The-Edge-Walt-Disney-Sep-2016 - The Edge Consulting Group

The-Edge-Walt-Disney-Sep-2016 - The Edge Consulting Group

September 2016 Company: Walt Disney (DIS) Sector: Media & Entertainment Topic: Spinoff Potential Jim Osman [email protected] Ab Maathur [email protected]

830KB Sizes 0 Downloads 6 Views

September 2016 Company: Walt Disney (DIS) Sector:

Media & Entertainment

Topic:

Spinoff Potential

Jim Osman

[email protected]

Ab Maathur

[email protected]

Contact:

+1 (973) 867 7760

The TV Industry is in the Midst of a Revolutionary Change as Viewership is on a Secular Decline / Walt Disney is Exposed to This Trend Through its Largest Revenue Generating Segment, Media Networks / We State That DIS’s TV Business Model is Under Threat as Subscribers Disconnect & Sports Rights Costs Soar, Despite its Sports Dominance / The Edge Sees Rising Potential for Spinoffs of Its Media Assets (Primarily ESPN) Due to Diverging Trends & Low Synergies With Other Businesses

The Big Picture Long Term



Pay TV is in a Long Term Terminal Decline  Most Media Houses are Witnessing Declining Viewership and Subscribers  This is a Long Term Trend Driven by Disruption of Traditional TV Business Models Due to Changing Technology and

Consumer Preference

Medium Term DIS is Taking Steps to Build an Online Presence



 While, DIS is Trying to Create an Online Streaming Space of ESPN, It’s a Tall Order Due to Sports Rights Cost and Scale Dynamics  The Odds of DIS Successfully Transforming Into an Online Sports Empire Improve Via Potentially Transformative Strategies Such

Short Term Short Term Outlook is More Favorable



 While ESPN and ABC Viewership is Declining, DIS Can Largely Offset That Through Rate Hikes  Theme Park Business is Growing at a Regular Pace and Movie Business Appears Promising

The Current Stage in the US Pay TV vs. Online Streaming

Source: The Edge Research Team, MoffettNathanson

as Spinoff

September 2016

Table of Contents Table of Contents .......................................................................................................................................................... 2 What’s the Story with Walt Disney? ............................................................................................................................... 3 A] Cable/Broadcast TV Business is Losing Signal!....................................................................................................................3 B] Sports Viewers Are Cutting their “Umbilical” Cord with ESPN ...........................................................................................4 1.

Subscribers Are Leaving ESPN… Is it Game Over in a Few Years? ...................................................................................4

2.

ESPN TV Is Becoming Pricey, Falling Affordability Maybe Switching Subscribers Off .....................................................4

3.

Is ESPN (and the industry) Underestimating The Scale of Potential “Cord Cutters”? .....................................................6

C] Ballooning Sports Rights Cost – A Bubble Waiting to Pop? ................................................................................................6 D] The Unbundling Trend Could Unravel ESPN’s Revenue Economics? .................................................................................7 E] And it Doesn’t Stop With ESPN… ABC is Losing Viewership As Well ...................................................................................8 F] The Rise of Online Streaming – The Underdog Challenging the Champion ........................................................................8 G] DIS Trying to Play Catchup in Online; Question is – Will it Work? .....................................................................................9 H] “The Force” is With the Studio! ........................................................................................................................................10 I] Theme-parks are Stable Revenues, But Are Investors “Amused”......................................................................................11 Separating Businesses With Divergent Outlook, Low Synergies is a Good Bet ................................................................ 12 We See the Management As Having the Caliber to Effect Transformative Strategies, Adding to Our Optimism for a Potential Spinoff ......................................................................................................................................................... 12

September 2016

What’s the Story with Walt Disney? DIS has a divergent set of businesses – while theme parks provide stable revenues and movie business is booming, Media faces a secular decline

Walt Disney (DIS) is a play on Television Channels, Movies, and Theme Parks. DIS is in the midst of two opposing forces, positive and negative, as the outlook of the various businesses in its portfolio differs. On one hand, it is benefitting from a boom in its movie business, thanks to a slew of captivating franchises, which can be milked for recurring revenue, as well as in the theme park/resorts business, which provides steady cash flows. On the other hand, its television business is facing a secular long-term decline as the infotainment world moves away from TV to online streaming (on computers/tablets/mobile). DIS is feeling the heat as subscribers have begun to move away from its highly-demanded sports channel – ESPN. We opine that with the divergent trends in play, DIS would do well by separating its businesses, especially those having low synergies. This move will help the company implement growth strategies more effectively by allowing these businesses to scale up on their own, and provide the management the bandwidth necessary to tackle the challenges facing the sports/entertainment TV business model.

A] Cable/Broadcast TV Business is Losing Signal! A 50-year old trend since 1949 of rising television (TV) audience has been broken. According to a research by Nielsen, traditional TV viewing in the US peaked in 2010 and has been in a decline ever since. Another forecaster, Digital TV Research estimates that Cable/Satellite/Telco Pay-TV providers will lose 6 million subscribers in the US and Canada by 2021 after peaking at 112 million in 2012.

DIS is facing unprecedented challenges to its Media business model as subscriber losses continue unabated

“2015 was notable because subscriber losses were recorded for all of the major platforms: cable, satellite and IPTV. Cable has been losing subscribers since 2011. Satellite TV started (losing them) in 2014, and IPTV joined them (in the slide) in 2015.”

-

Simon Murray, Principal Analyst, Digital TV Research

We expect the declining TV subscriptions to be a long-term trend rather than a blip in the screen. Indeed, recent trends suggest that U.S. subscribers are dumping their pay TV packages at an increasing rate – which confirms gloomy long-term forecasts (which can be exceeded). According to estimates by SNL Kagan, 2Q 2016 saw 812,000 customers cancelling their TV subscriptions. On a y-o-y basis, 1.4 million customers cut their cable cord – four times the decline seen in 2014.

“It is a bit of an acceleration and the biggest quarterly loss that we’ve seen... We are seeing a gradual increase in the decline rate”

-

Ian Olgeirson, Analyst, SNL Kagan

US Pay TV Subscriber Growth (YoY) – In the Negative Territory 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 4Q 06

4Q 07

4Q 08

Source: The Edge Research Team, MoffettNathanson

4Q 09

4Q 10

4Q 11

4Q 12

4Q 13

4Q 14

4Q 15

September 2016 B] Sports Viewers Are Cutting their “Umbilical” Cord with ESPN 1. Subscribers Are Leaving ESPN… Is it Game Over in a Few Years? ESPN has lost more than 11 million subscribers in five years up to 2016, according to data by Nielsen Research. These losses have deepened as the network lost nearly 4 million subscribers in the last one year itself. These declines came even as sports, for which ESPN is known, ranks the top-watched format on TV. ESPN has telecast rights for some of the most popular game series including NFL, NBA, MLB, Wimbledon Championships, and U.S. Open Tennis. We extrapolated the current trends into the future to get some sense of how the business will do, and the picture does not look too good. At the present rate of decline, ESPN subscribers could be down from almost 90 million now to below 70 million in the next five years (a conservative estimate, given that the trend appears to be strengthening). ESPN Subscriptions Trends Extrapolation (in millions) 99 95

93

91

90

89

22% subscriber decline in next 5 years

69

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19

Oct-20

Oct-21

Source: The Edge Research Team, Nielsen, Company 10-K; Note: Rounded to nearest million

2. ESPN TV Is Becoming Pricey, Falling Affordability Maybe Switching Subscribers Off While these declines in subscribers may not look like a death blow to ESPN, they certainly put a dent in its outlook if we consider the huge amount of funds that ESPN has to pay for securing content rights to popular games. For instance, ESPN annually has to pay around $1.9 bn for Monday Night NFL and $1.5 bn for NBA. Once the contract expires, the events are re-priced substantially higher (the NBA contract was renewed from $485 m to $1.47 bn, annually, last year), making it critical for ESPN to grow its subscriber base/raise per subscriber revenue. Intensifying competition for sports content from new deep-pocketed entrants such as Fox Sports and other established majors such as CBS and NBC can also push up costs. While DIS has put in place a system to raise annually its carriage per subscriber rates with most of the pay TV service providers; we hold that this is making cable more and more expensive for subscribers, who are likely to flock to more affordable options. These options include a la carte subscription, where viewers pay only for the channels they watch, and online streaming services, which have seen a surge in their popularity lately. Thus, if the current rate of decline continues (or accelerates), DIS could be left staring at margin losses and approaching the break-even point.

September 2016 Affiliate Fee per Subscriber - 2014 ESPN

$6.04

TNT

$1.48

3net

$1.37

NFL Network

$1.22

Disney Channel

$1.21

FOX News USA

$0.99 $0.83

DSPN2

$0.74

TBS

$0.71

Fox Sports 1

$0.68

Source: SNL Kagan, WSJ

Despite charging the highest per subscriber fee, ESPN is raising charges every year to try an offset rising costs and maintain profitability. However, we are of the view that, these charges are increasingly becoming unsustainable for many viewers and could accelerate subscriber declines for ESPN. Indeed, “Cord-cutters” are also sighting cost difference as a key factor for ditching the traditional TV. Consumers find online streaming a more affordable way to access infotainment. A survey conducted by Statista indicates consumer preference and the reason for subscribing to streaming services. 68% of Cord Cutters in a Survey Find Cable Too Expensive - 2014 Cable Too Expensive

68%

Online Paid Services are Cheaper

39%

Can Watch Online for Free

37%

Source: The Edge Research Team, Statista Survey

Lost Revenues: As viewers cut their ESPN subscription, DIS is piling on lost revenues. According to estimates by SNL Kagan, DIS lost $308 m in revenues in FY 2015 (October 3rd, year ending). Lost Carriage Revenues – Cumulative (FY 2014-15) Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 0 -100 -200 -300 -400

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

September 2016 3. Is ESPN (and the industry) Underestimating The Scale of Potential “Cord Cutters”? In June last year, Beta Research conducted a survey of cable subscribers, which suggested that 34% respondents were potential cord cutters. These respondents seemed extremely/very interested in dropping cable TV subscription and instead opting for online streaming services. Another significant finding of the survey was that the subscribers ascribed a value of $1.61 per month to ESPN, which, though was the highest among other networks, was far below the per subscriber fees (more than $7) charged by the network to carriers. Given the rapid rise of alternate platforms like online streaming and the eagerness of viewers to switch to such platforms, the downside risk to ESPN’s subscriber base is growing in our view. The only silver lining is that cord-cutting respondents viewed ESPN as an important channel – which makes a case for DIS to monetize ESPN online. Nevertheless, given the high number of potential viewers that can unsubscribe, it is important to see if ESPN and other sports rights buyers continue shelling out exorbitant money for such content and still maintain current profit margins.

“The big concern is there are no signs that the trends we’ve seen in the last couple of years in terms of the cord-cutting are going to stop anytime soon”

-

Eric Jackson, Venture Capitalist

C] Ballooning Sports Rights Cost – A Bubble Waiting to Pop? True to their belief that live TV programing for key sporting events is a sure way to make money in the long run, TV networks and cable companies have invested heavily in the format. As a result, there has been a huge rush to grab sporting rights, which has pushed multi-year contract values from the million-dollar territory to the billion-dollar territory. These contracts entail huge fixed cost in the form of large payments every year irrespective of how many viewers are actually watching the program. The assumption underlying these multi-year contracts is that viewers will continue consuming content in the same shape and form as they have been in the past. We believe that this is a risky assumption to make, given that viewers are changing their preferences with respect to how they would like to consume content and to rapidly escalating costs that they face as cable companies hike subscription fees every year. The advent of online streaming is proving to be an inflexion point for the TV and entertainment industry. We view the entire sporting value chain to be at risk – as viewers stop paying for ever-increasing cable rates, carrier companies would no longer be able to afford buying broadcast rights from big sports channels such as ESPN, which in turn would put pressure on per subscriber affiliate fee of ESPN, a double whammy for the company as its subscriber base is shrinking. This would affect sport organizers such as NFL’s ability to hike fees, something they have been doing over the past decades, thereby impacting sport team revenues and player salaries. In this scenario, we see DIS especially vulnerable. Having paid for exclusive sporting content for years ahead, and a large exposure to the sporting business, ESPN’s TV business model could come under threat.

“The trajectory of programing costs has to change, and the driver of programing cost inflation is sports…Everybody in this business knows what the problem is, and most of them are even willing to acknowledge it. Diagnosis is not the problem. But nobody has figured out the cure”

-

Craig Moffett, Moffett Research

September 2016 D] The Unbundling Trend Could Unravel ESPN’s Revenue Economics? The status quo arrangement between ESPN, cable companies and subscribers works in favor of the former. ESPN gets to keep the per subscriber revenue rate it charges the cable companies, irrespective of whether viewers are actually watching their programs. When cable companies sell their services to subscribers, they bundle channels such as ESPN into packages with many other channels. This has a multiplicative effect on ESPN’s revenue since it leverages the entire subscriber base of cable companies, and not just ESPN viewers. Welcome to the world of A-la-Carte entertainment: DIS would do well with the status quo; but the status quo is changing. With growing awareness and options available to them, users are gradually unsubscribing bundled services as they realize they need to pay only for the content they actually use, in order to lower their infotainment cost. We expect the unbundling trend to gain traction. Major players such as HBO has already launched over the top (OTP) stand-alone subscription. Viacom has also announced that it would offer Nickelodeon as a stand-alone streaming service, a move likely to be followed by other competitors.

“The average household watches only 16 of the more than 100 channels available to them” - Nielsen Can ESPN stand on its own as unbundling gathers momentum? With ESPN reportedly charging $7.2 per month (and growing) to cable operators, it is already more than five times expensive than the second in line sports content provider – Fox Sports, and is the most expensive channel across all categories. While it is currently leveraging the entire cable user base to generate a high affiliate revenue, it is important to see if the company will be able to command that kind of pricing on a standalone basis. BTIG Research conducted a survey to find out that. As per the survey, if given an option, 56% respondents would like to disconnect ESPN to lower their monthly cable bill. Moreover, the survey highlighted that while most consumers were willing to have ESPN removed at current billing rates, they were even more willing (85%) to opt out of a stand-alone (over the top) ESPN subscription, which would naturally be priced higher due to lower economies of scale. Willingness to Remove ESPN to Save Cost

Consumer Demand for an OTP ESPN @ $20 pm

Unwilling to Pay

Remove, 56%

Retain, 44%

Unsure

Ready to Pay

85%

9%

6%

Source: The Edge Research Team, BTIG Research

“We believe ESPN is in serious trouble…They spent far too heavily on long-term rights contracts, given the deteriorating state of the multichannel video bundle and accelerating shift of TV ad dollars to mobile”

-

Richard Greenfield, BTIG Research

September 2016 E] And it Doesn’t Stop with ESPN… ABC is Losing Viewership as Well DIS acquired ABC, Inc. in a high-profile deal for a hefty $19 bn in 1996. The ABC channels in its portfolio are known for their drama series, news and some sports. However, the channels have been facing challenging times. Their viewership decline started even before ESPN’s. According to Statista, ABC TV viewership (measured as within the last seven days of each season) peaked in 2008 and has been on a secular decline ever since. ABC TV Viewers (million) – Last 7 days of Season Trend 157.6 157.3 155.2 152.6

152.8

153.5

153.1

151.4

152.2 150.8 149.1 147.2

148.6

149.2

149.6

Spring 08Autum 08Spring 09Autum 09Spring 10Autum 10Spring 11Autum 11Spring 12Autum 12Spring 13Autum 13Spring 14 Spring 14 Spring 15

Besides the long-term decline, recent trends suggest that the situation may not improve for ABC. More recently, ABC’s ratings took a hit, and the company fared the worst among the “big four” entertainment networks (CBS, NBC, FOX, and ABC). Falling ratings have huge implications for ABC as it depends on ad revenue to sustain operations. Over the previous season, ACB faced a 15% decline in the prime-time viewing slot, among the 18-49 year age group (most coveted by advertisers). Prime-time Ratings Decline for Big 4 (%) – ABC Fares Worst CBS FOX -1%

NBC

ABC

-2%

-11% -15%

Source: The Edge Research Team, Nielsen/Bloomberg; Note: Season Ending May 2016

Ratings of earlier hit series such as “Grey’s Anatomy”, “Scandal”, and “Murder” were down 4%, 13% and 22%, respectively. New series such as “The Catch” and “The Family” have not found favor with viewers, while “Of Kings and Prophets” was taken off air. Media observers have cited lack of creativity and diversity with ABC’s drama programming. These negative developments have led DIS elevating Channing Dungey, a senior executive at ABC, to leadership position in the entertainment department, and it remains to be seen if she can turn things around for ABC.

F] The Rise of Online Streaming – The Underdog Challenging the Champion There are a host of factors that are driving subscribers away from ESPN, and the television, in general. The most prominent of them is the changing technology landscape in the infotainment business. With advancements in chip, memory and 4G/Broadband technology; smartphones/tablets are becoming

September 2016 more and more powerful devices, capable of handling high data density applications. Furthermore, there is changing customer preference regarding the medium over which they would like to consume entertainment. Millennials, who are expected to surpass the baby boomers for the first time this year, do not prefer passive linear video programing – TV. While viewers are ditching their TVs, they are turning to online video service providers such as Netflix, YouTube, Amazon Prime and Hulu, which provide them the kind of entertainment they want as per their choice and not as part of a scheduled programing. Netflix Streaming Subscribers (in millions) – Surging to New Heights 81.5

83.2

74.8

22.9

3Q 11

23.5

26.5

1Q 12

27.6

29.4

3Q 12

33.3

36.3

1Q 13

37.6

40.3

3Q 13

44.4

48.4

1Q 14

50.1

53.1

3Q 14

57.4

62.3

1Q 15

65.6

69.2

3Q 15

1Q 16

Source: The Edge Research Team, Statista

G] DIS Trying to Play Catchup in Online; The Question is – Will it Work? With its TV business faltering and facing an uncertain future, DIS is making efforts to grow in the online streaming space. It recently acquired a 33% stake in BAMTech for $1 bn. BAMTech is a JV formed by Baseball Advanced Media, National Hockey League, and DIS. The JV is expected to start services by the end of current year. BAMTech will live-stream multi-sport to subscribers including regional, national, and international sports. This acquisition gives DIS a platform to monetize its Disney content such as classic movies, Disney TV networks and ABC’s family of networks. It also provides DIS a technology infrastructure that can be scaled up. However, we note that this deal does not allow DIS to live-stream ESPN’s current linear TV programing. DIS is also operating WatchESPN, a streaming video service for its core sports programing, which is available only to paying cable/satellite TV subscribers. Pitching for Twitter: Walt Disney is in the fray, alongside Alphabet (Google parent) and Salesfore.com, to acquire the social media platform Twitter (MCap: $16bn). Twitter is considering the sale amid the long-standing trouble in growing and monetizing its user base. The fact that Twitter CEO, Jack Dorsey, serves on the board of DIS will be advantageous for the company. As the cord-cutting trend gains momentum, DIS needs to find its footing in the growing online distribution world, and with a platform like Twitter it can position itself well to sell infotainment and sports. However, we are yet to see how a potential acquisition of Twitter will fit DIS’s strategy in terms of monetizing that platform. Moreover, with deep-pocket giants – Google and Salesforce – in the fray, a potential Twitter acquisition could be a costly slugfest.

September 2016 We note that DIS CEO Bob Iger expects ESPN to eventually shift completely to online if multi-channel bundles lose appeal. However, we do not know how ESPN can achieve this given that a pure-play ESPN subscription would have to be much higher than a bundled-channel subscription. According to MofettNatanson’s research, such a subscription would come at a whopping $36.3 per month for ESPN online streaming subscribers – way higher than just $1.45 value ascribed to the channel by participants in a Beta Research survey.

H] “The Force” is With the Studio! We particularly like DIS’s studio business due to the strong moat around it. Disney has a treasure trove of movie franchises that can provide substantial cash flows on a regular basis. The blockbuster franchises include Lucasfilm, Marvel, Pixar, and Disney Animation. DIS’s purchase of Lucasfilms, which owned the Star Wars franchise, is not only a long term bet on making money off the hit movie series, but also billions in revenues on merchandize sales such as toys and books. Other revenues streams include DVD sales and paid streaming of movies.

“For just toys, just through the end of this year, $150 million in royalties to Disney is a massive number…This is a beast. I can’t wait to see where else it will go.”

-

Marc Mostman, Partner, Striker Entertainment

Box Office Performance – Recent Worldwide Collections $m 1,153

122

174

Pete's Dragon

The BFG

966

970

Jungle Book

Finding Dory

299

Alice Through Looking Glass

Captain America: Civil War

Source: The Edge Research Team, Box Office Mojo

Another set of blockbuster franchises are owned by Marvel – which after DIS’s acquisition is its fully owned subsidiary. Marvel’s strength lies in its army of likable characters which it is successfully able to monetize. Marvel has a list of long-living movie franchise that has had great success in recent years. Marvel’s Hit Movie Franchises Iron Man

The Avengers

Spiderman

X-Men

Hulk

Ghost Riders

Deadpool

Blade

September 2016 I] Theme-parks Offer Stable Revenue Growth, But Are Investors Game? DIS is a renowned theme park operator. According to Aecom and Bloomberg, DIS has a dominant market share of 55% in the theme park business, attracting 138 million visitors annually, on average. By 2015, it operated five parks including the flagship park – Walt Disney World in Orlando, Florida. Its U.S. theme parks are witnessing rising footfalls as well as average spending per person. DIS is expanding internationally; it opened its first theme park in China, at a cost of $5.5 bn, in Shanghai, China, to benefit from the huge middle class and the growing tourism business of the country. We like DIS’s theme parks business due to stable growth in its revenue and operating margin. We also note that DIS benefits from synergies between its many franchise characters and its theme park business, which helps it attract more crowd. For instance, the company is building Star Wars attractions in its Florida and California parks. Theme Park Financial Performance – Revenues ($m) and Operating Margin (%) 17,000 15,099 14,087 15,000 17.6% 13,000 15.8% 11,000

20%

16,162 18.8%

18% 16% 14%

9,000

12%

7,000 5,000

10% 2013

2014

2015

Source: The Edge Research Team, DIS Filings

While DIS’s theme parks generate strong, stable revenue and the movie business is gaining traction, investors are cautious on the company as it struggles amid declining ESPN subscribers and ABC viewership, and the uncertainty about the media business’ future. As a result, the stock is down 13% this year, even as overall revenue grew and margins improved. This contrasts with a 5% rise in the broader market S&P 500 Index. DIS Stock Price Vs S&P 500 (Rebased to DIS) – YTD Performance 125 120

S&P 500: 2,170

115 110 105

DIS underperformed the market by 23%

100 95 90

DIS: 92.7

85 80 Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16 DIS

Source: The Edge Research Team, Bloomberg

Mar-16

Apr-16

S&P 500 Rebased

May-16

Jun-16

Jul-16

Aug-16

September 2016 Separating Businesses with Divergent Outlook, Low Synergies is a Good Bet We believe that DIS is not trading at a deservedly higher multiple, due to a conglomerate discount resulting from different market exposures and growth outlook offered by its varied businesses. Compared to its peers, DIS has a superior growth and margin profile, which should attract, in our view, a premium to the average multiples. For investors to assign a better valuation to the stock, we believe, DIS needs to take transformative steps with respect to its corporate and operational structure. DIS can improve its valuation by separating its media business from the rest as they lack sufficient synergies and have vastly different outlook and business model challenges. To achieve this, it can rely on its capable management, which has a vision and taken some steps to grow the company, in particular the movie business. However, to effectively deal with significant changes facing the media business, which calls for a business model change, we believe that the company would require to dedicate significant management time and resources.

We See the Management as Having the Caliber to Effect Transformative Strategies, Adding to Our Optimism for A Potential Spinoff Bob Iger – Strategic Thinker: Disney CEO Bob Iger, with its smart strategic thinking and calculated steps, has essentially built the movie business. He made a $7.4 bn acquisition of the animation studio Pixar in 2006, just months after he became CEO, to pull DIS out of a mediocre space. This was followed by a deal to buy Marvel Entertainment for $4 bn in 2009. He has successfully used Disney’s moviebased themes in its parks – a good cross-selling strategy – to bolster other businesses. In June the company opened Carsland, a ride based on the popular Pixar film, which restored the Disney California Adventure Park in Anaheim.

September 2016 Disclaimer The Edge® and The Edge Logo are Registered Trademarks of The Edge Consulting Group (The Edge C Group Ltd.). This report is based on information available to the public; no representation is made with regard to its accuracy or completeness. This document is neither an offer nor a solicitation to buy or sell securities. All expressions of opinion reflect judgment at this date and are subject to change. The Edge and others associated with it may have positions in securities of companies mentioned. Reproduction of this report is strictly prohibited. If by email: this e-mail contains confidential information and is intended only for the individual named. If you are not the named addressee you should not disseminate, distribute or copy this e-mail. Please notify the sender immediately by e-mail if you have received this e-mail by mistake and delete this e-mail from your system. E-mail transmissions cannot be guaranteed to be secured or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this message which arise as a result of e-mail transmission. © 2016, The Edge. The Edge C Group Ltd. is registered in England and Wales (6775372) and is authorized and regulated by the United Kingdom Financial Conduct Authority (FCA): 535037. VAT number: 947716386. Contact details and other information The Edge Website:

www.edgecgroup.com

Email Enquiries for The Edge:

[email protected]