Unveiling EMIS-X

EMIS Group 4 December 2018 Update
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EMIS Group

Unveiling EMIS-X

Capital markets day

Software & comp services

 

4 December 2018

Price

931p

Market cap

£589m

Net cash (£m) at end H118

32.3

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.8

(5.3)

(0.6)

Rel (local)

2.8

1.5

3.4

52-week high/low

1050p

705p

Business description

EMIS is a clinical software supplier to the primary, community and acute care markets in the UK, and provides software to the community pharmacy and specialist ophthalmology markets. Its Patient business provides medical and wellbeing information as well as transactional services to patients.

Next events

FY18 trading update

January 2019

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

EMIS Group is a research client of Edison Investment Research Limited

At its recent capital markets day, EMIS outlined its plans to reinvigorate revenue growth and unveiled its new platform, EMIS-X, onto which it plans to move all of its software. With new applications just launched and under development, the company expects to expand its addressable market. In the medium term, it is targeting an acceleration of annual revenue growth to mid to high single-digits and an expansion in operating margins from the current 21% towards 30%.

Year end

Revenue (£m)

PBT* (£m)

Dil EPS* (p)

EMIS adj. dil. EPS** (p)

DPS (p)

P/E (x)

12/17

160.4

35.2

43.1

47.0

25.8

21.6

12/18e

170.4

36.9

45.4

47.0

28.4

20.5

12/19e

176.8

39.3

49.8

49.5

29.8

18.7

12/20e

184.1

42.5

54.5

54.6

31.4

17.1

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

Plan to unify all solutions on EMIS-X platform

EMIS is developing a new platform, EMIS-X, onto which it will ultimately move all of its software products. It is upgrading EMIS Web to meet the requirements of IT Futures and will shift users over to EMIS-X on a modular basis. To meet NHS requirements for interoperability, the platform is designed to give clinicians the ability to access a comprehensive view of a patient using data from EMIS and third-party software systems. At the same time, EMIS is planning to shift all 40m records hosted in its datacentres to Amazon Web Services (AWS).

Capitalising on strong market positions

EMIS plans to evolve its existing software products across primary care, acute, community pharmacy and Patient, using innovative technology to improve operational efficiency and provide a more joined up service within the NHS. It will also open up the platform to third-party software providers and seek to grow its private sector business to reduce its reliance on NHS funding.

Financials and valuation: Accelerating growth supports upside to share price

The company believes development and support costs can be reduced by running one core code base rather than the multiple products supported by EMIS. Combined with an increase in the addressable market from the new technology being developed and the shift to the cloud, the company is targeting mid to high single-digit revenue growth with operating margins approaching 30% in the medium term. From our DCF analysis assuming revenue growth scenarios of 5–9% pa from FY21, we estimate that successful execution of the growth strategy could provide upside to the current share price of 8–38%.

Drivers of new growth strategy

EMIS has historically generated good organic growth from the development and roll-out of EMIS Web and the extension of its software beyond primary care. This has supported a high level of recurring revenues and strong operating margins and cash generation. Its track record from acquisitions has been more varied. Some, such as Rx Systems, have been successfully integrated and have contributed to revenue growth and profitability. Others, such as Ascribe, have struggled as NHS IT budgets have shrunk. Overall, in the last two years, growth has slowed and margins have trended down (see Exhibit 1).

Exhibit 1: Historic financial performance

 £m

2010

2011

2012

2013

2014

2015

2016

2017

Organic revenues

56.9

59.6

86.3

96.5

108.0

142.2

157.5

159.5

Acquisitions CY

5.0

0.0

0

9.0

1.6

0.7

0

0

Acquisitions PY

0.0

13.6

0

0.0

28.0

13.0

1.2

0.9

Total revenues

61.9

73.2

86.3

105.5

137.6

155.9

158.7

160.4

Revenue growth

 

18.3%

17.9%

22.2%

30.4%

13.3%

1.8%

1.0%

Organic revenue growth

 

4.8%

17.9%

11.8%

11.9%

4.5%

1.5%

0.5%

Recurring revenues

82%

83%

80%

77%

75%

79%

81%

83%

Normalised operating margin

35.6%

33.4%

32.0%

28.9%

25.3%

23.8%

24.5%

21.8%

Source: EMIS

Recognising that the business in its current form would struggle to generate growth at the historic higher levels, management has devised a growth strategy to combine its existing strong market position with innovative technology to widen its addressable market and improve operating efficiency. At the same time, it continues to develop its core software to meet the requirements of NHS Digital, in particular to ensure its GP software is selected for the new IT Futures framework.

Source of future growth opportunities

The company outlined the areas from which it believes it can generate growth. This broadly falls into two areas: providing integrated care solutions to improve the operating efficiency of the NHS and EMIS, and the private sector. The table below summarises areas in which EMIS has or expects to develop technology, the current estimated size of the market and the company’s estimate of the market size in the medium term.

Exhibit 2: Growth strategy

Goal

Improve operating efficiency for NHS and EMIS

2018 addressable market

2022 addressable market

Funding sources

Area

NHS integrated care

 

 

-Primary care

-Child health

-Mental health

-Community

-Unscheduled care

-Social care

£335m 

£672m 

NHS global digital exemplars, local integrated care record exemplars, hospital medicines management, health systems support framework, IT Futures

Goal

Double-digit growth

 Current addressable market

 Future addressable market

 

Area

Private sector

 

-Medicine management

£145m

£325m

Eg, Patients, advertising, other tech companies, pharmacies

 

 

 

 

-Patient-facing services

£20m

£100m

 

-Partner eco-system

£20m

£100m

 

-UK healthcare blockchain

 

 

 

-New markets

tbc

tbc

Source: EMIS

Introducing EMIS-X

The company announced the development of a new platform, EMIS-X, on which it will ultimately build all of its software solutions. This will bring together an upgraded EMIS Web with the solutions it offers in community pharmacy, acute and Patient. The aim is develop the UK’s first integrated clinical platform serving all types of care. This will address the issue of a lack of interoperability between existing IT systems within the NHS and the fact that each citizen tends to have multiple records held by different care providers. This results in a high level of duplication, manual processing, potential clinical errors and inconvenience for both patients and clinicians.

The platform will have the following features:

Cloud based, hosted exclusively in AWS datacentres

Multi-tenant with controlled data sharing

Foundation modules providing common services via application programming interface (API)

Application modules providing user apps via a user interface

Supports third-party applications and full interoperability

Leverages blockchain technology

Aligned with the NHS England and NHS Digital roadmap and the requirements for GP IT Futures

Exhibit 3 shows conceptually how the platform will work.

Exhibit 3: EMIS-X concept

Source: EMIS

The platform is designed to allow federated working for patient records and appointment booking. For example, a clinician will be able to access a patient’s record, which in turn will pull in all relevant information held in different care settings, for example, GP, A&E and mental health records. The information could be held across a variety of different software systems from different vendors, but will be accessible in one place, giving a full view of the patient’s medical history. It will be possible to select specific types of information from records, such as medication, providing more comfort to the patient that the clinician is only accessing the data necessary for that particular consultation. The patient ultimately has control over the sharing of this data and can say no to allowing access to all or particular records.

Half of developers to work on EMIS-X

Over the last 12 months, EMIS has added 150 developers, and now has 450 across the UK and India. Over the next six months, the company expects to move half of its developers to the EMIS-X project. We understand that many of these developers are c involved in clearing the backlog of software bugs uncovered in the recent service level issue, but this is close to completion and hence they can be redirected to new projects.

Modular development and cloud migration

The platform is being developed on a modular basis. As new functionality is developed, it will be accessible via an embedded browser within EMIS Web. Functionality will be added progressively until it reaches equivalence with EMIS Web; at that point, the system will move over to EMIS-X.

At the same time, the company will replicate all data to AWS, using a mirroring model to update the cloud-based data every time a change is made to the EMIS Web data that is currently hosted in EMIS’s datacentres. The company has not yet received formal permission from NHS Digital to shift to AWS, so has been shifting dummy data to the cloud to test the process. Once permission is received, the company will start replicating data on the cloud. Once the switch has been made to EMIS-X, the company will no longer need to use its own datacentres.

Evolution of existing products and services
GP IT Futures: Represents risk and opportunity

Within Primary Care, by far the largest customer is NHS Digital with EMIS Web used by 4,197 English GP practices (82% of the total number of practices it supports in the UK). The software is available to practices via the GP System of Choice framework, which is centrally funded by the NHS. The framework has been extended until the end of 2019 while the new framework, IT Futures, is developed. The procurement process has started and EMIS expects the formal bid process to start in Q119.

Clearly it is crucial that EMIS is selected as a vendor on the IT Futures framework agreement. The company communicates regularly with NHS Digital to discuss the technical requirements for the new framework. This includes increased flexibility, interoperability and modularity, to support the many emerging care pathways. The move to keep patients out of hospital as far as possible while reducing the pressure on primary care is likely to mean greater use of community care (eg district nurses, specialist clinics, pharmacists) and self-care.

The core capabilities to support GPs are largely already available in EMIS Web. Additional capabilities such as patient services (prescription ordering, telehealth, appointments), document management and data extraction and analysis represent opportunities for new EMIS products.

Introducing new solutions for the GP market

The company demonstrated several new services, some of which are not yet commercially available.

Online triage: via the Patient Access app or on a practice’s website, a patient can enter their symptoms and find out more information about possible causes and options for self-care. It can also be used to highlight when a patient needs urgent help, guiding them to call 999 or to see a doctor within 48 hours if the condition is potentially serious. This should reduce the burden on GPs from patients with minor conditions who would not benefit from an appointment, such as coughs, colds, minor injuries, while getting help to patients who need urgent treatment. It should also free up time for receptionists. This was launched in September; Stratford Village Surgery in Newham is an early adopter and has already seen a reduction in unnecessary appointments and a reduction in appointment waiting times.

Video consultations: this is to enable GPs to offer consultations via the Patient Access app. This is one of the main services offered by medtech start-ups such as GP at Hand and Push Doctor.

AI-based assistant: this uses AWS’s speech recognition software to provide a live transcript of a consultation (if permitted by the patient) and to bring up relevant information held within the patient’s record for faster access by the GP. It can also be used to populate data fields, giving the GP more time to talk to a patient rather than spending the consultation typing into a PC. This is not yet available.

Medicines management: End-to-end solution

EMIS already has a strong position in the overall medicines management market, with the largest market share in community pharmacy (c 37%), the largest share of primary care prescribing (via its 56% market share of the UK GP market), and the number two position in hospital pharmacy (c 32%). Via Patient Access, it is the leader in online repeat prescription requests. Medicines accounted for £17bn of NHS spend in 2016/17 and represent an area for efficiency savings. At the same time, clinical safety needs to be improved to reduce prescribing errors.

The company sees the opportunity to provide an end-to-end medicines management service to serve several and sometimes competing aims: to improve patient outcomes, minimise the cost to the payer and maximise margins for wholesalers and pharmacies. It aims to join up:

prescribing – via GP or hospital

sourcing and supply

dispensing – in hospital or community pharmacy

the patient taking the medicine – at home or in hospital

This is likely to include supply chain optimisation and centralised fulfilment models, support for patients for medicine adherence/optimisation, new pharmacy services for Patient Group Directions,1 and data analytics including monitoring and utilisation analysis and intelligence-driven prescribing and supply.

Patient Group Directions allow healthcare professionals to supply and administer specified medicines to pre-defined groups of patients, without a prescription.

Patient: The patient-facing gateway to health services

The current version of the Patient Access app enables patients to view their GP records (if the GP practice gives permission), read clinical content, book appointments at their GP practice and order repeat prescriptions. The company has highlighted that it wants to increase the services available to patients via the app, to include those developed by EMIS as well as those offered by third parties. The video consultation and online triage services described above are examples of EMIS-developed services that are being added to the app. Other possible services include referrals to other NHS care professionals such as physiotherapists or information on private healthcare providers.

Patient generates revenues from three sources: software licensing, advertising and transaction fees when patients use the app to book appointments or order repeat prescriptions. It is targeting additional revenues from appointment booking revenue shares (for private sector services), listing fees and partner API licensing. The chart below shows the near-term launch roadmap for Patient.

Exhibit 4: Patient roadmap Q218-Q219

Source: EMIS

Financial implications of growth strategy

The company believes the development of EMIS-X and Patient should support a step-up in revenue growth from the recent level of c 1% (FY16 and FY17) to mid to high single-digit percentage growth in the medium term. As the move to a single platform will result in consolidation around a single code base, it should ultimately reduce the ongoing costs of development and support, supporting a shift in operating margins from the current 21–22% level towards 30%.

Part of the step-up in revenue growth is expected to come from an expansion in sales to private sector customers, where EMIS sees double-digit revenue growth potential. The table below shows the split of revenues between NHS and related bodies and private sector customers from 2010–2017. In the medium term, the company is targeting a 50/50 split between NHS and private sector customers, from the current 70/30 split. Management noted it is considering acquisitions as part of this growth process.

Exhibit 5: Revenues and revenue growth by source

 

2010

2011

2012

2013

2014

2015

2016

2017

Revenues from NHS and related bodies (%)

84.3%

72.9%

69.7%

71.9%

71.9%

72.3%

70.8%

71.5%

Private sector revenues (%)

15.7%

27.1%

30.3%

28.1%

28.1%

27.7%

29.2%

28.5%

Revenues from NHS and related bodies £m

52.2

53.4

60.2

75.9

99.0

112.7

112.4

114.7

Private sector revenues £m

9.7

19.8

26.2

29.7

38.7

43.2

46.3

45.7

Growth in NHS revenues

 

2.3%

12.7%

26.1%

30.4%

13.9%

-0.3%

2.0%

Growth in private sector revenues

 

104.2%

31.8%

13.4%

30.4%

11.7%

7.3%

-1.4%

Source: EMIS, Edison Investment Research

The increased investment in development over the next two to three years will be self-funded. The company expects to be able to make productivity gains over this period and expects an element of customer funding. We forecasting that EMIS will grow its net cash balance from £4.2m at the end of FY18e to £23.5m by the end of FY20e, providing funds to support additional development costs over and above the level already included in our forecasts. The company also has access to a credit facility if needed but does not expect a significant increase in leverage and does not foresee any impact on its dividend policy.

Successful execution should have positive impact on valuation

We have performed a DCF analysis, based on our current forecasts for FY18–20e followed by growth at three different rates for FY21–27e, each achieving a different level of profitability. We use a WACC of 8.5% and a long-term growth rate of 2%. We assume capex/sales falls to 6% of sales from FY21e, as we assume the shift to the cloud more than offsets any increase in capitalised development costs. We have also factored in lease payments from FY19e, as the introduction of IFRS16 from FY19e removes operating lease costs from operating costs and spreads the cost across depreciation and interest charges.

Exhibit 6 below shows the upside possible if the company is able to achieve growth and operating margins in the targeted range.

Exhibit 6: DCF scenario analysis

 

Low case

Base case

High case

Revenue growth FY21–27e

5.0%

7.0%

9.0%

Operating margin - ave FY21–27e

26.6%

28.0%

28.9%

Terminal operating margin

27.8%

30.0%

30.7%

DCF valuation per share (p)

1002.8

1155.3

1286.7

Upside/(downside) to current share price

7.7%

24.1%

38.2%

Source: Edison Investment Research

Exhibit 7 below shows the sensitivity of the base case scenario to changes in the WACC or long-term growth rate.

Exhibit 7: Sensitivity of valuation to WACC and terminal growth rate (p)

Terminal growth rate

1155.3

1.0%

2.0%

3.0%

4.0%

5.0%

WACC

7.0%

1360.3

1549.3

1832.8

2305.3

3250.3

7.5%

1241.5

1393.6

1613.3

1958.5

2579.9

8.0%

1140.2

1264.3

1438.1

1698.9

2133.4

8.5%

1052.7

1155.3

1295.2

1497.3

1814.9

9.0%

976.4

1062.2

1176.4

1336.4

1576.4

9.5%

909.5

981.7

1076.2

1205.1

1391.1

10.0%

850.2

911.6

990.6

1095.8

1243.2

10.5%

797.5

850.0

916.6

1003.7

1122.4

11.0%

750.2

795.5

852.1

924.8

1021.9

11.5%

707.6

746.9

795.3

856.7

937.0

Source: Edison Investment Research

Exhibit 8: Financial summary

£'000s

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

137,639

155,898

158,712

160,354

170,420

176,780

184,144

Cost of Sales

(12,782)

(12,955)

(14,151)

(14,674)

(15,934)

(16,847)

(17,807)

Gross Profit

124,857

142,943

144,561

145,680

154,486

159,933

166,337

EBITDA

 

 

47,645

51,964

52,288

49,222

50,722

53,751

57,268

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

34,787

37,123

38,897

34,895

36,360

38,999

42,180

EMIS adjusted operating profit

 

 

32,639

36,553

38,753

37,406

37,336

38,797

42,207

Amortisation of acquired intangibles

(6,269)

(6,509)

(6,639)

(6,717)

(6,718)

(6,718)

(6,479)

Exceptionals

873

(18,500)

(6,714)

(16,988)

0

0

0

Share-based payments

(270)

(684)

(473)

(550)

(1,000)

(1,000)

(1,000)

Operating Profit

29,121

11,430

25,071

10,640

28,642

31,281

34,701

Net Interest

(543)

(449)

(237)

(299)

(50)

(300)

(300)

Profit Before Tax (norm)

 

 

34,206

36,625

39,159

35,192

36,946

39,335

42,516

Profit Before Tax (FRS 3)

 

 

28,540

10,932

25,333

10,937

29,228

31,617

35,037

Tax

(5,719)

(5,558)

(5,208)

(2,074)

(5,583)

(6,323)

(6,657)

Profit After Tax (norm)

27,617

29,801

32,175

27,989

29,557

31,468

34,438

Profit After Tax (FRS3)

22,821

5,374

20,125

8,863

23,645

25,294

28,380

Average Number of Shares Outstanding (m)

62.8

62.7

62.8

62.9

63.0

63.0

63.0

EPS - normalised & diluted (p)

 

 

42.8

46.0

49.4

43.1

45.4

49.8

54.5

EPS - EMIS adjusted & diluted (p)

 

 

39.4

45.1

49.2

47.0

47.0

49.5

54.6

EPS - FRS 3 (p)

 

 

35.3

7.2

30.4

12.8

36.2

40.2

45.1

Dividend (p)

18.4

21.2

23.4

25.8

28.4

29.8

31.4

Gross Margin (%)

90.7%

91.7%

91.1%

90.8%

90.7%

90.5%

90.3%

EBITDA Margin (%)

34.6%

33.3%

32.9%

30.7%

29.8%

30.4%

31.1%

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

25.3%

23.8%

24.5%

21.8%

21.3%

22.1%

22.9%

BALANCE SHEET

Fixed Assets

 

 

166,415

143,546

133,292

122,979

118,035

117,201

109,270

Intangible Assets

139,397

121,383

110,953

100,844

94,264

86,344

78,427

Tangible Assets

24,313

22,032

22,187

22,037

23,037

29,487

28,837

Other fixed assets

2,705

131

152

98

734

1,370

2,006

Current Assets

 

 

37,221

39,800

46,088

56,900

48,317

64,393

78,997

Stocks

1,550

1,206

1,815

1,633

1,633

1,633

1,633

Debtors

28,732

33,893

39,970

40,148

42,488

44,074

45,910

Cash

6,939

4,701

4,303

13,991

4,196

18,686

29,454

Current Liabilities

 

 

(67,665)

(63,819)

(56,158)

(65,131)

(58,329)

(62,506)

(65,026)

Creditors

(54,763)

(51,960)

(51,425)

(65,131)

(58,329)

(60,506)

(63,026)

Short term borrowings

(12,902)

(11,859)

(4,733)

0

0

(2,000)

(2,000)

Long Term Liabilities

 

 

(21,063)

(12,481)

(9,080)

(6,734)

(5,020)

(9,716)

(4,361)

Long term borrowings

(5,854)

(1,951)

0

0

0

(6,000)

(4,000)

Other long term liabilities

(15,209)

(10,530)

(9,080)

(6,734)

(5,020)

(3,716)

(361)

Net Assets

 

 

114,908

107,046

114,142

108,014

103,002

109,372

118,879

CASH FLOW

Operating Cash Flow

 

 

44,856

42,711

43,657

48,834

40,580

54,342

57,952

Net Interest

(445)

(422)

(324)

(356)

27

(223)

(300)

Tax

(5,247)

(6,896)

(7,655)

(8,139)

(6,168)

(7,628)

(12,012)

Capex

(15,161)

(14,058)

(12,084)

(11,342)

(13,000)

(13,000)

(13,000)

Acquisitions/disposals

(9,959)

(4,587)

(1,790)

329

(9,500)

0

0

Financing

(1,578)

492

881

571

(577)

(577)

(500)

Dividends

(10,792)

(14,532)

(14,006)

(15,476)

(21,157)

(18,424)

(19,373)

Net Cash Flow

1,674

2,708

8,679

14,421

(9,795)

14,491

12,768

Opening net debt/(cash)

 

 

13,491

11,817

9,109

430

(13,991)

(4,196)

(10,686)

HP finance leases initiated

0

0

0

0

0

(8,000)

0

Other

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

11,817

9,109

430

(13,991)

(4,196)

(10,686)

(23,454)

Source: EMIS, Edison Investment Research

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This report has been commissioned by EMIS Group and prepared and issued by Edison, in consideration of a fee payable by EMIS Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by EMIS Group and prepared and issued by Edison, in consideration of a fee payable by EMIS Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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