style="color:#c41230;">Good profitability despite market uncertainty

EMIS Group 15 September 2016 Institutional Update

EMIS Group

Good profitability despite market uncertainty

H116 results

Software & comp services

 

15 September 2016

Price

995p

Valuation

1,060p

Difference

6.5%

Market cap

£630m

Net cash (£m) at end H116

0.7

Shares in issue

63.3m

Free float

74.7%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.3)

2.0

(-3.1)

Rel (local)

(2.3)

(8.8)

(10.7)

52-week high/low

1155p

841.5p

Business description

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

Next events

Trading update

January 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

EMIS’s H116 results showed improved profitability despite limited revenue growth. Recent restructuring has reduced the cost base across the group and should provide a boost to profitability from H2. In our view, the NHS’s digital agenda continues to support long-term growth of the business. Evidence of a turnaround of the Secondary & Specialist Care business is the key to share price upside in the shorter term.

Year end

Revenue (£m)

EBITDA (£m)

EPS* (p)

Net (debt) cash

P/E (x)

Yield (%)

12/14

137.6

47.6

42.8

(11.8)

23.2

1.9

12/15

155.9

52.0

46.0

(9.1)

21.6

2.1

12/16e

162.5

54.1

48.6

(0.1)

20.5

2.4

12/17e

172.2

57.2

51.9

18.8

19.2

2.5

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

H116: improved profitability despite flat revenues

In H116 EMIS generated profit growth (adjusted operating profit +4.6% y-o-y, margin +75bp to 22.5%) despite minimal organic revenue growth. Primary & Community Care and Community Pharmacy both performed well, with stable to growing market share across the various business lines and improved profitability year-on-year. Secondary & Specialist Care (SSC) saw sluggish order intake in the acute business and weaker margins in the screening business due to higher than expected contract set-up costs. Restructuring that started in SSC widened to encompass the group and should contribute to profitability in H216.

Small changes to estimates

Management’s profit expectations for FY16 are unchanged. We have revised our forecasts to take account of H116 performance – despite reducing our revenue forecasts by 2.6% in FY16 and FY17, our normalised EPS forecasts only reduce by 0.7% in FY16e and 0.6% in FY17e as the recent restructuring has reduced the cost base. We forecast the company to be close to net cash neutral by year-end, moving to net cash of £18.8m by the end of FY17. In our view, the government’s vision for a paperless NHS supports long-term growth of the business, although the timing of the availability of funds for change projects is difficult to predict.

Valuation: Secondary & Specialist Care key

The stock is trading at a small discount to peers on a P/E basis, supported by a dividend yield of c 2%. In our view, confirmation of a return to revenue growth in SSC combined with improving profitability would support the stock trading at a small premium to peers. Other areas that could provide upside to our earnings forecasts include more integrated healthcare contract wins and beating market share targets in CCMH from winning more of the North New and Refresh contracts. Longer term, the roll-out to the newly signed Lloyds pharmacies should provide a boost to profitability.

Review of H116 results

Exhibit 1: Half-year results

£'000

H115

H116

y-o-y (%)

Revenues

77,806

78,670

1.1

Gross margin (%)

91.1

91.2

0.1

EBITDA

24,813

24,840

0.1

EBITDA margin (%)

31.9

31.6

-0.3

Normalised* EBIT

17,379

17,923

3.1

EMIS adjusted** EBIT

16,917

17,692

4.6

Reported EBIT

13,848

12,141

(12.3)

Normalised EBIT margin (%)

22.3

22.8

0.4

EMIS adjusted EBIT margin (%)

21.7

22.5

0.7

Reported EBIT margin (%)

17.8

15.4

-2.4

Net interest income

(230)

(231)

0.4

Normalised PBT

17,083

17,963

5.2

PBT

13,552

12,181

-10.1

Tax

(2,759)

(2,386)

-13.5

Normalised net income

13,945

15,133

8.5

Net income

10,414

9,351

-10.2

Normalised dil. EPS (p)

22.2

24.0

8.2

EMIS adjusted dil. EPS (p)

20.5

22.1

7.8

Reported basic EPS (p)

16.6

14.9

-10.3

Net cash

1.3

0.7

-46.2

Source: EMIS, Edison Investment Research *Normalised excludes exceptionals, share-based payments and amortisation of acquired intangibles. **EMIS adjusted – as for normalised, also deducts capitalised R&D costs and adds back amortisation of development costs.

Exhibit 2: Divisional revenue and profits

H115

H116

y-o-y (%)

Revenues

Primary & Community Care (PCC)

46,895

48,983

4.5

Community Pharmacy (CP)

9,778

10,348

5.8

Secondary & Specialist Care (SSC)

21,133

19,339

-8.5

EMIS adjusted operating profit

 

 

 

Primary & Community Care

13,408

14,745

10.0

Community Pharmacy

1,962

2,214

12.8

Secondary & Specialist Care

2,263

1,469

-35.1

Reported operating profit

 

 

 

Primary & Community Care

12,028

12,543

4.3

Community Pharmacy

2,134

2,714

27.2

Secondary & Specialist Care

402

-2,380

N/A

Source: EMIS

EMIS generated y-o-y growth of 1.1% in H116; once the Pinbellcom acquisition is excluded revenues were essentially flat y-o-y. We note that PCC revenues in H116 included £0.7m generated from the Pinbellcom acquisition as well as £0.7m in revenues from ePEX acute mental health software that was transferred in from Secondary Care in H116. Both PCC and CP showed steady growth in revenues and profitability. SSC saw a revenue decline of 4% once the ePEX revenue reclassification is taken into account, which resulted in a 35% decline in adjusted operating profit.

The company had previously noted that it was undertaking restructuring within the Secondary Care business; during the course of H116 this was expanded to other parts of the group, resulting in a one-off charge of £2.2m. The company expects the benefits of this to start to come through in H216. In H116, headcount reduced by 39 despite adding 79 staff in the India development centre.

EMIS announced a 10% increase in the interim dividend to 11.7p; matching this for the final dividend will give a full year dividend payout of 23.4p (+10% y-o-y).

Business update
Primary & Community Care (PCC)

EMIS maintained its GP market share at 55%, with 45% of CCGs in England now using 100% EMIS for primary care.

In Northern Ireland, the EMIS Web roll-out is scheduled to start in Q416 - once three test sites have been signed off, EMIS can accelerate the implementation and should finish the roll-out in 2017. The procurement process is underway for GPs in Scotland, who currently use EMIS PCS (Scotland already uses EMIS Web for CCMH). In Wales, renewals are being discussed (the existing framework expires 2019/2020).

CCMH1 market share increased from 12% at the end of FY15 to 14% at the end of H116. The company hopes to beat its year-end target of 15%. The company noted that it is seeing ongoing sluggishness in larger procurements. Since we last wrote in April, EMIS has signed contracts for child health with Barts Health, East Cheshire and Croydon and community health with Central London Community Healthcare NHS Trust, Croydon and Jersey Hospice. Contracts signed in H116 and H216 to date are worth more than £3.5m and are all for minimum terms of five years. The business sees a strong and growing pipeline of opportunities. Of the 45 CCGs using only EMIS for primary care, 23 also only use EMIS for CCMH.

CCMH: Child, Community & Mental Health

The company’s online resource to help patients manage their own health changed its domain from patient.co.uk to patient.info. This slowed traffic initially but is now higher than previous levels, with significant growth in international visitors. EMIS earns revenue from both advertising and transactional services (eg NHS pays for setting up appointments online). A new digital head has been recruited to drive this business forward.

The recent Pinbellcom acquisition has been integrated into EMIS’ non-clinical IT solutions and services business, Egton, and has been rebranded as Egton Digital.

Community Pharmacy (CP)

CP maintained its 36% share of the combined supermarket and independent pharmacy market. The business started pre-implementation activity for the previously announced Lloyds Pharmacy/AAH Pharmaceuticals contract – when fully rolled out this should take CP’s market share to 50%. CP has also won a contract to supply 100 sites that previously used Cegedim or PSL software, with implementation scheduled for this year.

The next generation ProScript Connect software has been accredited in Wales and Scotland, where live pilots started in Q216. The business expects to receive accreditation for England by the end of this year. roll-out starting in H2.

Nine pharmacies are currently piloting EMIS Web for Community Pharmacy, with full launch expected in 2017.

Secondary & Specialist Care (SSC)

The operational improvements in Secondary Care are largely complete, with cost benefits expected to come through in H2. The business continues to see slower rates of business for larger NHS procurements, but saw a good flow of small and mid-sized contracts, including a contract to supply a patient administration system to Northampton.

EMIS Health Specialist is involved in the procurement for a single English solution for retinopathy screening software, which has the potential to takes its share from the current 79% level to 100%.

EMIS Care won three diabetic eye screening contracts in H116, worth at least £10m in total. However, the business has found that implementation costs for contracts won from the NHS have been higher than expected, which partly contributed to SSC’s lower margins in H116. It has changed its approach to the bidding process to ensure this does not happen on future contracts. Profitability should improve over the life of the existing contracts.

Outlook and changes to forecasts

Management sees good order books and pipelines across every segment. The company expects to generate revenues for FY16 in the range £160-165m, down from the guidance given in March for revenues in the upper £160m range, but with adjusted operating profit expectations broadly unchanged. Net cash is expected to be close to zero at year-end.

We have revised our forecasts as follows:

Revenues: The majority of the reduction in our revenue forecast is due to lower revenues in SSC, with a small reduction in PCC, in both cases based on H116 performance.

Adjusted operating profit: The reduction in revenues has been partially offset by the reduction in capitalised development costs (see below). Restructuring undertaken in H116 should also reduce the cost base in H216. Overall, the result is a small decrease in our forecast adjusted operating profit in both years.

Exceptional items: £2.2m in restructuring costs in H116 partially offset by the £1.5m gain on sale of the stake in Pharmacy2U in H216.

Capex: We have reduced our tangible fixed asset capex forecast from £10m to £6m in FY16 and from £8m to £7m in FY17 reflecting lower hosting asset purchases. We have reduced capitalised development costs from £7.1m to £6.0m in FY16 and from £7.4m to £6.5m in FY17.

We have factored in the £1.5m proceeds from the sale of the stake in Pharmacy2U.

Exhibit 3: Changes to forecasts

£'000s

FY16e

FY16e

Change

y-o-y

FY17e

FY17e

Change

y-o-y

Old

New

(%)

(%)

Old

New

(%)

(%)

Revenues

166,805

162,513

-2.6

4.2

176,856

172,178

-2.6

5.9

Normalised operating profit

39,971

39,660

-0.8

6.8

42,563

42,196

-0.9

6.4

Adjusted operating profit

39,249

38,954

-0.8

6.6

42,344

41,495

-2.0

6.5

Reported operating profit

32,314

31,311

-3.1

173.9

34,906

34,499

-1.2

10.2

Normalised EPS - p

48.9

48.6

-0.7

5.6

52.2

51.9

-0.6

6.9

Adjusted EPS - p

47.8

47.4

-0.7

5.2

51.9

50.8

-2.1

7.1

Reported EPS - p

39.4

38.2

-3.1

426.9

42.7

42.3

-0.9

11.0

Net cash/(debt)

2,244

(55)

-102.4

-99.4

22,995

18,815

-18.2

N/A

Source: Edison Investment Research

Valuation

EMIS is trading on a premium to its peer group on EV/Sales, EV/EBIT and EV/EBITDA multiples but a discount on a P/E basis. In our view, this reflects EMIS’ superior profitability. The stock also offers a higher dividend yield than most of its peer group. We believe that evidence of a re-acceleration in revenue growth (for example from a reinvigorated secondary care business) and that the recent restructuring is improving profitability should enable the company to trade at a small premium to peers on a P/E basis.

Exhibit 4: Peer group valuation metrics

(x)

 

EV/Sales

P/E

EV/EBIT

EV/EBITDA

y/e

15

16e

17e

15

16e

17e

15

16e

17e

15

16e

17e

EMIS

31-Dec

4.1

3.9

3.7

21.5

20.4

19.1

17.2

16.1

15.1

12.3

11.8

11.2

EMIS (cash R&D)

 

21.9

20.9

19.5

17.5

16.4

15.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllScripts

31-Dec

2.1

1.8

1.6

26.7

21.2

17.8

18.8

14.5

12.6

11.8

9.8

8.5

Cegedim

31-Dec

1.2

1.2

1.1

15.7

19.8

10.2

12.5

11.7

10.6

6.4

6.0

6.5

Cerner

31-Dec

4.8

4.3

3.9

29.5

26.4

23.1

19.6

17.8

15.4

14.6

13.0

11.4

Craneware

30-Jun

8.2

7.2

6.4

42.6

38.9

35.1

18.4

16.6

15.4

17.2

15.2

13.8

Servelec

31-Dec

3.0

2.9

2.6

13.8

13.2

10.8

11.6

10.2

8.1

11.0

9.4

7.6

 

 

 

 

 

 

 

 

 

 

 

Average

 

3.8

3.5

3.1

25.6

23.9

19.4

16.2

14.1

12.4

12.2

10.7

9.5

Source: Bloomberg (as at 12 September), Edison Investment Research

Exhibit 5: Peer group financial metrics

(%)

 

EBIT margin

EBITDA margin

Rev growth

Div yield

y/e

15

16e

17e

15

16e

17e

15

16e

17e

15

16e

17e

EMIS

31-Dec

23.8

24.4

24.5

33.3

33.3

33.2

13.3

4.2

5.9

2.1

2.4

2.5

EMIS (cash R&D)

 

23.4

24.0

24.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllScripts

31-Dec

10.9

12.4

13.0

17.4

18.4

19.2

-0.3

14.0

10.1

0.0

0.0

0.0

Cegedim

31-Dec

9.7

10.1

10.8

19.0

19.7

17.7

-53.2

2.6

3.3

0.0

2.5

3.3

Cerner

31-Dec

24.3

24.1

25.3

32.7

32.9

34.1

30.0

11.3

10.4

0.0

0.0

0.0

Craneware

30-Jun

29.8

28.8

27.8

31.8

31.4

31.2

11.2

14.9

11.3

1.2

1.4

1.5

Servelec

31-Dec

25.6

28.5

32.0

27.1

31.0

34.3

21.9

2.4

11.7

1.8

2.7

2.9

 

 

 

 

 

 

 

 

Average

 

20.1

20.8

21.8

25.6

26.7

27.3

1.9

9.0

9.4

0.6

1.3

1.6

Source: Bloomberg (as at 12 September), Edison Investment Research

Exhibit 6: Financial summary

£'000s

2012

2013

2014

2015

2016e

2017e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

86,333

105,542

137,639

155,898

162,513

172,178

Cost of Sales

(10,891)

(11,780)

(12,782)

(12,955)

(15,114)

(16,977)

Gross Profit

75,442

93,762

124,857

142,943

147,400

155,201

EBITDA

 

 

33,178

38,885

47,645

51,964

54,057

57,193

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

27,619

30,482

34,787

37,123

39,660

42,196

Amortisation of acquired intangibles

(2,983)

(4,198)

(6,269)

(6,509)

(6,697)

(6,697)

Exceptionals

(435)

(1,144)

873

(18,500)

(652)

0

Share-based payments

(90)

(195)

(270)

(684)

(1,000)

(1,000)

Operating Profit

24,111

24,945

29,121

11,430

31,311

34,499

Net Interest

(76)

(242)

(543)

(449)

(400)

(150)

Profit Before Tax (norm)

 

 

27,567

30,172

34,206

36,625

39,610

42,396

Profit Before Tax (FRS 3)

 

 

24,059

24,635

28,540

10,932

31,261

34,699

Tax

(4,625)

(4,706)

(5,719)

(5,558)

(6,408)

(7,113)

Profit After Tax (norm)

23,191

25,179

27,617

29,801

31,490

33,705

Profit After Tax (FRS3)

19,434

19,929

22,821

5,374

24,852

27,586

Average Number of Shares Outstanding (m)

58.2

59.4

62.8

62.7

62.8

62.8

EPS - normalised (p)

 

 

39.0

41.4

42.8

46.0

48.6

51.9

EPS - FRS 3 (p)

 

 

32.5

32.6

35.3

7.2

38.2

42.3

Dividend (p)

14.2

16.0

18.4

21.2

23.4

24.4

Gross Margin (%)

87.4%

88.8%

90.7%

91.7%

90.7%

90.1%

EBITDA Margin (%)

38.4%

36.8%

34.6%

33.3%

33.3%

33.2%

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

32.0%

28.9%

25.3%

23.8%

24.4%

24.5%

BALANCE SHEET

Fixed Assets

 

 

77,673

153,838

166,415

143,546

134,452

126,258

Intangible Assets

52,789

126,468

139,397

121,383

113,489

105,595

Tangible Assets

22,144

24,610

24,313

22,032

20,832

20,532

Other fixed assets

2,740

2,760

2,705

131

131

131

Current Assets

 

 

27,538

27,046

37,221

39,800

47,466

68,212

Stocks

1,243

1,431

1,550

1,206

1,206

1,206

Debtors

15,188

21,448

28,732

33,893

36,305

39,181

Cash

11,107

4,167

6,939

4,701

9,955

27,825

Current Liabilities

 

 

(30,598)

(54,530)

(67,665)

(63,819)

(53,819)

(55,244)

Creditors

(30,202)

(46,628)

(54,763)

(51,960)

(43,960)

(46,385)

Short term borrowings

(396)

(7,902)

(12,902)

(11,859)

(9,859)

(8,859)

Long Term Liabilities

 

 

(10,548)

(22,231)

(21,063)

(12,481)

(10,681)

(10,681)

Long term borrowings

(3,000)

(9,756)

(5,854)

(1,951)

(151)

(151)

Other long term liabilities

(7,548)

(12,475)

(15,209)

(10,530)

(10,530)

(10,530)

Net Assets

 

 

64,065

104,123

114,908

107,046

117,418

128,545

CASH FLOW

Operating Cash Flow

 

 

32,732

38,725

44,856

42,711

44,493

56,742

Net Interest

(60)

(580)

(445)

(422)

(300)

(50)

Tax

(4,566)

(5,073)

(5,247)

(6,896)

(8,120)

(8,691)

Capex

(18,342)

(15,025)

(15,161)

(14,058)

(12,000)

(13,500)

Acquisitions/disposals

(512)

(57,315)

(9,959)

(4,587)

(1,500)

0

Financing

(1,816)

27,212

(1,578)

492

600

(500)

Dividends

(7,735)

(9,146)

(10,792)

(14,532)

(14,118)

(15,131)

Net Cash Flow

(299)

(21,202)

1,674

2,708

9,054

18,869

Opening net debt/(cash)

 

 

(8,026)

(7,711)

13,491

11,817

9,109

55

HP finance leases initiated

0

0

0

0

0

0

Other

(16)

0

0

0

0

0

Closing net debt/(cash)

 

 

(7,711)

13,491

11,817

9,109

55

(18,815)

Source: EMIS, Edison Investment Research

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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)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com.

DISCLAIMER Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). 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)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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