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Expert System — Slower pipeline conversion

Expert.ai (MI: EXAI)

Last close As at 05/08/2026

—

— 0.00 (0.00%)

Market capitalisation

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More on this equity

Research: TMT

Expert System — Slower pipeline conversion

Expert saw a slower than expected trading environment in H117 combined with a shift in the mix of revenues towards subscription licensing. Post period end, the company signed a deal with Lloyd’s of London, reinforcing its position in the insurance vertical. Management now expects flat revenues in FY17, effectively pushing out its three-year industrial plan by a year. We have revised down our revenue and EBITDA forecasts for FY17 and FY18, shifting EBITDA profitability into FY18.

Written by

Katherine Thompson

Director

TMT

Expert System

Slower pipeline conversion

H117 results

Software & comp services

27 October 2017

Price

€1.45

Market cap

€40m

Net debt (€m) at end H117

15.1

Shares in issue

27.4m

Free float

65.2%

Code

EXSY

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.9)

(17.8)

(27.6)

Rel (local)

(5.7)

(22.3)

(45.6)

52-week high/low

€2.0

€1.3

Business description

Expert System has developed and patented technology that extracts useful information from unstructured text using semantic-based techniques. It applies this technology to a number of verticals including enterprise search, customer experience management and big data analytics.

Next events

FY17 results

March 2018

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Expert System is a research client of Edison Investment Research Limited

Expert saw a slower than expected trading environment in H117 combined with a shift in the mix of revenues towards subscription licensing. Post period end, the company signed a deal with Lloyd’s of London, reinforcing its position in the insurance vertical. Management now expects flat revenues in FY17, effectively pushing out its three-year industrial plan by a year. We have revised down our revenue and EBITDA forecasts for FY17 and FY18, shifting EBITDA profitability into FY18.

Year end

Revenue (€m)

EBITDA*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA
(x)

12/15

19.4

1.5

(4.1)

0.0

N/A

35.9

12/16

25.1

(2.2)

(22.0)

0.0

N/A

N/A

12/17e

25.1

(1.5)

(14.2)

0.0

N/A

N/A

12/18e

28.6

3.0

(4.4)

0.0

N/A

17.4

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

Longer sales cycles pressure H117 results

In H117 Expert reported a revenue decline of 7.4% y-o-y and a production value decline of 11.2% y-o-y. Lower than expected revenues combined with a higher cost base resulted in the EBITDA loss widening from €1.9m in H116 to €4.0m in H117. In H117 the company signed a higher proportion of subscription licensing, which reduces upfront revenues but improves recurring revenues and visibility. Customers are still taking time to understand how they can use Expert’s cognitive computing software to improve their business processes and this is resulting in long sales cycles.

Break-even pushed out by a year

Expert expects flattish revenues in FY17 versus FY16, which we estimate will result in an EBITDA loss of €1.5m for the year. This effectively pushes out the company’s Industrial Plan for 2017-2019 by a year. Management is targeting reductions in the cost base in FY18. We have revised down our forecasts to reflect this delay. We now forecast revenue growth of 15% in FY18 and EBITDA of €3.0m (10.6% margin), down from our previous €6.6m forecast. The company has announced it is aiming to raise funds of up to €5m through a share placing.

Valuation: Delayed growth weighs on valuation

Expert System trades on an EV/EBITDA of 17.4x FY18e. This is at a premium to enterprise search and information management companies, and Italian software and services peers, and at a discount to high-growth big data analytics software companies. Our DCF valuation of Expert System suggests a value of €1.97/share (previous: €2.59). Expert’s ability to convert customer interest in the fast-growing data mining and analytics market into commercial contracts, combined with achieving the targeted cost cuts, will be key to share price upside from this point.

Review of H117 results

Exhibit 1: Half-yearly results

€m

H116

H216

H117

y-o-y

Sales

8.57

14.80

8.44

-1.5%

Grants and other income

1.33

0.36

0.73

-45.1%

Total revenue

9.90

15.16

9.17

-7.4%

Capitalised development costs

2.94

2.72

2.52

-14.2%

Changes in WIP

0.39

(1.56)

0.05

-87.0%

Total production value

13.23

16.32

11.75

-11.2%

Staff costs

9.10

9.39

9.75

7.2%

Other costs

6.03

7.28

5.98

-1.0%

EBITDA

(1.90)

(0.35)

(3.98)

109.8%

Depreciation & amortisation - in-house

1.64

2.05

2.01

22.4%

Normalised EBIT

(3.54)

(2.40)

(5.99)

69.2%

Depreciation & amortisation - acquired

1.30

1.30

1.30

0.0%

Exceptional costs/(income)

0.00

0.00

0.00

EBIT

(4.84)

(3.70)

(7.30)

50.6%

Net income

(5.05)

(3.08)

(7.63)

51.2%

Net debt

15.85

12.41

15.12

-4.6%

Source: Expert System

Expert reported H117 sales marginally below the level achieved a year ago. The company noted that it signed a higher number of subscription licences, which have a lower upfront value than a perpetual licence but allow the company to benefit from recurring revenues. We would also argue that signing up for a subscription licence presents less of a budgetary challenge for many customers compared to the larger one-off sum that must be found for a perpetual licence. This gives customers the opportunity to use the software and extend it across the business as and when necessary. Expert continues to see plenty of interest in AI, but potential customers are still trying to understand how to apply the technology to their businesses. Consequently, Expert is still seeing long sales cycles.

Grants and other income was 45% lower year-on-year, resulting in total revenue 7.4% lower than a year ago. The company capitalised a lower level of development costs, resulting in production value 11.2% lower than a year ago. Expert typically sees strong seasonality, with a large proportion of business signed in Q4. This was evident in H216 and the company expects a similar pick-up in revenues in H217.

Staff costs were 7.2% higher than a year ago. The company continues to restructure its workforce, and has replaced some staff with more experienced, senior salespeople, with a focus on building and training the partner channel. This figure also includes one-off redundancy costs. Other costs were marginally lower than a year ago. Lower production value combined with higher costs resulted in a widening of the EBITDA loss from €1.9m in H116 to €4.0m in H117.

International sales strong

International revenues totalled €5.2m in H117, compared to €4.0m in H116. This is an increase in contribution from 47% to 62% of revenues over the year, and was mainly due to a stronger contribution from the US.

Business update

Developing the insurance vertical

Expert previously reported that it had signed up Zurich Insurance Group (Turning the AI hype into reality). It has now signed an agreement with Lloyd’s of London. We understand that Expert and Lloyd’s are working together to ascertain the best use of the software and we would therefore not expect material revenues from this relationship until FY18.

Building the channel

The company is keen to increase the amount it sells through partner channels, particularly consultants and system integrators. It is focusing resources on a small number of large global partnerships, and is currently training some of these partners to prepare them to sell Cogito. This should boost licence revenues in the longer term, but the company would not need to scale up professional services staff for the implementations as these would be undertaken by the partners. Thus successful sales through the channel should improve margins for Expert.

Tax incentives for investors

Expert qualified as an Innovative SME in August. This means that any Italian tax payers (corporates or individuals) investing in Expert’s shares for a minimum period of three years can get a reduction in corporation or income tax of 30% of the amount invested. For individuals, this is limited to an investment of up to €1m and for corporates the limit is €1.8m.

Outlook and changes to forecasts

The company now expects to generate a similar level of revenues in FY17 as in FY16, but with a higher level of recurring revenues. Effectively Expert’s Industrial Plan for 2017-2019 has been pushed out by at least a year. The company is planning to provide a revised industrial plan in early 2018. Within 2017 revenues, the company expects to see growth of c 20% in the US and 40% from Spain, with a quadrupling in revenues in the UK (which only started generating revenues last year). The company is also working on its cost base and is targeting cost reductions of €2.5-3m in FY18. The table below summarises our changes to forecasts.

Exhibit 2: Changes to estimates

€m

FY17e old

FY17e new

Change

y-o-y

FY18e old

FY18e new

Change

y-o-y

Sales

28.0

23.4

-16.7%

0.0%

33.6

26.9

-20.1%

15.0%

Other income & grants

1.6

1.8

7.7%

3.6%

1.7

1.8

1.5%

0.0%

Total revenues

29.7

25.1

-15.3%

0.2%

35.4

28.6

-19.1%

14.0%

Capitalised development costs & changes in WIP

4.7

5.0

6.4%

11.2%

4.7

5.5

17.0%

10.0%

Production value

34.4

30.1

-12.4%

1.9%

40.1

34.1

-14.8%

13.3%

EBITDA

3.2

(1.5)

-147.5%

-31.9%

6.6

3.0

-54.0%

(298%)

EBITDA margin

10.8%

-6.1%

-16.9%

2.9%

18.6%

10.6%

-8.0%

16.6%

D&A

(4.0)

(4.0)

0.3%

(4.4)

(4.4)

0.8%

Normalised operating profit

(0.8)

(5.6)

578.7%

-6.2%

2.2

(1.4)

-165.4%

(75%)

Normalised operating margin

-2.8%

-22.2%

-19.4%

1.5%

6.1%

-5.0%

-11.1%

17.2%

Amortisation of acquired intangibles

(2.6)

(2.6)

(2.6)

(2.6)

0.0%

Reported operating profit

(3.4)

(8.2)

138.6%

4.3%

(0.4)

(4.0)

810.8%

50.8%

Normalised EPS (c)

(3.2)

(14.2)

351.8%

3.9

(4.4)

-214.3%

Net debt

11.6

14.0

20.3%

12.6%

10.7

17.1

60.2%

22.4%

Source: Edison Investment Research

Valuation

The majority of Expert’s direct competitors are private companies or subsidiaries of large companies such as IBM or HP Enterprise. We have compared Expert’s valuation and operating metrics to peers operating in the natural language processing, big data analytics, enterprise search and information management markets, as well as to Italian software and IT services peers. With a forecast return to positive EBITDA in FY18, Expert is trading on an EV/EBITDA multiple of 17.4x in FY18e. This is at a premium to enterprise search & information management companies as well as Italian peers, and at a discount to the high-growth big data analytics companies.

Our 10-year DCF analysis values the company at €1.97/share, down from our previous €2.59 valuation, mainly due to pushing out revenue growth and EBITDA profitability by one year. We forecast a revenue CAGR of 10.1% from FY16 to FY26, with EBITDA margins rising to 28%. We had previously forecast peak EBITDA margins of 25%, but now we assume a larger proportion of R&D spend is capitalised; we therefore have increased our capex/sales assumptions, factoring in a decline from 20.7% in FY17 to 9.5% by FY26. We use a WACC of 9% and long-term growth of 3%. A 1% increase in the WACC results in a valuation of €1.49/share, while a 1% decrease results in a valuation of €2.67.

Exhibit 3: Peer group valuation analysis

Market cap (€m)

CY EV/S

NY EV/S

CY EV/ EBITDA

NY EV/ EBITDA

CY P/E

NY P/E

CY sales (€m)

CY EBIT margin

CY EBITDA margin

Sales growth NY

EPS growth NY

Natural language understanding

 

 

 

 

 

 

 

 

Expert System

40

2.1x

1.8x

N/A

17.4x

N/A

N/A

25.1

-22.2%

-6.1%

14%

N/A

Nuance Communications

4,395

3.1x

3.0x

10.9x

10.0x

15.3x

13.7x

1,954

1.5%

28.7%

3%

11.1%

Big data analytics

Splunk

8,025

6.8x

5.4x

60.6x

38.4x

123.7x

81.7x

1,222

8.0%

11.1%

25%

51.4%

Tableau

5,399

6.0x

5.5x

78.1x

62.5x

356.0x

281.5x

882

2.0%

7.7%

9%

26.5%

Teradata

3,529

1.7x

1.7x

9.9x

9.9x

26.0x

25.1x

2,106

13.8%

17.1%

0%

3.8%

Average

4.8x

4.2x

49.5x

37.0x

26.0x

129.4x

7.9%

12.0%

11%

27.2%

Enterprise search and information management

OpenText

7,842

4.2x

4.0x

11.6x

10.6x

13.9x

12.7x

2,689

34.5%

35.1%

4%

9.7%

IHS Markit

14,745

5.9x

5.6x

15.4x

14.1x

20.9x

19.0x

3,560

18.2%

20.7%

6%

9.9%

CommVault

2,018

2.6x

2.4x

21.0x

16.8x

47.2x

40.2x

707

9%

17.5%

Average

4.2x

4.0x

16.0x

13.9x

27.3x

24.0x

26.4%

27.9%

6%

12.3%

Italian software & services

TXT e-solutions

150

1.9x

1.8x

16.8x

14.8x

22.9x

20.1x

75

10.4%

11.1%

8%

14.3%

Exprevia

89

.8x

.8x

7.6x

6.9x

17.2x

14.4x

154

7.7%

8.1%

3%

20.0%

Piteco

93

5.7x

4.8x

14.6x

11.8x

20.6x

15.1x

17

30.1%

31.8%

19%

36.0%

Reply

1,695

1.9x

1.7x

13.3x

11.9x

21.9x

19.3x

886

12.8%

13.2%

10%

13.6%

Average

2.6x

2.3x

13.1x

11.4x

20.7x

17.2x

15.2%

16.0%

9.9%

21.0%

Source: Edison Investment Research, Bloomberg (as at 27 October)

Exhibit 4: Financial summary

€000s

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

PROFIT & LOSS

Revenue

 

 

11,593

11,109

13,045

19,368

25,057

25,118

28,623

EBITDA

 

 

2,624

2,014

2,339

1,463

(2,245)

(1,528)

3,021

Operating Profit (before amort. and except.)

1,765

916

609

(1,226)

(5,941)

(5,575)

(1,417)

Intangible Amortisation

0

0

0

(2,549)

(2,608)

(2,608)

(2,608)

Exceptionals

(319)

45

59

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

1,446

961

669

(3,775)

(8,549)

(8,183)

(4,025)

Net Interest

(298)

(376)

29

213

(156)

(487)

(467)

Profit Before Tax (norm)

 

 

1,467

539

638

(1,013)

(6,097)

(6,062)

(1,884)

Profit Before Tax (reported)

 

 

1,148

584

697

(3,562)

(8,705)

(8,670)

(4,492)

Tax

(452)

(359)

(609)

277

579

3,034

1,572

Profit After Tax (norm)

1,015

180

29

(934)

(5,692)

(3,940)

(1,225)

Profit After Tax (reported)

697

225

89

(3,284)

(8,126)

(5,635)

(2,920)

Average Number of Shares Outstanding (m)

22.0

22.0

22.0

22.8

25.8

27.7

27.7

EPS - normalised (c)

 

 

4.6

0.8

0.1

(4.1)

(22.0)

(14.2)

(4.4)

EPS - normalised and fully diluted (c)

 

4.6

0.8

0.1

(4.1)

(22.0)

(14.2)

(4.4)

EPS - (IFRS) (c)

 

 

3.2

1.0

0.4

(14.4)

(31.5)

(20.4)

(10.6)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

22.6

18.1

17.9

7.6

-9.0

-6.1

10.6

Adj Operating Margin (%)

15.2

8.2

4.7

-6.3

-23.7

-22.2

-5.0

BALANCE SHEET

Fixed Assets

 

 

6,691

9,905

5,719

20,301

20,379

18,924

17,679

Intangible Assets

1,111

2,462

4,640

18,539

18,372

16,976

15,705

Tangible Assets

635

606

692

916

915

856

882

Investments

4,945

6,836

387

846

1,092

1,092

1,092

Current Assets

 

 

12,767

15,491

32,681

42,588

37,012

30,857

30,665

Stocks

722

476

1,563

1,797

627

627

627

Debtors

5,488

5,820

7,866

10,228

10,233

10,233

11,768

Cash

2,065

2,967

4,900

11,249

9,063

4,032

1,732

Other

4,492

6,228

18,352

19,314

17,088

15,965

16,537

Current Liabilities

 

 

(8,871)

(10,333)

(13,639)

(20,517)

(22,679)

(21,957)

(22,605)

Creditors

(6,538)

(7,350)

(10,698)

(15,082)

(16,459)

(16,419)

(17,067)

Short term borrowings

(2,332)

(2,984)

(2,940)

(5,435)

(6,219)

(5,538)

(5,538)

Long Term Liabilities

 

 

(4,642)

(5,172)

(7,803)

(22,227)

(18,275)

(15,838)

(16,672)

Long term borrowings

(4,642)

(5,172)

(4,799)

(18,240)

(15,252)

(12,466)

(13,300)

Other long term liabilities

0

0

(3,005)

(3,987)

(3,023)

(3,372)

(3,372)

Net Assets

 

 

5,945

9,890

16,958

20,145

16,437

11,986

9,066

CASH FLOW

Operating Cash Flow

 

 

8,077

2,891

737

2,738

2,088

3,302

3,134

Net Interest

(298)

(376)

29

(324)

(155)

(487)

(467)

Tax

(452)

(359)

(609)

(1,576)

0

0

0

Capex

(3,095)

(2,384)

(3,905)

(20,045)

(6,378)

(5,200)

(5,800)

Acquisitions/disposals

0

0

(6,436)

3,045

46

0

0

Financing

0

0

12,341

6,573

4,418

863

0

Dividends

0

(180)

0

0

0

0

0

Net Cash Flow

4,232

(408)

2,156

(9,588)

18

(1,523)

(3,134)

Opening net debt/(cash)

 

 

6,352

4,909

4,822

2,839

12,426

12,408

13,972

HP finance leases initiated

0

0

0

0

0

0

0

Other

(2,788)

128

(173)

0

0

(41)

(0)

Closing net debt/(cash)

 

 

4,909

5,189

2,839

12,426

12,408

13,972

17,106

Source: Expert System accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Expert System and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Expert System and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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