XP Power — Fully funded for medium-term growth

XP Power (LSE: XPP)

Last close As at 02/03/2024

GBP10.40

−2.00 (−0.19%)

Market capitalisation

GBP247m

More on this equity

Research: TMT

XP Power — Fully funded for medium-term growth

With weaker end demand than originally expected in Q323, XP Power’s trading update confirmed a lower outlook for FY23 operating profit and a consequent rise in net debt. To mitigate the risk of hitting debt covenants, the company has initiated a series of cost and cash saving measures, renegotiated its debt covenants and undertaken a fundraise. With revised debt covenants in place and reduced gearing, we believe XP is now well positioned for growth as end market conditions improve.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

XP Power

Fully funded for medium-term growth

Q323 trading update

Electronic and electrical equipment

9 November 2023

Price

1,278p

Market cap

£303m

$1.23/£

Net debt (£m) at end Q323

163.0

Shares in issue

23.7m

Free float

93.7%

Code

XPP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

64.7

(41.4)

(35.7)

Rel (local)

66.3

(40.0)

(35.9)

52-week high/low

2,680p

776p

Business description

XP Power is a developer and designer of power control solutions, with production facilities in China, Vietnam, Germany and the United States, and design, service and sales teams across Europe, the United States and Asia.

Next events

FY23 trading update

11 January 2024

Analysts

Katherine Thompson

+44 (0)20 3077 5700

XP Power is a research client of Edison Investment Research Limited

With weaker end demand than originally expected in Q323, XP Power’s trading update confirmed a lower outlook for FY23 operating profit and a consequent rise in net debt. To mitigate the risk of hitting debt covenants, the company has initiated a series of cost and cash saving measures, renegotiated its debt covenants and undertaken a fundraise. With revised debt covenants in place and reduced gearing, we believe XP is now wellpositioned for growth as end market conditions improve.

Year end

Revenue

(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

240.3

43.8

176.3

94

7.3

7.4%

12/22

290.4

38.0

160.1

94

8.0

7.4%

12/23e

309.8

28.3

111.2

18

11.5

1.4%

12/24e

307.5

28.2

94.1

0

13.6

0.0%

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

Taking measures to cope with weaker end markets

XP’s Q323 update confirmed that despite its strong backlog, trading during Q3 was weaker than expected and is likely to continue this way into Q4, driving a lower outlook for FY23 operating profit. As a result of this and other factors, net debt was expected to rise to be at or above covenant limits in the near-term. Since then, the company has initiated a series of cost and cash preservation measures, renegotiated the covenants on its revolving credit facility and raised net proceeds of £44m from the issue of 3.95m shares at 1,150p per share. Overall, these measures should bring gearing to within XP’s target range by the end of FY24.

Stronger balance sheet supports future growth

We have reduced our FY23–25 forecasts to reflect lower shipments in H223 and a slower pickup in orders through FY24. We have also factored in the cost reduction and working capital measures, the cancelled dividend, the pause in the investment in Malaysia and the recent fundraise. We reduce our normalised EPS forecasts by 26% in FY23, 46% in FY24 and 42% in FY25, with gearing of 2.0x by end-FY24 and 1.6x by end-FY25. We forecast the dividend resuming in FY25. Despite the multiple factors that pushed debt up to higher-than-expected levels, we believe that XP’s underlying business remains strong. With the new funding in place, it is well positioned to capitalise on growth opportunities when end demand recovers.

Valuation: Bookings growth the next trigger

The share price has regained some ground since its 67% decline in early October and is now down by 46% since the Q3 trading update. On an FY24 P/E basis, XP is trading at a c 30% discount to global power solution companies and broadly in line with UK electronics companies, with EBITDA and EBIT margins at the upper end of both peer groups. Our 10-year discounted cash flow (DCF) with conservative growth assumptions values the company at 1,987p, 56% above the current share price. We believe a return to growth in order intake, improvements in working capital and final resolution of the Comet litigation would be key drivers of the share price from here.

Q323 trading update

On 2 October, XP Power confirmed that trading in Q323 was lower than expected, with weaker endmarket demand resulting in some customers deferring shipments to FY24. Economic uncertainty in China has also reduced demand in that market. Management expects these conditions to continue for the rest of the year, with FY23 outlook now lower than its prior expectation and operating profit likely to be broadly similar to FY22.

Q323 revenue was £75.1m, down by 5% y-o-y and down by 2% y-o-y in constant currency. Operating margins remain in the double-digits and the company noted on 27 October that operating profit for Q323 was slightly ahead of its prior expectation due to a better outturn in September. Book-to-bill for Q323 was c 0.6x, which implies order intake of c £45m, 17% lower q-o-q and 55% lower y-o-y. Backlog at the end of Q323 stood at c £225m. The company noted that while it has not yet seen a recovery in orders from its semiconductor manufacturing equipment customers, their outlook for 2024 and 2025 is encouraging, although the timing of the overall economic recovery remains uncertain.

Net debt at the end of Q323 was £163m, up from £148.4m at the end of H123. This includes a £6m foreign exchange impact as the pound has strengthened against the dollar (end-H123: US$1.27/£, end-Q323 US$1.22/£). Without taking any action, XP expected net debt to rise further by the end of the year due to lower-than-previously-expected profitability, a slower unwind of working capital and higher-than-planned capex relating to the relocation of the Californian site. While the group is currently in compliance with its banking covenants, it expected net debt/adjusted EBITDA to be close to or above current covenant limits in the near-term (covenant limit was 3x as at end FY23). As a result, XP has taken the following action:

Cost reduction measures: Started a significant and wide-ranging operating cost reduction programme, including headcount reductions and restrictions on non-discretionary spend. In FY24, this is expected to reduce costs by £810m on an annualised basis.

Working capital management: Implemented an inventory reduction plan for the period FY2325, to reduce inventory by £1020m. Surplus stock is expected to progressively unwind as supply chains normalise. The company is also standardising supplier payment terms.

Capex reduced to maintenance levels: Investment in the new Malaysian facility has been suspended for the time being.

Dividend suspension: On 6 October, the dividend of 19p originally announced for Q223 was cancelled, saving £3.75m, and no further dividends will be paid for FY23.

Fundraise: On 6 November, the company announced a placing and retail offer at 1,150p per share (11% premium to the closing price on 6 November and a 6% premium to the closing price on 3 November). On 7 November, the company confirmed it had placed 3,816,524 shares raising gross proceeds of £43.9m and 130,434 shares had been subscribed for in the retail offer raising gross proceeds of £1.5m. Total net proceeds were £44.2m. The new shares in total make up 19.99% of issued share capital prior to the fundraise, and 16.67% including the new shares.

Amendments to the group’s borrowing facility: XP has agreed revised banking covenants for its $255m revolving credit facility. The net debt/adjusted EBITDA covenant has increased to 3.5x until 31 December 2024 returning to 3.0x thereafter. Adjusted EBITDA/net finance expense has reduced to 3.0x until 30 September 2025, returning to 4.0x thereafter.

The funds raised will be used to reduce net debt, improve liquidity, refinance capital investments and continue to invest in key areas including R&D. In accordance with the company’s existing shareholder authorities, proceeds above 10% of existing share capital (roughly half the proceeds) will be applied to partially refinance the capital investments made to relocate XP’s two key US sites.

As a result of these actions, XP expects its leverage to reduce to the upper end of its 12x target range by the end of FY24, reducing further in FY25.

Changes to forecasts

We have revised our forecasts to reflect:

Bookings: We have reduced our forecasts for order intake in Q423 (see Exhibit 1 for assumptions) and assume a slower pickup in FY24.

Revenue: We assume that Q423 revenue is slightly lower than in Q423, resulting in a cut to our FY23 revenue forecast of 3%. For FY24, we assume that revenue is slightly lower before returning to growth of 4% in FY25.

Gross margins: We assume that lower utilisation of manufacturing facilities will prevent gross margins from returning to previous levels during our forecast period.

Normalised operating profit: We factor in reduced operating profit in FY2325 reflecting lower-than-expected revenue in H223, FY24 and FY25, partially offset by the recently implemented cost-cutting measures.

Dividend: We have cut the FY23 dividend from 94p to 18p, reflecting the suspension of the dividend from Q223. We assume no dividend in FY24 and in FY25 we have assumed a payout ratio of c 50% (based on normalised EPS).

Net debt: With the benefit of the capital raise and the other cost and cash saving measures, we reduce our net debt forecasts for FY2325. This results in net debt/adjusted EBITDA of 2.6x at the end of FY23, 2.0x at the end of FY24 and 1.6x at the end of FY25.

Exhibit 1: Quarterly bookings, revenue and backlog progression

Source: XP Power, Edison Investment Research

Exhibit 2: Changes to forecasts

£m

FY23e

FY24e

FY25e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

320.1

309.8

(3.2%)

6.7%

326.6

307.5

(5.8%)

(0.8%)

333.7

319.2

(4.3%)

3.8%

Gross profit

135.9

129.4

(4.8%)

7.3%

142.7

128.4

(10.0%)

(0.7%)

150.1

133.9

(10.8%)

4.3%

Gross margin

42.4%

41.8%

(0.7%)

0.2%

43.7%

41.8%

(1.9%)

0.0%

45.0%

42.0%

(3.0%)

0.2%

EBITDA

65.3

58.3

(10.8%)

3.4%

71.8

59.7

(16.8%)

2.5%

74.6

63.9

(14.3%)

7.0%

EBITDA margin

20.4%

18.8%

(1.6%)

(0.6%)

22.0%

19.4%

(2.6%)

0.6%

22.4%

20.0%

(2.3%)

0.6%

Normalised operating profit

49.3

42.3

(14.3%)

(1.4%)

54.3

42.2

(22.2%)

(0.1%)

56.4

45.7

(18.9%)

8.2%

Normalised operating margin

15.4%

13.7%

(1.8%)

(1.1%)

16.6%

13.7%

(2.9%)

0.1%

16.9%

14.3%

(2.6%)

0.6%

Reported operating profit

40.3

31.8

(21.2%)

N/A

50.8

38.7

(23.8%)

21.8%

52.9

42.2

(20.2%)

9.0%

Reported operating margin

12.6%

10.3%

(2.3%)

18.6%

15.6%

12.6%

(3.0%)

2.3%

15.8%

13.2%

(2.6%)

0.6%

Normalised PBT

36.8

28.3

(23.2%)

(25.5%)

43.3

28.2

(34.8%)

(0.2%)

46.4

32.7

(29.5%)

15.9%

Reported PBT

26.2

16.2

(38.3%)

N/A

39.8

24.7

(37.9%)

52.7%

42.9

29.2

(31.9%)

18.1%

Normalised net income

29.6

22.7

(23.4%)

(28.0%)

34.4

22.3

(35.1%)

(1.5%)

36.9

25.9

(29.7%)

16.1%

Reported net income

21.0

12.9

(38.7%)

N/A

31.6

19.5

(38.2%)

51.8%

34.1

23.1

(32.1%)

18.3%

Normalised basic EPS (p)

150.7

111.6

(25.9%)

(30.5%)

175.2

94.3

(46.2%)

(15.5%)

187.7

109.5

(41.7%)

16.1%

Normalised diluted EPS (p)

150.2

111.2

(25.9%)

(30.5%)

174.7

94.1

(46.1%)

(15.4%)

187.1

109.2

(41.6%)

16.1%

Reported basic EPS (p)

107.0

63.4

(40.8%)

N/A

161.0

82.5

(48.7%)

30.2%

173.4

97.7

(43.7%)

18.3%

Dividend per share (p)

94.0

18.0

(80.9%)

(80.9%)

97.0

0.0

(100%)

(100%)

101.0

58.0

(42.6%)

N/A

Net debt/(cash)

152.0

142.2

(6.5%)

(5.8%)

139.6

114.6

(17.9%)

(19.4%)

123.7

96.4

(22.1%)

(15.9%)

Orders

232.7

206.5

(11.3%)

(43.1%)

265.3

217.8

(17.9%)

5.4%

316.6

303.8

(4.0%)

39.5%

Net debt/EBITDA (x)

2.4

2.6

1.9

2.0

1.7

1.6

Source: Edison Investment Research

Valuation

Using a weighted average cost of capital (WACC) of 9.3% and long-term growth of 3%, we have performed a 10-year DCF analysis, which assumes a conservative revenue growth rate of 5% from FY26, EBITDA margins expanding to 26% and capex/sales of 7% from FY26–32. This results in a valuation of 1,987p per share, 56% above the current share price. The table below shows the sensitivity of this analysis to changes in WACC and the long-term growth rate.

Exhibit 3: Sensitivity of per share valuation to WACC and long-term growth rate

Terminal growth rate

1.00%

2.00%

3.00%

4.00%

5.00%

WACC

12.00%

1009.1

1084.0

1175.5

1289.9

1437.0

11.50%

1094.0

1179.9

1286.1

1420.6

1596.5

11.00%

1187.7

1286.9

1410.9

1570.4

1783.0

10.50%

1291.8

1406.9

1552.8

1743.6

2003.7

10.00%

1407.9

1542.5

1715.4

1946.1

2268.9

9.50%

1538.3

1696.6

1903.6

2185.9

2593.6

9.00%

1685.5

1873.3

2123.7

2474.3

3000.1

8.50%

1853.1

2078.0

2384.5

2827.4

3523.3

8.00%

2045.4

2317.4

2698.3

3269.6

4221.7

7.50%

2268.1

2601.3

3082.7

3839.0

5200.5

Source: Edison Investment Research

Exhibit 4: Financial summary

£m

2018

2019

2020

2021

2022

2023e

2024e

2025e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

195.1

199.9

233.3

240.3

290.4

309.8

307.5

319.2

Cost of Sales

(102.8)

(109.8)

(123.2)

(132.0)

(169.8)

(180.5)

(179.0)

(185.2)

Gross Profit

92.3

90.1

110.1

108.3

120.6

129.4

128.4

133.9

EBITDA

 

 

49.2

44.5

56.8

55.5

56.4

58.3

59.7

63.9

Normalised operating profit

 

 

42.9

35.0

46.0

45.1

42.9

42.3

42.2

45.7

Amortisation of acquired intangibles

(2.8)

(3.2)

(3.2)

(2.8)

(4.1)

(3.5)

(3.5)

(3.5)

Exceptionals

(0.8)

(5.1)

(5.4)

(12.6)

(62.9)

(7.0)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

39.3

26.7

37.4

29.7

(24.1)

31.8

38.7

42.2

Net Interest

(1.7)

(2.7)

(1.7)

(1.3)

(4.9)

(14.0)

(14.0)

(13.0)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptional & other financial

0.0

0.0

0.0

0.0

(1.2)

(1.6)

0.0

0.0

Profit Before Tax (norm)

 

 

41.2

32.3

44.3

43.8

38.0

28.3

28.2

32.7

Profit Before Tax (reported)

 

 

37.6

24.0

35.7

28.4

(30.2)

16.2

24.7

29.2

Reported tax

(7.2)

(3.2)

(4.0)

(5.4)

10.6

(3.1)

(4.9)

(5.8)

Profit After Tax (norm)

33.9

27.9

39.2

35.4

31.9

22.9

22.6

26.2

Profit After Tax (reported)

30.4

20.8

31.7

23.0

(19.6)

13.1

19.8

23.4

Minority interests

(0.2)

(0.3)

(0.2)

(0.4)

(0.4)

(0.3)

(0.3)

(0.3)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

33.7

27.6

39.0

35.0

31.5

22.7

22.3

25.9

Net income (reported)

30.2

20.5

31.5

22.6

(20.0)

12.9

19.5

23.1

Basic average number of shares outstanding (m)

19.1

19.2

19.3

19.5

19.6

20.3

23.7

23.7

EPS - basic normalised (p)

 

 

176.1

144.1

201.8

179.4

160.6

111.6

94.3

109.5

EPS - diluted normalised (p)

 

 

172.8

141.4

198.4

176.3

160.1

111.2

94.1

109.2

EPS - basic reported (p)

 

 

157.8

107.0

163.0

115.8

(102.0)

63.4

82.5

97.7

Dividend (p)

85

55

74

94

94

18

0

58

Revenue growth (%)

17.0

2.5

16.7

3.0

20.8

6.7

(-0.8)

3.8

Gross Margin (%)

47.3

45.1

47.2

45.1

41.5

41.8

41.8

42.0

EBITDA Margin (%)

25.2

22.3

24.3

23.1

19.4

18.8

19.4

20.0

Normalised Operating Margin

22.0

17.5

19.7

18.8

14.8

13.7

13.7

14.3

BALANCE SHEET

Fixed Assets

 

 

129.2

137.4

135.2

150.5

255.1

287.1

290.6

293.4

Intangible Assets

97.7

99.6

98.8

108.8

147.4

147.9

148.9

149.7

Tangible Assets

30.7

35.9

33.5

38.5

91.5

123.0

125.5

127.5

Investments & other

0.8

1.9

2.9

3.2

16.2

16.2

16.2

16.2

Current Assets

 

 

105.1

96.0

107.0

121.7

226.6

238.3

231.8

226.4

Stocks

56.5

44.1

54.2

74.0

114.4

120.1

110.4

109.1

Debtors

33.0

34.8

30.2

30.8

42.4

42.4

42.1

43.7

Cash & cash equivalents

11.5

11.2

13.9

9.0

22.3

32.2

39.8

38.0

Other

4.1

5.9

8.7

7.9

47.5

43.5

39.5

35.5

Current Liabilities

 

 

(26.8)

(30.4)

(34.7)

(49.0)

(106.2)

(107.4)

(106.5)

(108.3)

Creditors

(22.4)

(25.2)

(28.3)

(44.7)

(52.6)

(62.0)

(61.1)

(62.9)

Tax and social security

(4.2)

(3.1)

(4.9)

(2.5)

(4.9)

(4.9)

(4.9)

(4.9)

Short term borrowings

0.0

(1.6)

(1.5)

(1.8)

(2.6)

(3.4)

(3.4)

(3.4)

Other

(0.2)

(0.5)

0.0

0.0

(46.1)

(37.1)

(37.1)

(37.1)

Long Term Liabilities

 

 

(70.1)

(64.1)

(43.0)

(50.8)

(236.0)

(234.3)

(212.6)

(190.9)

Long term borrowings

(63.5)

(57.3)

(35.2)

(39.9)

(223.1)

(221.4)

(199.7)

(178.0)

Other long term liabilities

(6.6)

(6.8)

(7.8)

(10.9)

(12.9)

(12.9)

(12.9)

(12.9)

Net Assets

 

 

137.4

138.9

164.5

172.4

139.5

183.6

203.2

220.5

Minority interests

(1.0)

(0.7)

(0.7)

(0.9)

(0.8)

(0.9)

(0.9)

(1.0)

Shareholders' equity

 

 

136.4

138.2

163.8

171.5

138.7

182.8

202.3

219.5

CASH FLOW

Op Cash Flow before WC and tax

49.2

44.5

56.8

55.5

56.4

58.3

59.7

63.9

Working capital

(21.6)

10.6

(6.2)

(4.0)

(33.5)

3.6

9.2

1.5

Exceptional & other

3.2

(4.4)

(1.7)

(10.9)

(57.7)

(16.0)

0.0

0.0

Tax

(4.1)

(4.5)

(3.3)

(4.2)

(4.1)

0.9

(0.9)

(1.8)

Net operating cash flow

 

 

26.7

46.2

45.6

36.4

(38.9)

46.9

67.9

63.6

Capex

(15.0)

(16.3)

(14.9)

(21.9)

(19.4)

(50.0)

(23.0)

(23.0)

Acquisitions/disposals

(35.4)

0.0

(0.5)

0.0

(33.0)

0.0

0.0

0.0

Net interest

(1.5)

(2.7)

(1.3)

(0.9)

(5.5)

(14.0)

(14.0)

(13.0)

Equity financing

0.6

0.5

3.5

0.6

0.0

44.2

0.0

0.0

Dividends

(15.6)

(17.2)

(7.3)

(18.4)

(19.0)

(15.0)

(0.2)

(6.1)

Other

0.0

(1.5)

(1.7)

(1.7)

(5.8)

(3.2)

(3.2)

(3.2)

Net Cash Flow

(40.2)

9.0

23.4

(5.9)

(121.6)

8.8

27.5

18.3

Opening net debt/(cash)

 

 

9.0

52.0

41.3

17.9

24.6

151.0

142.2

114.6

FX

(2.7)

1.7

0.0

(0.8)

(4.8)

0.0

0.0

0.0

Other non-cash movements

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

52.0

41.3

17.9

24.6

151.0

142.2

114.6

96.4

Source: XP Power, Edison Investment Research

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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 XP Power and prepared and issued by Edison, in consideration of a fee payable by XP Power. 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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