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Thin Film Electronics — Update 21 December 2016

Thin Film Electronics — Update 21 December 2016

Thin Film Electronics

Analyst avatar placeholder

Written by

Thin Film Electronics

$63m share issue to fund development into 2018

Private placement

Tech hardware & equipment

21 December 2016

Price

NOK3.78

Market cap

NOK2,817m

NOK8.5791/US$

Net cash ($m) at 30 September 2016

27.1

Shares in issue (816.8m post issue)

745.2m

Warrants in issue

119.5m

Free float

84.9%

Code

THIN

Primary exchange

Oslo

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(7.4)

(6.7)

29.9

Rel (local)

(12.5)

(17.3)

15.8

52-week high/low

NOK5.7

NOK2.4

Business description

Thin Film Electronics commercialises printed electronics and owns key patents for printing rewritable, non-volatile memory and printable NFC circuits. It also licenses technology from others to develop complete printed systems.

Next events

EGM (approximate date)

23 December 2016

Q416 results

24 February 2017

AGM

10 May 2017

Analysts

Anna Bossong

+44 (0)20 3077 5737

Katherine Thompson

+44 (0)20 3077 5730

Thin Film Electronics is a research client of Edison Investment Research Limited

Thin Film Electronics (Thinfilm) has announced a private placement to raise NOK529m ($62.6m) at an issue price of NOK3.91 per share. The funds are to be used to prepare and equip the new roll-to-roll facility in San Jose as well as to cover operating costs in 2017 and 2018. Based on revised model assumptions, we estimate they should be sufficient to bridge all but $21m of Thinfilm’s future cash requirements ahead of it becoming free cash flow generative in 2019. As such, we expect this issue to greatly reduce investor concerns about future funding needs and potential further equity dilution. Adjusting for the increase in the number of shares, we have revised our DCF valuation by 5% from NOK8.58 to NOK8.19 per share.

Year
end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

EV/sales
(x)

EV/EBITDA
(x)

Yield
(%)

12/14

4.5

(24.2)

(4.9)

0.0

74.7

N/A

N/A

12/15

4.4

(28.3)

(5.3)

0.0

79.2

N/A

N/A

12/16e

3.7

(40.3)

(5.9)

0.0

78.8

N/A

N/A

12/17e

10.8

(42.6)

(5.2)

0.0

32.1

N/A

N/A

12/18e

48.3

(30.1)

(3.7)

0.0

8.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. All data pro-forma post private placement.

New share issue supports key strategic objectives...

We have increased our estimate of cash burn in 2018 after revising down the expected speed of build-up to 5bn unit capacity during 2018 and 2019. When added to our pre-issue forecast of year-end cash reserves of $14m, we nevertheless estimate that the $60m equity issue proceeds net of fees should cover 79% (all but $21m) of our revised estimate of Thinfilm’s $94m funding requirements to free cash flow break-even in 2019.

...and should diminish investor dilution concerns

While our revised forecasts indicate the requirement for further funding in 2018, we concur with management’s assessment that it should be possible for Thinfilm to meet further funding needs from strategic partnerships, customer finance and/or exercise of existing warrants in 2018. As such, based on our current expectations we believe this issue significantly diminishes the likelihood that the company will need to make further equity issues.

Valuation: Dilution hit largely offset by lower WACC

With the above-mentioned changes to our forecast cash flows, arising from our more conservative take on the rate of growth of NFC-enabled label capacity in 2018 and 2019, our DCF valuation has fallen to NOK8.19 per share (from NOK8.58) to reflect the dilutive effect of the equity issue and earnings revisions. The impact of this revision and the 19.8% increase in shares is largely offset in our model by a reduction in the WACC from 15.0% to 14.5%. This reflects what we see as the substantial reduction in the perception of funding and future equity dilution risk that should arise from this placement.

The private placement

Thinfilm announced on 2 December that it had raised NOK529m ($62.6m) in gross proceeds through a private placement of 135.2m new shares. The subscription price was set at NOK3.91 per share, representing the closing share price on 1 December 2016. The first tranche of 62.6m new shares was issued on 5 December under the authorisation provided at the 10 May 2016 AGM. The issue of the remaining 71.5m shares is subject to approval by an EGM to be held on 23 December, with the issue expected to take place shortly afterwards if it is approved. Management has estimated issue costs at c NOK22m ($2.6m), resulting in an estimated net cash inflow of NOK507m ($60.0m).

Forecast revision: EPS boost from lower finance costs

Exhibit 1: Change in earnings forecasts

Amounts in $m

2015

2016e new

2016e old

Chg

(% )

2017e new

2017e old

Chg

(% )

2018e new

2018e old

Chg

(% )

2019e new

2019e old

Chg

(% )

Production

NFC OpenSense (m units)

0.0

0.8

0.8

0.0

8.0

8.0

0.0

50

466

(89.3)

500

841

(40.5)

NFC SpeedTap (m units)

0.0

0.3

0.3

0.0

12.0

12.0

0.0

150

550

(72.7)

1,500

1,891

(20.7)

EAS labels (m units)

11.2

2.3

2.3

0.0

15.0

15.0

0.0

346

317

9.1

538

502

7.2

Total OpenSense equivalent (OSE) units, m units)

3.2

1.8

1.8

0.0

27.3

27.3

0.0

32

1,130

(71.6)

2,288

3,012

(24.0)

Average unit price/OSE (c)

68.4

68.6

68.6

0.0

31.3

31.4

(0.3)

14.4

13.8

4.3

12.2

11.9

2.7

Sales Revenue

2.2

1.3

1.3

0.0

8.6

8.6

(0.3)

46.3

156.3

(70.4)

279.0

357.7

(22.0)

Total revenue

4.4

3.7

3.7

0.0

10.8

10.8

(0.2)

48.3

158.4

(69.5)

281.1

359.8

Gross profit

N/A

(1.9)

(1.9)

0.0

1.0

1.0

(0.6)

11.8

48.7

(75.8)

86.1

107.5

(19.9)

Gross profit margin (%)

N/A

neg.

neg.

N/A

8.8

8.8

N/A

24.4

30.7

(20.6)

30.6

29.9

2.5

Payroll

(16.7)

(21.3)

(21.3)

0.0

(23.1)

(23.1)

0.0

(25.1)

(25.1)

0.0

(28.5)

(29.2)

(2.2)

Premises, supplies

(7.6)

(10.4)

(10.4)

0.0

(10.7)

(10.7)

0.0

(3.5)

(7.9)

(55.9)

(7.3)

(8.1)

(10.6)

Total operating costs

(34.7)

(41.4)

(41.4)

0.0

(52.0)

(52.1)

(0.0)

(74.8)

(152.4)

(50.9)

(241.9)

(300.7)

(19.6)

EBITDA

(30.3)

(37.7)

(37.7)

0.0

(41.2)

(41.2)

0.0

(26.5)

6.0

N/A

39.2

59.1

(33.6)

EBITDA margin (%)

neg.

neg.

neg.

N/A

neg.

neg.

N/A

neg.

3.8

N/A

14.0

16.4

N/A

less share-based payments

(1.1)

(1.4)

(1.4)

0.0

(1.6)

(1.6)

0.0

(1.7)

(1.7)

0.0

(1.9)

(2.0)

(2.2)

EBITDA (norm)

(29.2)

(36.3)

(36.3)

0.0

(39.7)

(39.6)

0.0

(24.8)

7.7

N/A

41.1

61.1

(32.6)

D&A

(1.5)

(2.7)

(2.7)

0.0

(3.0)

(3.0)

0.0

(4.8)

(4.8)

0.0

(5.4)

(5.4)

(0.5)

Operating profit

(31.8)

(40.4)

(40.4)

0.0

(44.2)

(44.2)

0.0

(31.3)

1.2

N/A

33.8

53.7

(37.0)

Operating profit (norm)

(30.7)

(39.0)

(39.0)

0.0

(42.7)

(42.7)

0.0

(29.6)

2.9

N/A

35.8

55.6

(35.7)

Finance costs

2.4

(1.2)

(1.2)

0.0

0.1

(1.1)

N/A

(0.5)

(2.3)

(77.8)

(0.5)

(1.2)

(60.9)

Profit before Tax

(29.4)

(41.7)

(41.7)

0.0

(44.2)

(45.3)

(2.5)

(31.8)

(1.1)

2,827.0

33.3

52.4

(36.4)

Profit before Tax (norm)

(28.3)

(40.3)

(40.3)

0.0

(42.6)

(43.7)

(2.6)

(30.1)

0.6

N/A

35.3

54.4

(35.2)

Tax

0.0

(0.3)

(0.3)

0.0

0.0

0.0

N/A

0.0

0.0

N/A

0.0

0.0

N/A

Profit after tax

(29.4)

(42.0)

(42.0)

0.0

(44.2)

(45.3)

(2.5)

(31.8)

(1.1)

2,827.0

33.3

52.4

(36.4)

EPS - (norm) (c)

(5.3)

(5.9)

(6.6)

(9.9)

(5.2)

(6.4)

(18.8)

(3.7)

0.1

N/A

4.3

8.0

(45.9)

EPS - (IFRS) (c)

(5.5)

(6.1)

(6.8)

(9.9)

(5.4)

(6.6)

(18.7)

(3.9)

(0.2)

2,342.2

4.1

7.7

(46.9)

Capex

(4.75)

(6.4)

(6.4)

0.0

(17.0)

(17.0)

0.0

(14.0)

(14.0)

0.0

(2.7)

(3.5)

(22.4)

Cash generation (burn)

(31.4)

(43.6)

(43.6)

0.0

(55.9)

(57.1)

(2.0)

(38.7)

(17.1)

126.7

27.8

51.9

(46.3)

Net cash/(debt)

15.9

74.0

14.1

424.8

18.1

(43.0)

(142.1)

(20.6)

(60.0)

(65.7)

7.2

(8.2)

(188.5)

Source: Thinfilm accounts, Edison Investment Research. Note: Assumes 135.2m share issue raises NOK529m ($62.6m) by YE16.

We have updated our model to incorporate the share issue, which we have assumed is completed by year-end 2016. The key changes arising from this are reduced debt and debt servicing costs over the next three years and the EPS impact of the 19.8% increase in shares in issue.

We have also updated our operating forecasts with a more conservative take on effective production capacity of NFC labels in 2018 and 2019 (see revised assumptions in Exhibit 1). This is after discussions with management that have led us to adopt a less rapid trajectory in attaining targeted year end production yields during the course of each year. This means that while we have continued to assume the attainment of the guided production capacities of NFC enabled labels of 1.9bn units at year end 2018 and 5.0bn units at year end 2019, our estimate of total production attainable within each year, with lower average production yields, has fallen from just over 1.0bn units in 2018 to 200m units and from 2.7bn units in 2019 to 2.0bn units. Following on from end 2019 our production capacity forecasts are unchanged. This means that we continue to assume the attainment of management's targeted capacity of 5.0bn NFC labels at end 2019 based on the achievement of management's targeted levels of production yields at end 2019, and we continue to expect further capacity increases in following years arising from reductions in die sizes and/or debottlenecking. We have also increased the proportion of sales of NFC SpeedTap relative to NFC OpenSense from 2017 to reflect particularly strong recent interest in the NFC SpeedTap over the last six months from high-volume producers/packagers. This reflects its expected lower price and suitability for a wide range of FMCG products, which supports the case for this becoming a very high volume seller for Thinfilm.

In an unrelated exercise, we have also narrowed the price difference between the two products, with a 10% deviation on each side of this figure rather than the previous 20%, but maintain an average price of 13.6c in 2018, as per management guidance. The effect of this shift in sales towards relative lower priced SpeedTap from 2020 has a negative impact on revenues and profits until late in our forecast period when the bulk of SpeedTap production is assumed to be farmed out for sale under licence, leaving only higher-margin NFC SpeedTap using the in-house production facilities.

Valuation

Exhibit 2: Thinfilm DCF valuation summary

$m

2016e

2017e

2018e

2019e

2020e

2021e

2022e

2023e

2024e

2025e

2026e

Revenue by product line

Brand protection

0.0

2.2

3.2

4.5

6.3

6.7

7.1

7.4

9.8

13.0

17.4

Electronic Article Surveillance

0.1

0.6

11.5

17.5

35.6

47.1

46.7

46.0

46.4

46.8

47.2

NFC OpenSense

0.2

1.9

7.5

69.7

143.0

207.9

302.3

439.4

439.4

414.2

386.5

NFC SpeedTap

0.1

2.2

18.4

171.0

373.7

313.5

211.2

100.2

117.3

117.0

163.8

Sensor labels

0.0

0.8

0.9

1.4

4.0

3.8

3.6

3.3

3.2

3.1

3.0

NFC Smart sensor labels

0.0

-

3.9

13.8

45.9

47.8

47.8

80.0

91.2

93.6

95.0

Other

0.8

0.8

0.9

1.2

1.3

1.4

1.6

1.7

1.9

2.2

2.4

Sales revenue

1.3

8.6

46.3

279.0

609.7

628.2

620.2

678.1

709.3

690.0

715.4

Total unit sales own production (m)

3

36

557

2,580

5,897

6,389

6,234

6,249

6,096

6,023

5,944

NFC OpenSense price (c/unit)

27.0

23.6

15.0

13.9

13.0

12.1

11.2

10.5

9.9

9.5

8.9

ASP own production (c/unit)

12.8

15.2

7.6

10.6

10.2

9.4

9.0

9.5

9.3

8.9

8.5

Share units produced in-house (%)

75.8

2.3

19.0

26.5

31.5

32.9

31.7

31.7

23.9

18.8

14.6

Average licence fee/price (%)

12.0

11.1

10.3

9.4

8.6

7.7

6.9

6.0

6.0

6.0

6.0

Production revenue

0.4

5.5

42.1

273.3

600.8

597.6

562.7

592.2

565.0

536.7

504.9

License revenue

0.0

2.2

3.2

4.5

7.6

29.2

55.9

84.2

142.4

151.1

208.0

Other revenue

3.3

3.1

3.0

3.3

3.4

3.6

3.7

3.9

4.1

4.4

4.7

Total revenue

3.7

10.8

48.3

281.1

611.8

630.3

622.4

680.3

711.5

692.2

717.6

Growth (%)

192.6

346.4

481.6

117.7

3.0

(1.3)

9.3

4.6

(2.7)

3.7

Gross margin (%)

N/A

N/A

20.4

29.9

32.7

31.9

31.1

30.8

28.9

28.7

26.5

EBITDA

(37.7)

(41.2)

(26.5)

39.2

139.5

152.9

163.5

195.6

228.1

223.1

252.7

EBITDA Margin (%)

(1,018.3)

(380.8)

(54.8)

14.0

22.8

24.3

26.3

28.8

32.1

32.2

35.2

Depreciation

(2.7)

(3.0)

(4.8)

(5.4)

(4.0)

(4.2)

(4.4)

(4.6)

(4.7)

(4.8)

(4.9)

EBIT

(40.4)

(44.2)

(31.3)

33.8

135.5

148.7

159.1

191.1

223.3

218.3

247.8

Notional tax

0.0

0.0

0.0

0.0

0.0

(37.2)

(39.8)

(47.8)

(55.8)

(54.6)

(62.0)

Tax rate (%)

25.0

25.0

25.0

25.0

25.0

25.0

25.0

25.0

25.0

25.0

25.0

EBITDA after tax

(37.7)

(41.2)

(26.5)

39.2

139.5

115.7

123.7

147.9

172.2

168.5

190.7

Change in working capital

(0.2)

.7

.6

(10.1)

(17.1)

(1.7)

(1.7)

(5.7)

(5.3)

.9

(5.1)

Capex

(6.4)

(17.0)

(14.0)

(2.7)

(6.0)

(6.0)

(5.6)

(5.9)

(5.6)

(5.4)

(5.0)

Capex/revenue (%)

173.7

157.1

29.0

1.0

1.0

.9

.9

.9

.8

.8

.7

Free cashflow

(44.3)

(57.6)

(39.9)

26.4

116.4

108.1

116.4

136.2

161.3

164.0

180.5

Terminal value

1,570

NPV of future cash flows

(44.3)

(50.3)

(30.4)

17.6

67.7

54.9

51.7

52.8

54.6

48.5

452.0

Value of future cash flows

675

WACC

14.5%

Net debt/(cash) pro forma 31/12/15

(118)

Terminal growth rate

3%

Equity value

792

TV as % of total EV

51.2

Per share value (NOK)

8.19

 

US$/NOK

8.4444

Source: Edison Investment Research. Note: FX rate as at 12 December 2016.

We have revised our DCF calculation to take account of the private placing, which has resulted in a 5% reduction in DCF per share from NOK8.58 to NOK8.19. The key contributory changes are:

■

As discussed above, we have reduced our revenue estimates on shifts in product mix, which reduces our average revenues and EBITDA by 4.9% and 1.6%, respectively, between 2020 and 2026, reflecting the positive margin impact of the increase in prices of NFC SpeedTap.

■

A reduction in WACC by 0.5 percentage points to 14.5%. This reflects the much lower funding and equity dilution risk that we believe the market will factor into Thinfilm’s cost of capital as a result of the equity raising.

■

An increased pro forma year-end 2015 net cash balance, from $58m to $118m, to reflect the receipt of the NOK529m ($60.0m) equity issue net of NOK22m ($2.6m) estimated costs.

■

An increase in the number of shares in issue of 135.2m (19.8%), from 681.6m to 816.8m.

■

A 2.5% strengthening in the US dollar vs the Norwegian krone since our last valuation update, which has a positive impact on the Norwegian krone valuation given the calculation of cash flows in dollars.

For full discussion of our DCF assumptions, see our recent note Bringing it all together in 2018, published 21 November 2016.

Potential for inclusion in the OBX Index

We believe that the current increase in shares in issue may have a positive impact on trading volumes on the Oslo Børs in coming years and therefore Thinfilm’s prospects of being included in the Oslo Børs’s tradable OBX Index. This comprises the 25 most highly traded stocks on the Oslo Børs, and is rebalanced every June and December. Inclusion is based purely on trading volumes.

Data for the last six months show Thinfilm ranked 30th in terms of trading on the Oslo Stock Exchange (see Exhibit 2) based on its average daily volume of NOK14.8m. It would have reached the same volume as the lowest volume stock currently included in the index with a 14.9% increase in trading volume.

We would exercise caution on assuming that trading volumes will be boosted sufficiently to bring Thinfilm into the bounds of index eligibility by the next rebalancing in June 2017. Although Thinfilm has not yet released the breakdown of the participants to the private placement, we see the potential for them to be dominated by larger, long-term investors, which would affect the influence of the increased outstanding share balance on trading volumes in the near term.

Exhibit 2: Stocks ranked 11 to 32 in terms of average daily trading volume on Oslo Børs (six months to 5 December 2016) – impact of potential 20% increase in Thinfilm trading volume

Source: Bloomberg. Note: The stocks qualifying for 30 highest volume tally are shown in green. Volumes calculated as volume weighted average daily price (VWAP) multiplied by shares traded. The light grey bar on Thinfilm’s volume bar indicates the effect of a 20% increase in trading volumes. The black line shows the potential change in ranking from such an increase.

Exhibit 4: Financial summary

US$000s

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,479

4,413

3,699

10,824

48,325

EBITDA (norm)

 

 

(23,550)

(29,187)

(36,295)

(39,650)

(24,769)

Operating Profit (norm, before amort. and except.)

 

(24,855)

(30,724)

(39,041)

(42,671)

(29,585)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

(941)

(1,064)

(1,372)

(1,572)

(1,706)

Operating Profit

(25,796)

(31,788)

(40,413)

(44,243)

(31,291)

Net Interest

701

2,406

(1,249)

83

(507)

Profit Before Tax (norm)

 

 

(24,155)

(28,318)

(40,290)

(42,588)

(30,092)

Profit Before Tax (FRS 3)

 

 

(25,096)

(29,382)

(41,662)

(44,160)

(31,798)

Tax

0

0

(303)

0

0

Profit After Tax (norm)

(24,155)

(28,318)

(40,593)

(42,588)

(30,092)

Profit After Tax (FRS 3)

(25,096)

(29,382)

(41,965)

(44,160)

(31,798)

Average Number of Shares Outstanding (m)

493.5

535.4

686.1

816.8

816.8

EPS - normalised (c)

 

 

(4.9)

(5.3)

(5.9)

(5.2)

(3.7)

EPS - (IFRS) (c)

 

 

(5.1)

(5.5)

(6.1)

(5.4)

(3.9)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

7,189

10,390

14,630

28,609

37,793

Intangible Assets

2,319

2,602

2,828

2,828

2,828

Tangible Assets

4,870

7,788

11,802

25,781

34,965

Investments

0

0

0

0

0

Current Assets

 

 

33,870

19,425

77,586

22,336

9,939

Stocks

451

367

799

1,281

297

Debtors

2,565

3,118

2,787

2,966

9,268

Cash

30,854

15,940

74,000

18,089

374

Other

0

0

0

0

0

Current Liabilities

 

 

(4,748)

(5,170)

(5,100)

(6,417)

(33,296)

Creditors

(4,748)

(5,170)

(5,100)

(6,417)

(12,296)

Short term borrowings

0

0

0

0

(21,000)

Long Term Liabilities

 

 

0

0

0

0

0

Long term borrowings

0

0

0

0

0

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

36,311

24,645

87,116

44,528

14,436

CASH FLOW

Operating Cash Flow

 

 

(24,079)

(26,036)

(36,466)

(38,994)

(24,208)

Net Interest

569

146

119

83

(507)

Tax

0

0

(303)

0

0

Capex

(3,217)

(4,751)

(6,426)

(17,000)

(14,000)

Acquisitions/disposals

(2,700)

(799)

(560)

0

0

Financing

16,477

16,527

101,696

0

0

Dividends

0

0

0

0

0

Net Cash Flow

(12,949)

(14,914)

58,060

(55,911)

(38,714)

Opening net debt/(cash)

 

 

(43,803)

(30,854)

(15,940)

(74,000)

(18,089)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(30,854)

(15,940)

(74,000)

(18,089)

20,626

Source: Thinfilm accounts, Edison Investment Research. Note: Assumes issue of 135.2m shares to raise NOK529m ($62.6m) by year end 2016.

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

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New Zealand

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

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Thin Film Electronics 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. 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Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). 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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Medigene — Update 21 December 2016

Medigene

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