Assets

20,257

26,323

26,623

26,923

Tangible Assets

36,597

43,423

50,923

54,423

Investments

9,806

10,339

10,339

10,339

Current Assets

 

 

59,635

80,187

82,297

90,314

Stocks

15,596

19,250

20,615

21,861

Debtors

26,647

38,468

41,190

41,536

Cash

16,692

22,269

20,292

26,717

Other

700

200

200

200

Current Liabilities

 

 

(33,428)

(46,884)

(47,522)

(48,604)

Creditors

(22,732)

(27,996)

(28,634)

(29,716)

Short term borrowings

(10,696)

(18,888)

(18,888)

(18,888)

Long Term Liabilities

 

 

(60,000)

(69,125)

(69,125)

(69,125)

Long term borrowings

(30,746)

(29,406)

(29,406)

(29,406)

Other long term liabilities

(29,254)

(39,719)

(39,719)

(39,719)

Net Assets

 

 

32,867

44,263

53,535

64,269

CASH FLOW

Operating Cash Flow

 

 

13,933

8,916

14,897

20,839

Net Interest

(861)

(762)

(750)

(770)

Tax

(1,253)

(2,086)

(3,124)

(3,894)

Capex

(9,593)

(7,683)

(13,000)

(9,500)

Acquisitions/disposals

0

(5,672)

0

(250)

Financing

20

7,616

0

0

Dividends

(1,821)

(596)

0

0

Net Cash Flow

425

(267)

(1,977)

6,424

Opening net debt/(cash)

 

 

24,518

24,750

26,025

28,002

HP finance leases initiated

0

0

0

0

Other

(657)

(1,008)

0

0

Closing net debt/(cash)

 

 

24,750

26,025

28,002

21,577

Source: Company data, 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 Carclo 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

New York, NY10017

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

New York, NY10017

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 Carclo 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

New York, NY10017

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

New York, NY10017

US

Sydney+61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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