Vection Technologies — Enterprise-grade metaverse

Vection Technologies (ASX: VR1)

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Research: TMT

Vection Technologies — Enterprise-grade metaverse

Vection Technologies (ASX:VR1) is an Australia-based company that operates in the field of extended reality (XR). Through its immersive solutions suite, IntegratedXR, Vection Technologies provides the foundation that clients need to engage with the metaverse, and focuses on completely integrating client systems, operations and technologies. We see the company building on its recent growth (FY22 revenue up more than 440% over FY21) and growing FY23 sales to A$26.1m, driven by Vection Technologies’ entry into new verticals, geographic expansion and several recent acquisitions. FY23 could mark an inflection point for the company and we will be watching the XR space closely.

Kenneth Mestemacher

Written by

Kenneth Mestemacher

Director, TMT

TMT

Vection Technologies

Enterprise-grade metaverse

Initiation of coverage

Software & comp services

28 November 2022

Price

A$0.05

Market cap

A$58m

Estimated net cash (A$m) at 30 September 2022

9.8

Shares in issue (basic)

1,110m

Free float

53%

Code

VR1

Primary exchange

ASX

Secondary exchange

OTC (VCTNY)

Share price performance

%

1m

3m

12m

Abs

(19.5)

(35.6)

(79.0)

Rel (local)

(24.4)

(37.0)

(78.2)

52-week high/low

A$0.3

A$0.1

Business description

Vection Technologies, an Australia-based software company, operates in the field of extended reality (XR), which encompasses immersive technologies such as augmented reality, virtual reality and mixed reality. The company’s immersive solutions suite, IntegratedXR, is a combination of technology solutions designed to integrate systems, processes and technologies via digital transformation. Vection Technologies partners with companies to build out the foundational elements that enable them to engage with the metaverse.

Next events

Q223 quarterly activities report

January 2023

Analysts

Ken Mestemacher, CFA

+44 (0)20 3077 5700

Max Hayes

+44 (0)20 3077 5700

Vection Technologies is a research client of Edison Investment Research Limited

Vection Technologies (ASX:VR1) is an Australia-based company that operates in the field of extended reality (XR). Through its immersive solutions suite, IntegratedXR, Vection Technologies provides the foundation that clients need to engage with the metaverse, and focuses on completely integrating client systems, operations and technologies. We see the company building on its recent growth (FY22 revenue up more than 440% over FY21) and growing FY23 sales to A$26.1m, driven by Vection Technologies’ entry into new verticals, geographic expansion and several recent acquisitions. FY23 could mark an inflection point for the company and we will be watching the XR space closely.

Year end

Revenue
(A$m)

Adj EBITDA*
(A$m)

PBT**
(
A$m)

EPS**
(c)

EV/revenue
(x)

P/revenue
(x)

Net cash*** (A$m)

06/21

3.5

(0.4)

(2.5)

(0.27)

13.9

16.7

2.2

06/22

18.9

0.9

(7.0)

(0.67)

2.6

3.1

10.8

06/23e

26.1

3.7

1.3

0.08

1.9

2.2

10.6

Note: *Adjusted EBITDA is normalised, excluding non-cash payments, exceptional items and interest revenue. **PBT and EPS are normalised, excluding exceptional items and interest revenue. ***Includes debt and financial leases.

Expansion strategy generating 440%+ growth

Vection Technologies is delivering considerable growth, with FY22 sales up more than 5x from COVID-19-affected FY21, helped by acquisitions. Management expects to generate A$24–26m in FY23 sales, up 27% to 38% from FY22, via organic growth and acquisitions, and is making good progress towards that goal with Q123 total contract value (TCV) reaching A$6m. To generate growth, Vection Technologies is focused on leveraging its IntegratedXR offering by expanding in existing verticals (eg its 2021 acquisitions of Blank Canvas and JMC Group), using strategic acquisitions as entry points into new verticals and geographies (eg the recent establishment of a Healthcare and Pharma division) and via partnerships with large firms such as Dell and Webex by Cisco to expand its distribution network.

Engaging the metaverse and extended reality

Vection Technologies’ prospects are boosted by the two fast-growing markets it operates in. First is the rapidly evolving metaverse that is swiftly adding users and potential customers for Vection Technologies products; Gartner predicts that by 2026, 25% of people will spend at least one hour per day in the metaverse. Second is the XR market, expected by various studies to grow at 46–58% from 2022–27, driven by increased use of virtual reality in education, first-person gaming, the adoption of XR tech in healthcare and the growing use of AI in XR apps.

Valuation: Executing on plan is essential

Vection Technologies trades at 1.9x FY23e EV/revenue, a 63% discount to its small-cap peers. Using the average small-cap peer multiple of 5.1x implies a share price of A$0.13 or c 150% upside. At the overall peer average of 7.2x, it would reach A$0.18 or more than three times its current price. Achievement of our forecasted 38% FY23 revenue growth and successful execution of its strategic plan could lead its shares to trade at a premium to its more mature peers.

Investment summary

Company description: Engaging with the metaverse

Vection Technologies, an Australia-based software and services company, operates in the field of XR. It operates in the B2B space with offices across the globe, and generates the majority of its revenue from Europe, although a key part of its strategy is to extend its reach into the United States and the Asia-Pacific region. Vection Technologies’ goal is to assist its clients in their digital transformation efforts by providing the foundational products and services needed to engage with the metaverse. Its growth strategy involves several facets, including growth in existing verticals that are underpenetrated, strategic acquisitions and partnerships to enter new verticals or add to its core technology stack, up-selling and cross-selling its solutions to customers and its recently launched online engagement strategy. Its primary solutions suite is IntegratedXR, which consists of five key solutions designed to meet specific client needs, as well as the services to support them.

Financials: Investments in growth and acquisitions bearing fruit

Vection Technologies generated revenues of A$18.9m in FY22, up more than 5x over FY21’s A$3.5m, helped by the contribution from acquisitions. The company’s total contract value (TCV) continues to expand too, propelled by wins in the defence, military and law enforcement and machinery verticals. Management credits previous investments in technology, people and acquisitions for this growth, which are now bearing fruit. We forecast that FY23 revenues reach A$26.1m, up 38% from FY22, in a combination of growth across Vection Technologies’ core business and significant acceleration from the two recent acquisitions (JMC Group and Blank Canvas Studios), but excluding any future potential acquisitions. We estimate that following several recent capital raises, Vection Technologies is well-funded to support growth through FY23e with estimated net cash (including debt and financial leases) of A$9.8m at end September 2022.

Valuation: Trading at a discount to peers despite higher growth

We compare Vection Technologies to a peer group of large and small companies involved in the metaverse and related technologies and/or providing digital transformation services. Vection Technologies trades at 1.9x EV/revenue in FY23e, a 63% discount to the 5.1x average of its small-cap peers. If it were valued in line with its small-cap peers and taking into account its A$9.8m in estimated net cash (including debt and financial leases), the company would trade at about A$0.13/share, c 150% above its current A$0.05/share. If it traded at the overall peer average multiple of 7.2x, it would reach A$0.18 or more than three times its current price. While we would expect some level of discount due to its smaller size compared to its peers, we expect revenue to grow 38% (including a full year contribution from JMC Group and Blank Canvas Studios), which is substantially greater than the FY23 12% consensus estimate for its small-cap peers. If the company can successfully execute its strategic plan by growing in existing verticals such as defence, architecture and film making, expanding in the relatively new healthcare and pharma vertical and into others via acquisitions, and developing partnerships with large tech companies to expand its distribution network, it has the potential to trade at a premium to its more mature peers.

Sensitivities: Competition, execution risk and early stage

The primary factors that could have an impact on our estimates would be increasing competition, execution risk, customer adoption, general economic and political risks, and net cash burn rates. As Vection Technologies is a relatively new, early-stage company with a mix of organic and inorganic growth, where the timing and size of vertical and geographic expansion opportunities are unknown, we do not have sufficient clarity to forecast past FY23.

Company description: Enabling engagement with the fast-growing metaverse

Vection Technologies is an Australia-based software and services company operating in the field of XR, which encompasses immersive technologies including augmented reality (AR), virtual reality (VR) and mixed reality (MR). Its goal is to support clients’ digital transformation efforts by providing products and services that clients would use to access the digital world (the metaverse), from the physical world.

Vection Technologies operates in the B2B space, and over the past four years has expanded its operational presence through nine locally based offices and/or subsidiaries in Asia-Pacific, Europe, the Middle East and the United States.

Note that AR and VR are often conflated, but they are not the same. According to Gartner, ‘AR is the real-time use of information of the form of text, graphics, audio, and other virtual enhancements integrated with real-world objects.’2 Intel describes it as ‘overlay[ing] digital information on real world elements.’3 For instance, a surgeon could use the Magic Leap headset while operating on a patient’s heart, with the heart’s valves and chambers displayed on their headset.

In contrast, VR according to Intel is ‘fully immersive, which tricks your senses into thinking you’re in a different environment or world apart from the real world’.4 With VR, one could use an Oculus headset and handheld controllers to virtually swim in the ocean, and visually and auditorily interact with creatures of the deep. The key difference between the two is the real-world component: with AR you still see the physical world around you and interact with it while wearing the headset, while with VR, you do not, as the headset blocks out your view.

  Ibid.

Exhibit 1: Virtual reality

Source: Vection Technologies

MR combines the real and virtual worlds, and as Intel explains, ‘you interact with and manipulate both physical and virtual items and environments, using next-generation sensing and imaging technologies. Mixed Reality allows you to see and immerse yourself in the world around you even as you interact with a virtual environment using your own hands—all without ever removing your headset.’5

  Ibid.

Exhibit 2: Mixed reality

Source: Vection Technologies

Vection Technologies’ history began in 2019 via what was essentially a reverse merger when ASX-listed ServTech Global Holdings Ltd (SVT) acquired the European-based Officine 8K S.r.l, a full-service software development company with advanced AR and VR development capabilities, and renamed it Vection. The parent company, SVT, renamed itself Vection Technologies in November 2019 and trades on the ASX.6 Furthermore, on 22 June 2022 Vection Technologies launched an American Depository Receipt (ADR) program to increase the company’s exposure to North American investors and partners, and trades on the US OTC market under the symbol VCTNY, with one ADR representing 120 existing ordinary shares.

Vection Technologies’ immersive solutions suite, IntegratedXR, is a combination of software and services designed to help customers integrate their client-facing systems, day-to-day operations and XR technologies. As part of its customer’s journey to a digital workplace, Vection Technologies partners with them to build out their key foundational hardware and software elements to enable them to engage with the metaverse. Moreover, IntegratedXR’s suite enables users to integrate a wide variety of technologies, software, and hardware systems, such as shown in Exhibit 3.

Exhibit 3: IntegratedXR

Source: Vection Technologies

Global reach across multiple geographies and verticals

Vection Technologies is expanding its global reach, with nine offices spread across the globe, including Perth and Sydney, Australia; Ahmedabad, India; Milan, Rome and Bologna, Italy; Abu Dhabi; and San Francisco, United States. It operates in three primary regions: APAC (Asia Pacific), EMEA (Europe, Middle East and Africa) and AMER (the Americas). The majority of its revenue has historically come from EMEA (78% in FY21, 80% in FY22). However, as can be seen in Exhibit 4, its efforts to expand geographically have resulted in the APAC and AMER regions growing to 18% and 2% of total revenues in FY22, respectively. For instance, the acquisition of Blank Canvas in 2021 extended Vection Technologies’ reach into the Australasian architecture and real estate industries.

Exhibit 4: Revenue mix, FY22

Source: Vection Technologies, Edison Investment Research

In line with its geographical expansion, Vection Technologies has also spread its customer base across many different verticals, ranging from real estate, healthcare and pharma to defence and military. As of 30 September 2022, Vection Technologies reported A$6m in TCV for Q123, spread across these verticals, as Exhibit 5 shows, with Architecture, Engineering & Construction (AEC) and Real Estate at 47%, Media & Communication at 23%, and Defence, Military and Law Enforcement at 13%. This metric, TCV, is a primary key performance indicator for Vection and represents all contracts executed with clients to date that Vection Technologies expects to deliver during the current fiscal year. To be clear, it is not an annualised revenue measure, though it could include recurring software revenue, and is specifically for FY23.

Exhibit 5: Customers and TCV across multiple verticals, breakdown by vertical in %

Source: Vection Technologies as of 30 September 2022

Strategy: Providing the foundation to engage the metaverse

Vection Technologies’ strategy is to enable companies to engage with the growing and expanding metaverse. The metaverse is a popular and frequently mentioned topic in tech and business news, earnings reports and recent M&A transactions. It is the setting for recent hit movies such as Ready Player One and has hosted recent live concerts attended by multitudes of users.7 Moreover, Facebook rebranded itself as Meta8 in order to focus its activities and investments on the metaverse.

Defining the metaverse can be challenging, as it is a rapidly growing and evolving space and there is no specific agreement on its definition. The company defines it as ‘A seamless convergence of the physical and digital worlds that allows people to have immersive experiences; from training, commerce and gaming to social meetings and interactions.’9 Marty Resnick, VP analyst at Gartner, explains, ‘The Metaverse will allow people to replicate or enhance their physical activities. This could happen by transporting or extending physical activities to a virtual world or by transforming the physical one.’10

  Vection Technologies FY22 Preliminary Final Report, page 3.

The metaverse is at an early but rapid stage of evolution, with many companies and technologies being developed to support its variety of infrastructures, products, interfaces and platforms. As Resnick describes, ‘Vendors are already building ways for users to replicate their own lives in digital worlds… From attending virtual classrooms to buying digital land and constructing virtual homes… they will take place in a single environment – the metaverse.’11

To enable companies to engage with the metaverse, Vection Technologies employs its IntegratedXR technology to redesign its clients’ processes and to enable the seamless integration between Vection Technologies’ XR technology and the client’s systems, technologies and operations. As more and more companies begin engaging with the metaverse, Vection Technologies’ focus is to provide the foundational elements necessary to do so. That is, it builds those elements within enterprises to assist them with their journey into the metaverse. Management calls this ‘combinatorial innovation’, where it links and integrates AR, the cloud, the internet of things (IoT), AI, etc. These elements are necessary to build the metaverse, where people can replicate or enhance physical activities, transforming day-to-day physical activities into a digital environment, and connecting both the physical and digital.

M&A and partnerships as key avenues for growth and verticalization

Vection Technologies’ plan for growth has several key avenues, including further penetrating existing verticals, strategic M&A to acquire new companies or technologies in order to enter new verticals, and partnerships with large firms such as Dell and Cisco. In particular, we note the addition of Siegmar Haasis, former CIO of Daimler Mercedes Benz, for the growth in the automotive sector and the addition of Mr Vittorio Terzi, former MD of McKinsey Mediterranean, to assist in M&A activities and framework agreements with Fortune 500 global consulting firms.

Existing verticals: Vection Technologies’ existing verticals are underpenetrated, providing many opportunities to take market share. Here, Vection Technologies primarily uses an indirect model for its sales strategy, relying on partners such as consulting companies to source deals and represent it.

M&A: strategic acquisitions are a key component of Vection Technologies’ growth strategy, in penetrating existing verticals, entering new ones and extending its core technology stack. The XR market is highly fragmented, with many players operating in niche segments. Making acquisitions will enable Vection Technologies to gain new technologies (rather than developing them directly), increase its XR development resources and quickly get access to new clients that are natural adopters of Vection Technologies’ integrative technology, thus gaining scale across many verticals. As can be seen below in Exhibit 6, management’s goal is also to expand globally and it is aiming to acquire two or more targets in each of the Americas and EMEA, and one or more in the APAC region over the next 18 months.

Exhibit 6: Expansion plan into high-value markets

Source: Vection Technologies

Online: using its website as a lead generation tool (rather than relying on indirect sales) is a relatively new strategy for Vection Technologies, with the goal of creating an engine to source deals via its website.

As mentioned earlier, M&A activity and partnerships are key components of Vection Technologies’ strategy of what management calls verticalization, or significantly expanding its footprint into new verticals, deepening its penetration of existing markets and protecting its market position. Over the last two years, Vection Technologies has entered into ventures and made several key acquisitions that have opened up important new verticals, including:

Healthcare and Pharma: in March 2021, Vection Technologies established its Healthcare and Pharma division by joining forces with a team of senior executives with experience at several leading healthcare and pharma firms. As part of this, Vection Technologies incorporated a joint venture (JV) company controlled by Vection Technologies at 60% ownership (Vection Healthcare and Pharma Solutions). Currently, Vection Technologies consolidates the JV and shows it as a non-controlling interest in the financial statements. The goal of this division is to expand Vection Technologies’ customer base into the healthcare, pharma, biotech, medical devices and nutraceutical market segments. In May 2021, the company completed its first milestone as part of a public hospital trial, enabling surgeons to use XR to see diagnostic images, surgery checklists, etc.

Architecture, Engineering & Construction (AEC) and Real Estate: in April 2021, Vection Technologies acquired Blank Canvas Studios, a leading architectural visualisation studio that uses 3D imagery and 3D animation. Vection Technologies paid A$500k (50/50 cash and stock) and there is a deferred consideration of up to A$1.8m contingent on meeting revenue and EBITDA targets (Exhibit 16). Blank Canvas achieved c A$1.5m in sales and c A$0.2m in profit in FY20, and we estimate it generated a similar amount in FY21 and about A$2.2m in FY22. The acquisition provides Vection Technologies the ability to further penetrate the company’s existing AEC and real estate markets.

European expansion: in June 2021, Vection Technologies announced that it had signed a binding agreement to acquire JMC Group, a European-based hardware and software company and Dell Platinum and OEM partner. JMC, which has a well-established and expansive footprint across Europe and the Middle East, fits well with management’s desire to further expand across Europe and other geographies, and provides established partnerships with Dell and Toshiba, and further IoT and AI technology to Vection Technologies’ IP portfolio. JMC was purchased for A$4m in an all-share deal and, on completion, it confirmed A$0.10 per share, plus an earnout based on revenue and EBITDA (Exhibit 16). It was reported by Vection Technologies’ management to have c A$10m in aggregate revenue and c A$0.8m in EBITDA in FY20, and we estimate that it generated c A$6m in revenues during COVID-19-affected FY21.

Key partnerships: to further generate growth and expand its distribution network, Vection Technologies entered into partnerships with several large and well-known technology and software firms, including OEM agreements with DELL and HP, an entry into Meta’s (Facebook) Oculus Independent Software Vendor program, acceptance into Autodesk’s program, an agreement with Cisco Italy for XR collaboration, and the commercial distribution of its XR portfolio via Toshiba Tec. Exhibit 7 provides a sample of the wide range of partnerships the company enjoys.

Another illustration of how Vection Technologies’ partnerships expand its distribution network is its collaboration with Webex by Cisco. In November 2021, Vection Technologies unveiled the FrameS release with autonomous 3D world content creation. This was considered a strategic milestone towards the integration of Vection Technologies’ products into the metaverse. On 28 July 2022, Vection Technologies published what management considers the first-of-a-kind metaverse embedded app in the Webex App Hub. The company’s collaboration with Webex resulted in a 3D app enabling hybrid workforces and 3D workflows, where participants engage in virtual environments custom built in a simple, no-code interface without ever leaving the Webex meeting (see below for more details on the 3Dframe embedded app).

Exhibit 7: Wide range of partnerships

Source: Vection Technologies

Filmmaking industry: another important new vertical for Vection Technologies is the filmmaking industry. In early May, it announced the launch of VRONE V-Pro, a product that can be used for virtual production, where the company is partnering with Luno Studios and has successfully tested its product with the largest LED wall in Europe. Vection Technologies’ VRONE V-Pro product leverages real-time rendering power to film actors on a virtual set. So rather than having to spend time on green screens, delayed rendering and travel, and incur transport expenses to film on location and eventually reshooting a scene, clients can use VRONE V-Pro for on-the-go digital alterations and real-time interactions of actors and their environments. In fact, VRONE V-Pro was tested in popular Disney+ shows like The Mandalorian and Loki.

IntegratedXR: Solutions and services

IntegratedXR works across three layers to help clients integrate and digitise their systems and hardware, as seen in Exhibit 8. It begins with the data acquisition layer, pulling in data from networks, databases, hardware and various other systems and software. The data is then fed through IntegratedXR, where it is integrated into a stream usable by the end applications, including PCs, smart devices and ultimately XR devices.

Exhibit 8: Integration across three layers

Source: Vection Technologies

IntegratedXR: Multiple essential solutions plus related services to meet client needs

The IntegratedXR suite itself encompasses multiple essential solutions designed to meet client-specific needs, as well as services to support these solutions (see Exhibit 9):

Exhibit 9: Integrated XR Product Lines

Source: Vection Technologies

Design review via Mindesk: one challenge facing many companies is that it can be very difficult to visualise and collaborate on design projects across multiple geographies, job areas and technologies. This can include working with CAD diagrams, rendering 3D images and getting real-time updates of the latest design changes. Vection Technologies’ solution to this challenge is the Mindesk platform, a design-review tool that allows instant collaborative VR/AR or photorealistic renders quickly, without disruption and downtime. The platform takes the data from say a CAD system, integrates it into VR and then sends it to the rendering engine for a real-time display of the final product. Users can use native CAD/CAE/BIM systems in VR to do design reviews, or even live-link to engines such as Unreal Engine to do their renderings.

For instance, when designing a structure, engineers must be aware of the surrounding area, as one cannot design a facility in a vacuum without considering adjacent areas. There are often laws concerning how the final facility relates to the streets, setbacks from the nearest building, locations of homes, fauna, etc, so it is essential to know the location data of the environment around the building, such as the height, width and length of structures, the types of roads, the height of trees, etc. Vection Technologies is exploring a solution to this problem by building an integration of Microsoft’s Bing 3D map data into the company’s Mindesk solution that AEC designers can use to put their building information modelling (BIM) data in context. The Mindesk platform takes the data from say a CAD system, integrates it into VR and then sends it to the rendering engine for a real-time display of the final product. For example, in a recent Irish cultural centre project in San Francisco, Mindesk combined a direct feed from Bing 3D maps with the BIM model to create an AR report for the presentation. Bing’s 3D maps provided data from the surrounding area and gave context to the project.

Training with EnWorks: with the move to hybrid work models and the international expansion of companies, conducting training can be difficult, especially when training both remote and inhouse employees or doing live sessions with staff across multiple continents. Remote staff can feel left out, or have very low engagement, while information overload with large manuals or one-way training via PowerPoint presentations with no interaction can be an issue.

Vection Technologies’ solution is the EnWorks platform. EnWorks allows customers to create step by step procedures for employees in multiple applications, such as manufacturing operations, sales support, etc. One can use EnWorks to design 2D or 3D step-by-step procedures that trainees can then follow using AR headsets, mobile devices, etc (see Exhibit 10).

Exhibit 10: Machinery and maintenance training with Trainer Creator

Source: Vection Technologies

One interesting module of EnWorks is Remote Assistance. A challenge facing companies is the cost of supporting employees or customers out in the field. For instance, supporting a maintenance tech on a remote location can be expensive and challenging, especially if they are working with a complicated piece of machinery or dealing with an unusual problem.

Using AR headsets, tablets or even smartphones, Vection Technologies’ Remote Assistance tool is designed to improve the support of remote field workers, potentially reducing travel costs, downtime and operations. Remote Assistance shares the operator’s point of view with a remotely connected specialist. The specialist can virtually give the operator directions on what to do and see the results in real time.

Remote presentations with 3D Frame: many companies are moving to conducting presentations online, whether it be for digital sales, product presentations or team collaboration. The challenge, similar to that of training, is that conducting effective presentations can be difficult, especially when some participants are remote, and others are in person. Face-to-face interactions are a key element in sales presentations, but that is the element missing in most remote demonstrations. As one manager stated, ‘It is hard to do sales with PowerPoints via a screen, since the product you’re selling can’t talk for itself over a remote presentation.’

As mentioned earlier, though its partnership with Webex, Vection Technologies provides the 3Dframe solution to address the challenges of remote presentations. The recently launched metaverse embedded app provides a collaborative virtual environment that uses IntegratedXR to hold meetings and presentations in 3D and VR. 3Dframe allows clients to access pre-defined content or create their own, such as 3D models, pdfs, videos and images, all displayed in their own 3D world. Clients can build their own 3D world to connect people via the metaverse to conduct virtual meetings via Webex, presentations and events worldwide. Participants can interact in this 3D virtual environment without needing VR gear or VR-ready desktops, making it inclusive to everyone in the meeting. Of course, those with VR equipment can enjoy a deeper level of 3D interaction with the product models too.

3Dframe opens up a significant potential market opportunity for Vection Technologies as this integration should increase Vection Technologies’ brand awareness as the use of Webex by Cisco increases and more users learn about the company and its cutting-edge technology and solutions. Increased awareness would then meaningfully expand Vection Technologies’ existing customer base and provide a significant opportunity for market expansion and subsequent revenue growth. For instance, Webex counted over 590m monthly participants during the recent global pandemic.

Customisation through 3D Product Configurator: many customers like to customise a product and see what it would be like in its end state. For instance, when buying a new couch or sofa, they may want to see how different upholstery materials and colours look before making a final decision on such a large purchase.

To address these needs, Vection Technologies designs configurators and provides the software infrastructure for consumers, sales teams, style designers, etc. Showrooms, and designers can experiment with colours, materials and accessories to create proposals, or clients can create their favourite combination of style and accessories, as illustrated in Exhibit 11. Through VR and AR visualisation, Vection Technologies’ solution enables customers to virtually interact with a 3D model, providing a new way to view and experience the desired customised product.

Exhibit 11: Automobile customisation with FrameS

Source: Vection Technologies

XRKiosk: Another key part of the IntegratedXR solutions suite is XRKiosk. The JMC Group acquisition (completed in August 2021) brought with it a strong solutions suite in IoT, AI and information and communication technology, including interactive kiosks now known as XRKiosk. This solution is designed to enhance shoppers’ experiences, giving them a virtual in-store touchpoint. For instance, XRKiosk can merge the digital and physical interactions by giving customers the ability to see products in 3D, AR and VR directly from within the store, even with out-of-stock products. Moreover, customers can use these to create customised products, whether online or in-store. XRKiosks can also be used for marketing, advertising, signage and digital check-in/out operations. The kiosks can also be integrated with payment systems, identity documents for hotels and schools, and even smart card dispensers.

Services: the final but vital component of IntegratedXR is the service element. The challenge facing some companies is that when they purchase one of Vection Technologies’ solutions, they may not have the right hardware to operate the tool, such as VR gear, large gaming-type PCs to run the software, etc. Moreover, the client may have large, complex sets of data that need to be integrated, but not the hardware to effectively integrate their systems with Vection Technologies’ software systems.

The company’s services sell the hardware, technology and software needed for customers to smoothly and efficiently adopt its products, getting them up and running quickly. Management views this as a key gateway to win contracts: the ability to provide what clients need to install, start up and operate Vection Technologies’ solutions.

Actively protecting its competitive advantage

To address this fast-growing sector, Vection Technologies continues to invest in the development of its proprietary solutions and services suite of metaverse-related technologies, called IntegratedXR. The technology enables businesses to seamlessly adopt metaverse technologies within their workflows, through IntegratedXR. Management states that this differentiates Vection Technologies from many of its competitors, which are focusing on niche applications or developing custom customer-specific solutions. During the past four years, the company has been expanding its patent portfolio in the EU and the United States and is currently seeking legal advice for protection strategies.

Management team

Gianmarco and Lorenzo Biagi joined the company in March 2019 when Officine 8K conducted a reverse merger transaction with SVT, with Gianmarco appointed as managing director and Lorenzo appointed as executive director and chief sales officer. Other key leaders include Bert Mondello, non-executive chair of the board and a director since 2017, Gianmarco Orgnoni, who was added as an executive director in 2017 and chief strategy (CSO) and chief marketing officer (CMO) since 2022, Gabriele Sorrento, non-executive director since 2020, and Derek Hall, company secretary and CFO.

The company’s CEO, Gianmarco Biagi, has over 20 years’ experience as an executive across multinational manufacturing and technology groups. Based in Italy, Gianmarco is very active in enterprise-focused associations and holds several institutional roles. His positions include president of AICIM, president of AISOM and board member of the scientific and technical committee of the Italian model for risk management in healthcare of the LUISS Business School. He is also an author of management strategy publications.

The advisory board includes Siegmar Haasis and Vittorio Terzi. Vittorio Terzi currently serves as managing partner of Terzi & Partners, a strategic advisory firm to diverse high-growth companies in the field of innovation with a specific focus on the software, biotech and fintech industries. Dr Siegmar Haasis is a highly experienced automotive executive with 26 years of international digitization experience with Daimler, one of the biggest producers of premium cars and the world’s biggest manufacturer of commercial vehicles, of which the last eight years were as CIO R&D of Mercedes-Benz.

On 9 November 2022, the company proposed the addition of Mr Jacopo Merli to its board of directors (ASX: 28 October 2022). Mr Merli is the founder and CEO of JMC Group (JMC), which was acquired by Vection Technologies during 2021 to accelerate the expansion within the EMEA region in line with its IntegratedXR objectives.

The company has structured its global sales to focus on specific regions: EMEA, APAC and AMER. Aligned with this, Vection Technologies will appoint local regional CEOs to bring to market a cohesive IntegratedXR offering, enabling intra-regional synergies, and cross- and up-selling opportunities:

Vection Technologies EMEA – CEO: Mr Jacopo Merli.

Vection Technologies APAC – CEO: Mr Paul Clayton.

Vection Technologies AMER – CEO: Mr Gabriele Sorrento.

The company’s global Research and Development (R&D), Marketing and Financial Administration divisions are centralised to effectively service its global regional sales operations as they scale up, while maintaining a strong control function.

In November 2022, Vection Technologies announced several key additions to its ranks. These include, among others:

Dennis Pacella – vice president sales, Europe.

Antonio Arocha – senior enterprise account executive, AMER.

These new additions are pivotal to the company scaling globally, which is also supported by its growing numbers of partners in the consulting and solutions space. These include Accenture, DXC Technology, NTT Data and Toshiba Tec, among others.

Further details on the management team can be found at the end of this report.

Executive directors and senior managers receive an annual remuneration, and hold ordinary shares and performance rights, providing incentives for management to successfully execute its growth plan. Moreover, Gianmarco and Lorenzo Biagi (via Officine 8K) are the biggest shareholders of Vection Technologies with 29.5%, giving them substantial alignment with the company’s success.

Digital transformation, the metaverse and extended reality

Digital transformation…

The rise in digital transformation activities is driving much of the XR market’s growth, as many companies focus on digitally transforming their businesses. The term digital transformation broadly encompasses the process by which companies adopt digital technologies across multiple areas of a business, fundamentally changing the culture of a business, including operating internally, relating to customers and ultimately how a company provides value. While it does not have to include XR, for some it means increasing their use of or offerings in the metaverse whether it be via an Oculus VR headset, AR glasses, iOS mobile device, gaming PC or large monitor. Some companies are moving to a digital environment for networking, meetings, brainstorming or social gatherings like minigolf, while others conduct virtual meetings or townhalls for employees within an XR environment, such as shown in Exhibit 12.12

What does this have to do with Vection Technologies? Each of the above examples require the use of XR hardware, software and related technologies, providing a significant opportunity for Vection Technologies’ IntegratedXR platform in the upcoming years.

Exhibit 12: A virtual town hall in the metaverse

To access the metaverse…

One of the purposes of a digital transformation (in addition to improving efficiencies and lowering costs) is so that a company can access the metaverse. Earlier we defined the metaverse, and as displayed in Exhibit 13, it consists of six primary layers with a variety of companies involved in building each one. The layers include the infrastructure (technologies necessary to support a user’s experience), the access/interface (hardware that determines how people enter and interact with the metaverse), virtualisation tools (software, 3D engines, etc, that companies like Vection Technologies and its clients use to build the metaverse worlds and experiences), virtual worlds (where people interact while in the metaverse), economic infrastructure (how users actually purchase goods and services in the metaverse) and the experiences of the users (goods and services such as games, virtual concerts, virtual real estate and virtual work).13

  ‘The Future of the Metaverse’, CB Insights, https://www.youtube.com/watch?v=yTI0XkW_4Pg&t=357s, accessed 29 April 2022

Exhibit 13: The six layers of the metaverse and companies that build each layer

Source: CB Insights, ‘The metaverse could be tech’s next trillion-dollar opportunity: These are the companies making it a reality,’ https://www.cbinsights.com/research/metaverse-market-map/, accessed 23 May 2022.

…using extended reality solutions and services

As companies go through a digital transformation to access the metaverse, they will engage with it by using extended reality solutions and services. Extended reality is a term that covers immersive technologies such as VR, AR and MR. These technologies are used to create a simulated environment that a user can interact with. So rather than merely seeing a 2D image on your monitor, you could view and interact with a 3D world with multiple senses such as vision, hearing and touch, and eventually even smell. For instance, Dassault Systèmes has modelled the heart in 3D with realistic electrical, structural and fluid flow dynamics to study cardiac defects and diseases.14

Various firms estimate that the XR market will grow at a 47–58% CAGR from 2022–27,15 providing a significant opportunity for Vection Technologies’ XR business. Many key trends are driving this market, including the increasing use of VR in education away from a physical classroom, the rise of first-person gaming with VR gear, the adoption of XR tech for diagnostic use in healthcare (eg making a 3D model of a heart that a doctor can interact with via a headset) and the growing use of AI in XR applications.

A fragmented market that is gaining more and more attention

The metaverse is a very fragmented market, with many public and private companies involved, both large and small, and includes Apple, Roblox, Unity, Epic Games, Qualcomm, etc (see Exhibit 13). As the metaverse has grown, it has enjoyed increasing attention with many companies entering the space via fund-raising or takeovers, such as Epic Games’ April 2022 raise of US$2bn at a US$31.5bn valuation,16 Roblox’s initial public offering (IPO) at a US$41.9bn valuation17 and Nike’s purchase of virtual sneaker company RTFKT.18 We see this trend of greater involvement and attention as supportive to Vection Technologies’ business, significantly growing the total addressable market of companies that would benefit from Vection Technologies’ IntegratedXR solution. Moreover, as it is not dominated by a few large firms, the metaverse provides plenty of opportunities for small- and mid-cap investors to gain exposure to this growing market.

We compare Vection Technologies to a representative sample of large and small firms from multiple geographies that are involved in the metaverse, related technologies and/or provide digital transformation services. Exhibit 14 provides a snapshot of these comparable firms.

Exhibit 14: Comparable companies

Symbol

Name

Description

Price (local ccy)

EV (A$m)*

FY23e revenue
(A$m)

EV/rev FY23e
(x)

Rev. growth FY23e

Large cap

DAST.PA

Dassault Systèmes

Dassault Systèmes SE is a France-based software company that provides different kinds of three-dimensional (3D) solutions.

€36

73,752

8,733

8.5x

15.9%

SNPS.O

Synopsys Inc

Synopsys provides products and services across the silicon to software spectrum. Its Semiconductor & System Design segment supplies the electronic design automation software that engineers use to design and test integrated circuits.

US$327

75,204

8,075

9.6x

20.8%

ADSK.O

Autodesk

Autodesk is a three-dimensional (3D) design, engineering and entertainment software and services provider.

US$209

67,829

7,526

9.2x

14.2%

CDNS.O

Cadence Design Systems

Cadence Design Systems is an electronic system designing company. The company’s Custom IC Design and Simulation offerings are used by its customers to create schematic and physical representations of circuits down to the transistor level for analogue, mixed-signal, custom digital, memory and radio frequency (RF) designs.

US$165

68,166

5,485

12.8x

17.4%

PTC.O

PTC

PTC is a software and services company that offers a portfolio of computer-aided design, product lifecycle management, application lifecycle management and service lifecycle management solutions.

US$125

22,081

2,932

8.1x

1.2%

U

Unity Software

Unity Software is a platform for creating and operating interactive, real-time three-dimensional content.

US$33

15,087

2,082

7.3x

23.8%

NEKG.DE

Nemetschek se

Nemetschek is a Germany-based software developer for the construction industry. Its Design segment focuses on building information modelling oriented solutions for CAD and computer aided engineering, while its Media and Entertainment segment develops 3D modelling, painting, animation and rendering applications.

€44

7,761

1,243

6.2x

17.7%

ALTR.O

Altair Engineering

Altair Engineering provides software and cloud solutions in simulation, high-performance computing, data analytics and artificial intelligence.

US$46

5,583

828

6.6x

4.9%

EPIC.O

Epic Games

Epic Games Inc is a United States-based company, which offers software platform and a development of video games. It has developed Unreal Engine, Gears of War, Shadow Complex and the Infinity Blade series of games.

Private

N/A

N/A

Large-cap average

8.6x

14.5%

Vection Technologies valuation using large-cap multiple (A$)

0.21

Small cap

ALU.AX

Altium

Altium is an Australia-based multinational software company. It develops and sells computer software for the design of electronic products that enable seamless collaboration across the entire design process.

A$37

4,771

391

11.4x

18.0%

GDYN.O

Grid Dynamics

Grid Dynamics Holdings provides enterprise-level digital transformation services. The company offers collaborations to provide digital transformation initiatives, which include consulting, development of prototypes and enterprise-scale delivery of digital platforms.

US$12

1,382

475

2.2x

45.6%

ESIG.PA

ESI Group

ESI Group is a France-based company engaged in the development and distribution of software packages designed for performing virtual testing. It develops digital simulation software for the numerical simulation of prototypes and manufacturing process engineering in applied mechanics.

€72

673

174

4.0x

(17.9)%

RDY.AX

ReadyTech Holdings Ltd

ReadyTech Holdings is an Australia-based company, which provides software-as-a-service (SaaS) technology. Its Education segment provides cloud-based learning and management systems for education and training providers.

A$4

437

104

4.5x

33.4%

OMG1.L

Oxford Metrics Group

Oxford Metrics plc is a United Kingdom-based smart sensing software company. The company is engaged in developing software that enables the interface between the real world and its virtual twin.

€88

203

51

3.3x

(18.4)%

IMMOI.L

immotion Group

Immotion Group is a United Kingdom-based holding company. Its principal activities are the provision of VR experiences.

£2

18

NA

NA

NA

Small-cap average

5.1x

12.1%

Vection Technologies valuation using small-cap multiple (A$)

0.13

Average of large- and small-cap

7.2x

13.6%

Vection Technologies valuation using average multiple (A$)

0.18

VR1.AX

Vection Technologies**

A$0.05

48

26

1.9x

38%

Source: Refinitiv (for pricing, forecasts and descriptions), Bloomberg, Edison Investment Research. Note: *Exchange rates and pricing data at 23 November 2022. ** Based on Edison forecasts.

Financials: Investments in growth bearing fruit

Business model

Vection Technologies primarily sells the software and related services that companies need to engage with the metaverse. It typically charges customers an installation fee and then recurring, annual licence and service/maintenance fees. Its core IP is in the IntegratedXR software platform, but if needed it can also provide the necessary hardware and other services to implement Vection Technologies’ solutions, such as creating a 3D model, developing a virtual meeting or operating room, integrating it with existing ERP systems, Product Lifecycle Management solutions, CAD, etc. While management does not disclose specific gross margins by product, we would expect the highest margins from Vection Technologies’ own-IP software and the lowest margins from hardware sales, with services somewhere in between.

Income statement

The company’s investments in growth continued to bear fruit in FY22, with revenues up more than 5x times from COVID-19 affected FY21’s A$3.5m to A$18.9m in FY22. Of the A$17.3m in Integrated XR sales, A$17.1m were recognised at a point in time such as projects and A$0.2m over time such as ongoing development work. The effect of acquisitions was not split out by the company, but we estimate that the strong underlying growth was augmented by the contributions from Blank Canvas and JMC. We estimate the approximate FY22 split as Vection Technologies A$6m, Blank Canvas A$1.7m, JMC A$11m. Exhibit 15 presents information on the two key acquisitions and related earnout targets.

Exhibit 15: Key acquisitions and earnout targets

Acquisition

Date acquired

FY20 revenue

Price*

FY22 revenue earnout target**

FY22 EBITDA
earnout target**

FY23 revenue earnout target**

FY23 EBITDA
earnout target**

Blank Canvas Studios

April 2021

A$1.5m

A$0.5m

A$1.5m

A$m >0

A$3.0m

A$m >0

JMC Group

Aug 2021

A$10m

A$4.0m

A$14.2m

A$1.5m

A$20.8m

A$3m

Source: Vection Technologies, Edison Investment Research. Note: *Plus max deferred consideration of 18m performance rights (A$1.8m) for Blank Canvas and 4.8m performance rights for JMC subject to earnout targets based on revenue and EBITDA. **Earnouts from performance rights related to acquisition.

Vection Technologies is investing heavily in technology and building out its infrastructure to support future growth across existing and new verticals. As a result, its operating expenses have naturally increased in recent periods, with FY22’s normalised EBIT falling to a A$5.9m loss from FY21’s loss of A$2.3m. Vection Technologies’ results were also affected by expenses related to the Blank Canvas Studios and JMC Group acquisitions. Vection Technologies’ geographic expansion into new regions was also evident in FY22, with EMEA at 80% of total revenues (A$13.7m) as APAC grew to A$3.1m from A$0.7m in FY21 and the Americas grew to A$0.4m from A$0.1m in FY21. Finally, FY22’s adjusted EBITDA was a A$1.0m loss, with the net loss of A$7.1m boosted by several add-backs including significant non-cash accounting charges (A$3.1m), non-cash payments (A$1.9m) and one off-transaction costs (A$1.7m) (see Exhibit 17).

The company’s prospects in FY23 and FY24 appear promising. As can be seen in Exhibit 16, TCVs and revenues have been accelerating in the recent periods with wins in the defence, military & law enforcement and machinery verticals. Management is guiding revenues to reach A$24–26m for FY23e, up from A$18.9m in FY22. Exhibit 17 provides details of our FY23 forecast of A$26.1m revenue and A$1.3m normalised operating profit (EBIT) as management continues investing in marketing, sales, technology and enterprise systems to support existing and future growth.

Vection Technologies’ goal is to grow revenues in FY23 and FY24 through a mix of organic growth in the existing verticals, geographic expansion and inorganic growth from potential future acquisitions. We estimate that FY23 will generate A$26.1m revenues (A$25.0m from IntegratedXR solutions and about A$1.1m from interest received and other revenue), driven by organic growth in its existing verticals, further expansion into the United States, EU and APAC, and growth from its new partnerships, as well as full year contributions from JMC and Blank Canvas. We estimate that Vection Technologies will improve its adjusted EBITDA to about A$3.7m in FY23e (A$0.9m in FY22), based on net income of A$1.0m and adding back D&A (A$1.0m), non-cash payments (A$1.4m) and income tax (A$0.3m). While management is planning further acquisitions, we do not include any future potential acquisitions in our forecasts.

Exhibit 16: TCV and revenue progression

Source: Vection Technologies, Edison Investment Research. Note: The A$26.1m revenue in FY23e is an Edison forecast.

Exhibit 17: FY21–22 results and FY23e forecast

(A$m)

FY21 (restated)

FY22

FY23e

Revenues

3.5

18.9

26.1

IntegratedXR solutions and services

3.1

17.2

25.0

Other*

0.4

1.7

1.1

Variable Cost of Sales**

(0.8)

(11.5)

(13.1)

Operating Expenses***

(4.0)

(10.5)

(9.2)

Non-Cash Payments

(0.2)

(1.9)

(1.4)

D&A

(0.7)

(1.0)

(1.0)

Operating profit, normalised

(2.3)

(5.9)

1.3

Exceptional charges

(0.0)

(0.0)

(0.0)

Operating profit, reported

(2.3)

(5.9)

1.3

Net interest and financial expense

(0.2)

(1.1)

(0.0)

Profit before Tax, reported

(2.4)

(7.0)

1.3

Income tax expense

(0.0)

(0.2)

(0.3)

Profit after Tax, reported

(2.5)

(7.1)

1.0

Non-controlling interest

(0.1)

(0.4)

0.1

Net Income (normalised, to Vection Technologies equity holders)

(2.5)

(7.1)

0.9

Net Income (reported, to Vection Technologies equity holders)

(2.5)

(7.1)

1.0

Net Income (reported, to members of Vection Technologies)

(2.4)

(6.7)

0.9

EPS (normalised, basic, A cents)

(0.27)

(0.67)

0.08

EPS (reported, basic, A cents)

(0.24)

(0.62)

0.08

Adjusted EBITDA

(0.4)

0.9

3.7

Net Loss after Tax

(2.4)

(7.1)

1.0

Add back D&A

0.7

1.0

1.0

Add back interest and financial costs

0.1

0.1

0.0

Add back one-off transaction costs

0.7

1.7

0.0

Add back non-cash accounting charges

0.2

3.1

0.0

Add back income tax expense

0.1

0.2

0.3

Add back non-cash payments

0.2

1.9

1.4

Source: Vection Technologies, Edison Investment Research. Note: Differences due to rounding. *Includes interest received, R&D tax refund, etc. **Includes variable costs of sales, changes in inventories. ***Not including D&A.

Balance sheet and cash flows

At the end of FY22, Vection Technologies’ assets were primarily cash (A$14.9m), receivables (A$6.2m) and intangibles from products it developed and business acquisitions (A$17.0m). Net cash as of FY22 was A$10.8m (including leases) with modest debt of A$4.1m (including leases), and we expect management to keep debt at about this level over the forecast period. Major cash inflows and outflows in FY22 (aside from the usual customer receipts and payments to suppliers and employees) include A$2.0m in capex and intangible payments, and A$12.1m in share issue proceeds (net of transaction costs). The company reported a gross cash balance of c A$14m at 30 September 2022. We estimate Q123 (30 September 2022) net cash at about A$9.8m (including estimated debt and leases as of 30 September 2022) as cash receipts were up 58% over Q122. Lastly, Vection Technologies capitalises software development costs and amortises them with a straight-line method, and FY22’s amortisation for software patents and development costs was A$0.8m.

There have also been several significant capital raises and movements in share capital since FY20. In FY21, Vection Technologies issued 72.5m shares as performance rights vested across July to October (various tranches; vesting based on company share price, Officine 8K revenue, etc), and issued 66.5m shares (worth about A$6.0m) on 9 October 2020 as part of a capital raise. During FY22, the company issued 63.9m in shares on 4 August 2021 for the JMC Acquisition, and on 3 December, Vection Technologies placed 60m shares at A$0.20 per share for about A$12m in proceeds as part of an equity funding round. The company also issued about 32.5m unlisted share options with an exercise price of A$0.25 per share and a three-year expiry, as well as 13.5m performance rights to directors, both on 3 December 2021. On 30 January, Vection Technologies issued 6.5m shares as part of the company’s Performance Rights Plan, though as of 30 June, 100m of Class A performance rights (associated with Vection Italy) held by directors lapsed.

At this time, barring any acquisitions, major investments, expansions into new geographies or verticals, or other special situations, we do not expect Vection Technologies to need further equity raises nor raise significant amounts of debt to fund operations. As of FY22, the company’s basic share capital comprises 1.11bn shares while diluted is about 1.14bn shares.

We expect the company’s operating cash flows to improve from FY22’s net cash consumption of A$1.2m, driven by expanding sales, though much of it could be affected by acquisitions and variations in margins. We expect investing cash flows to grow slightly, especially for intangible assets as Vection Technologies continues building out its products and technology. Finally, we forecast net cash (including finance leases) of A$10.6m at the end of FY23, absent any capital raises.

Valuation: Below peers despite higher growth

Vection Technologies’ common stock has experienced some volatility over the last year, trading as high as A$0.28 in November 2021 and as low as A$0.05 in June and November 2022. Currently, it trades at A$0.052 per share, down 61% year to date reflecting the recent weakness and falls in the broader technology sector (the S&P/ASX All Technology Index is down 31% year to date, the NASDAQ-100 Technology Index is down 36% year to date).

It is challenging to value a firm that is several years away from profitability and has a short operating history, with many contracts in their initial stages. Therefore, we use EV/revenue multiples as a way to determine a relative valuation for Vection Technologies. As discussed above, its business model covers several rapidly growing industries, including digital transformation and the metaverse, and it operates across a wide variety of verticals. We use three peer groups for Vection Technologies: large-cap (above A$5bn EV), small-cap and an overall average across all peers. Each of the comparative sets (shown earlier in Exhibit 14) trades at a higher EV/revenue multiple than Vection Technologies, with large-cap at 8.6x, small-cap at 5.1x and the overall average at 7.2x (see Exhibit 18). If Vection Technologies were to trade at the small-cap peer average of 5.1x, it would be valued at A$0.13 or about 150% above its current price. If it traded at the overall peer average of 7.2x, it would reach A$0.18 or c 240% higher than its current price.

Furthermore, as shown in Exhibit 19, our estimates for Vection Technologies’ revenue growth in FY23e (38%) are considerably higher than the market estimates of growth for the large- and small-cap peers (14%). As an early-stage company with high projected growth rates compared to its more mature peers, Vection Technologies could justify a premium. On the other hand, part of the gap in valuation could be due to Vection Technologies’ smaller size and being earlier in its life cycle, as well as sales rising off a smaller base. Nevertheless, assuming the company executes on its growth plans and valuing it at the small-cap and overall average peer multiples would imply a price of A$0.13–0.18/share on a diluted basis.

Exhibit 18: EV/revenue multiple versus peer group

Exhibit 19: Growth estimates for FY23e

Source: Edison Investment Research, Refinitiv. Note: Priced as at 23 November 2022.

Source: Edison Investment Research, Refinitiv. Note: Peer forecasts are consensus, Vection Technologies is from Edison Investment Research. Priced as at 23 November 2022.

Exhibit 18: EV/revenue multiple versus peer group

Source: Edison Investment Research, Refinitiv. Note: Priced as at 23 November 2022.

Exhibit 19: Growth estimates for FY23e

Source: Edison Investment Research, Refinitiv. Note: Peer forecasts are consensus, Vection Technologies is from Edison Investment Research. Priced as at 23 November 2022.

Closing the gap in revenue multiple could take time and ultimately depends on Vection Technologies successfully executing its strategic plan. Over the next year, we will be watching for several milestones that could signal its success, including profitable growth in its existing verticals, expansion into new, promising verticals via M&A or partnerships, and controlling costs and gross margins as it continues investing for future growth.

Sensitivities

Increasing competition: with the growth of the metaverse, competition is increasing with many companies (both private and public) entering into the space, many of them with much larger EVs than Vection Technologies (as shown in Exhibit 14). If larger, better-funded companies target Vection Technologies’ verticals and/or customer base, then Vection Technologies could struggle to complete. For instance, Defence, Military & Law Enforcement is one of the company’s larger customer verticals and as larger defence contractors enter the XR space, it could make it difficult for Vection Technologies to further penetrate this key vertical.

Industry risk: while the metaverse is expected by many to grow, Meta’s Reality Labs (MRL) segment only generated US$1.5bn in revenues from VR games and recorded US$5.8bn in losses in H122.19 Meta’s struggles in implementing its metaverse business model, the lacklustre results, reduced investments and slow user growth even after significant investments could indicate that success in the metaverse could take longer and be more difficult than expected.

Execution: execution risk is a key issue that Vection Technologies faces, especially the risk surrounding managing the predicted high growth of its business. Moreover, as it also looks to grow by entering new verticals via M&A, it faces the risk of failing to effectively integrate new acquisitions.

Timing and size of vertical and geographic expansion opportunities for young company: expansion into new, unknown verticals and potential M&A activity are both growth drivers for Vection Technologies and have the potential to boost the company’s finances. Furthermore, Vection Technologies’ plan to expand into the United States and Asia-Pacific would also support growth. However, as Vection Technologies is a young company, and many of the verticals, acquisition targets and geographic expansion opportunities are unknown or are in early stages, it is challenging to determine their size and timing, so we do not have sufficient clarity to make forecasts past FY23. Realised growth and financial results could be faster or slower depending on the actual timing and quantities of the company’s expansion.

Customer adoption: the metaverse is a relatively new market, and much of Vection Technologies’ strategy is dependent upon companies targeting the metaverse as part of their business plans. Furthermore, the technology for engaging with the metaverse is rapidly evolving and clients have many choices for the hardware and software they use. If customers do not engage with the metaverse as quickly as expected or if they do not adopt the types of technology that Vection Technologies provides, then it could delay management’s planned growth.

General economic and political risks: Vection Technologies’ business and customers may be affected by general economic and political risks across the globe. This includes inflationary pressures, the Ukraine war and its impact on European sales and supply shortages resulting from the COVID-19 pandemic.

Net cash levels: management expects to generate sufficient cash so that future stock raises would be unnecessary, except in cases of significant M&A activity. If the timing of revenues and expenses are not as expected, then cash inflows could be insufficient and future capital raises may be required, thus diluting existing shareholders.

Exhibit 20: Financial summary

A$000s

2021 restated

2022

2023e

Year end 30 June

AAS

AAS

AAS

PROFIT & LOSS

Revenue

 

3,471

18,894

26,056

Variable Cost of Sales

(849)

(11,454)

(13,127)

Gross Profit

2,622

7,440

12,929

Operating Expenses*

(3,993)

(10,453)

(9,230)

Adjusted EBITDA

 

(424)

881

3,699

Non-Cash Payments

(230)

(1,892)

(1,400)

EBITDA

 

(654)

(1,011)

2,299

D&A

(658)

(958)

(1,000)

Operating Profit (normalised)

 

(2,285)

(5,907)

1,255

Exceptionals/Other

(26)

(44)

(44)

Operating Profit/(Loss) (EBIT)

 

(2,259)

(5,863)

1,299

Net Interest and financial expense

(171)

(1,070)

-

Profit Before Tax (norm)

(2,456)

(6,977)

1,255

Profit Before Tax (AAS)

 

(2,430)

(6,933)

1,299

Tax

(77)

(168)

(312)

Profit After Tax (norm)

 

(2,533)

(7,144)

943

Profit After Tax (AAS)

 

(2,506)

(7,100)

987

P/(L) from discontinued operations

(36)

-

-

Minority interest

(137)

(419)

58

Net income (norm, to Vection Technologies equity holders)

 

(2,533)

(7,144)

943

Net income (AAS, to Vection Technologies equity holders)

 

(2,543)

(7,100)

987

Average Number of Shares Outstanding, millions*

931

1,071

1,124

EPS - normalised, basic (A cents)

 

(0.27)

(0.67)

0.08

EPS - AAS, basic, to Vection Technologies equity holders (A cents)

(0.24)

(0.62)

0.08

Gross Margin (%)

75.5%

39.4%

49.6%

EBITDA Margin (%)

N/A

N/A

8.8%

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

N/A

N/A

4.8%

BALANCE SHEET

Fixed Assets

 

18,273

17,785

18,870

Intangible Assets

17,338

17,028

18,066

Tangible Assets

240

293

339

Right of Use Assets

632

424

424

Other

63

41

41

Current Assets

 

13,063

22,419

24,308

Cash

7,084

14,869

14,708

Receivables

4,879

6,208

8,000

Inventories

1,084

1,341

1,600

Other

17

-

-

Current Liabilities

 

11,272

8,475

8,672

Trade and other payables

3,615

6,974

7,200

Provisions and Other

6,405

30

-

Employee benefits

36

78

78

Lease liabilities

168

195

195

Borrowings

1,047

1,199

1,199

Long Term Liabilities

 

4,637

3,751

4,141

Provisions

-

-

-

Employee benefits

333

433

824

Lease liabilities

530

286

286

Borrowings

3,175

2,415

2,415

Other

599

616

616

Net Assets

 

15,428

27,977

30,365

Minority Interest

(117)

(479)

(898)

Shareholder's Equity

 

15,545

28,457

31,263

CASH FLOW

Operating Cash Flow (before interest, tax, etc.)

 

(2,251)

(1,092)

2,235

Net Interest

(50)

(50)

-

Tax

(24)

(104)

(312)

Capex

(66)

(164)

(246)

Purchase of intangibles

(1,330)

(1,838)

(1,838)

Acquisitions/disposals

2,305

(21)

-

Equity financing

7,221

12,127

-

Lease payments

(96)

(80)

-

Change in net cash

5,708

8,777

(161)

Opening net debt/(cash), not incl. leases

 

(735)

(2,862)

(11,255)

Exchange rate movements

(280)

(383)

-

Other

(3,301)

0

-

Closing net debt/(cash), not incl. leases

 

(2,862)

(11,255)

(11,094)

Closing net debt/(cash), incl. leases

 

(2,164)

(10,774)

(10,613)

Source: Vection Technologies accounts, Edison Investment Research. Note: *FY23e weighted average shares assume exercise of JMC and Blank Canvas performance rights.

Contact details

Revenue by geography (FY22)

The Garden Office Park
Building C, Level 4
355 Scarborough Beach Rd
Osborne Park WA 6017
+61 0863807446
https://vection-technologies.com/

Contact details

The Garden Office Park
Building C, Level 4
355 Scarborough Beach Rd
Osborne Park WA 6017
+61 0863807446
https://vection-technologies.com/

Revenue by geography (FY22)

Management team

Managing director and CEO: Gianmarco Biagi, MEng

Executive director, CMO and CSO: Gianmarco Orgnoni, BBus

The company’s CEO, Gianmarco Biagi, is a seasoned executive with over 20 years’ experience as an executive across multinational manufacturing groups. Gianmarco is a business leader focused on shareholder value creation across technology, manufacturing and more. Based in Italy, Gianmarco is very active in enterprise focused associations, and currently holds several institutional roles. Current roles include president of AICIM, president of AISOM, and board member of the scientific and technical committee of the Italian model for risk management in healthcare of the prestigious LUISS Business School. He is also an author of management strategy focused publications.

Mr Orgnoni has skills extending across corporate finance, investment banking and research analysis. He has extensive experience in corporate advisory and finance analysis across European and Australian private and publicly listed companies. Mr Orgnoni has worked closely with and has provided advisory services to a number of companies spanning civil engineering, education, technology, biotechnology and real estate. He holds a bachelor’s degree in economics and business administration from the Catholic University of the Sacred Heart of Milan, Italy.

Non-executive chair of the board: Umberto (Bert) Mondello

Executive director and chief sales officer: Lorenzo Biagi

Mr Mondello has more than 20 years’ experience across both private and public sectors. As an executive, he has substantial capital markets experience and knowledge of equity markets having participated in company restructures, IPOs, RTOs, investor placements and seed raisings. Mr Mondello has extensive experience spanning multiple industries, with a specialisation in technology, and has served as CEO of ZipTel. He holds a bachelor of laws from the University of Notre Dame, Australia.

Mr Biagi, who joined in 2019 when Vection Italy was acquired, is an experienced company manager in the private sector, with extensive knowledge in virtual reality technology, sales and cost control management. While managing corporate development processes for more than 10 years, he has implemented new procedures and technologies helping make the companies he worked for, and with, leaders in innovation.

Proposed Director, COO and Vection Technologies EMEA – CEO: Jacopo Merli

Vection Technologies APAC – CEO: Paul Clayton

Mr Jacopo Merli is the founder and CEO of JMC Group, acquired by Vection Technologies during 2021. During the last 10 years, Mr Merli expanded JMC’s focus on the activity as OEM partner for a c US$100bn tech hardware giant within mission critical sectors including military, telcoms and broadcasting, becoming in 2019 one of its global suppliers. During his university career in aerospace engineering, Mr Merli was a consultant to the Italian branch of a Nasdaq-listed world leader in the design, manufacture and marketing of high-performance analogue, mixed-signal and digital signal processor (DSP) and integrated circuits (ICs), acquiring key knowledge of large company management processes. On 9 November 2022, the company proposed his addition to its board of directors and COO.

With extensive management, marketing, media and strategy experience, Mr Paul Clayton has held senior roles within ASX-listed companies and creative and consulting firms in Perth, Melbourne and Toronto. In a consulting capacity, Paul has worked with government agencies and prominent international and Australian brands across the resources, energy, financial services, automotive, retail and real estate sectors. Paul joined Vection Technologies during 2021, as part of the acquisition of Blank Canvas Studios.

Vection Technologies AMER – CEO: Gabriele Sorrento

Director: Antonio Arocha

Mr Gabriele Sorrento is an entrepreneur and founder of Mindesk (now a Vection Technologies’ product). During his career, Gabriele gained a strong experience in 3D and extended reality (XR) technologies applied to the computer aided design (CAD) and building information modelling (BIM) world. Based in San Francisco, US, Gabriele sits on the American Institute of Architects San Francisco (AIASF) Design Technology Committee and on the Industrial Designers Society of America as digital enterprise section chair. Gabriele holds a master’s degree in architectural engineering from the Polytechnic University of Milan and trained in management at Santa Clara University as a Fulbright fellow.

Mr Antonio Arocha serves as a board member of several companies including Wirewatt and byteSense, and is the chairman of the board at Nuve, a company he co-founded in 2011, which has raised various rounds of funding and has expanded into several countries around the world. Antonio has a range of experience within many segments of the internet of things, logistics and transportation industries, which has allowed him to build many strong connections among these sectors. His technical background and education include degrees in computer science and government from the University of Texas at Austin. He is also the recipient of the 2015 Forbes’ ‘30 Under 30 in Manufacturing and Industry’ recognition.

Management team

Managing director and CEO: Gianmarco Biagi, MEng

The company’s CEO, Gianmarco Biagi, is a seasoned executive with over 20 years’ experience as an executive across multinational manufacturing groups. Gianmarco is a business leader focused on shareholder value creation across technology, manufacturing and more. Based in Italy, Gianmarco is very active in enterprise focused associations, and currently holds several institutional roles. Current roles include president of AICIM, president of AISOM, and board member of the scientific and technical committee of the Italian model for risk management in healthcare of the prestigious LUISS Business School. He is also an author of management strategy focused publications.

Executive director, CMO and CSO: Gianmarco Orgnoni, BBus

Mr Orgnoni has skills extending across corporate finance, investment banking and research analysis. He has extensive experience in corporate advisory and finance analysis across European and Australian private and publicly listed companies. Mr Orgnoni has worked closely with and has provided advisory services to a number of companies spanning civil engineering, education, technology, biotechnology and real estate. He holds a bachelor’s degree in economics and business administration from the Catholic University of the Sacred Heart of Milan, Italy.

Non-executive chair of the board: Umberto (Bert) Mondello

Mr Mondello has more than 20 years’ experience across both private and public sectors. As an executive, he has substantial capital markets experience and knowledge of equity markets having participated in company restructures, IPOs, RTOs, investor placements and seed raisings. Mr Mondello has extensive experience spanning multiple industries, with a specialisation in technology, and has served as CEO of ZipTel. He holds a bachelor of laws from the University of Notre Dame, Australia.

Executive director and chief sales officer: Lorenzo Biagi

Mr Biagi, who joined in 2019 when Vection Italy was acquired, is an experienced company manager in the private sector, with extensive knowledge in virtual reality technology, sales and cost control management. While managing corporate development processes for more than 10 years, he has implemented new procedures and technologies helping make the companies he worked for, and with, leaders in innovation.

Proposed Director, COO and Vection Technologies EMEA – CEO: Jacopo Merli

Mr Jacopo Merli is the founder and CEO of JMC Group, acquired by Vection Technologies during 2021. During the last 10 years, Mr Merli expanded JMC’s focus on the activity as OEM partner for a c US$100bn tech hardware giant within mission critical sectors including military, telcoms and broadcasting, becoming in 2019 one of its global suppliers. During his university career in aerospace engineering, Mr Merli was a consultant to the Italian branch of a Nasdaq-listed world leader in the design, manufacture and marketing of high-performance analogue, mixed-signal and digital signal processor (DSP) and integrated circuits (ICs), acquiring key knowledge of large company management processes. On 9 November 2022, the company proposed his addition to its board of directors and COO.

Vection Technologies APAC – CEO: Paul Clayton

With extensive management, marketing, media and strategy experience, Mr Paul Clayton has held senior roles within ASX-listed companies and creative and consulting firms in Perth, Melbourne and Toronto. In a consulting capacity, Paul has worked with government agencies and prominent international and Australian brands across the resources, energy, financial services, automotive, retail and real estate sectors. Paul joined Vection Technologies during 2021, as part of the acquisition of Blank Canvas Studios.

Principal shareholders as of 23 November 2022

(%)

Officine 8K S R L (Gianmarco and Lorenzo Biagi)

29.5

Mr Jacopo Merli

5.8

Primomiglio SGR

4.9

CDP Venture Capital SGR SPA

4.8

Mr Gabriele Sorrento

2.0

Crossbay Pty Ltd

2.0

Mr Keith James Scudds

1.1

A11 Venture

1.1

HTC Vive Investment (BVI) Corp

1.0

Settepuntonove Srl

0.7


General disclaimer and copyright

This report has been commissioned by Vection Technologies and prepared and issued by Edison, in consideration of a fee payable by Vection Technologies. Edison Investment Research standard fees are £60,000 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 research department of Edison 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 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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 Vection Technologies and prepared and issued by Edison, in consideration of a fee payable by Vection Technologies. Edison Investment Research standard fees are £60,000 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 research department of Edison 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 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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