Thin Film Electronics — Strong revenue growth outlook in coming quarters

Thin Film Electronics — Strong revenue growth outlook in coming quarters

Thinfilm (THIN) has had a very strong few months in terms of business development. EAS orders are back in volume (backlog: 16m units) and the launch of the CNECT platform has also created momentum in pilots and field trial orders for THIN’s NFC labels. Additionally, after many delays, Thinfilm has launched its first hybrid commercial sensor product, using low-cost R2R technology to print the displays in Sweden. With US R2R plans reported to be on track and on budget, we see good potential for positive newsflow-led impetus for the share price in coming quarters.

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Thin Film Electronics

Strong revenue growth outlook in coming quarters

Q117 results

Tech hardware & equipment

10 May 2017

Price

NOK3.69

Market cap

NOK3,021m

NOK8.631/US$

Net cash ($m) at 31 March 2017

40.1

Shares in issue

818.8m

Free float

93.0%

Code

THIN

Primary exchange

Oslo

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

13.2

3.1

(9.1)

Rel (local)

10.4

1.4

(21.8)

52-week high/low

NOK5.7

NOK3.2

Business description

Thin Film Electronics (Thinfilm) is a global leader in NFC marketing and smart-packaging solutions using printed electronics. It creates printed tags, labels, and systems that include memory, sensors, displays, and wireless communications at low cost points vs conventional electronics.

Next events

Q217 results

18 August 2017

Q317 results

10 November 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

Thinfilm (THIN) has had a very strong few months in terms of business development. EAS orders are back in volume (backlog: 16m units) and the launch of the CNECT platform has also created momentum in pilots and field trial orders for THIN’s NFC labels. Additionally, after many delays, Thinfilm has launched its first hybrid commercial sensor product, using low-cost R2R technology to print the displays in Sweden. With US R2R plans reported to be on track and on budget, we see good potential for positive newsflow-led impetus for the share price in coming quarters.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

EV/sales
(x)

EV/EBITDA
(x)

Yield
(%)

12/15

4.4

(28.3)

(5.3)

0.0

75.7

N/A

N/A

12/16

3.8

(43.0)

(6.6)

0.0

75.1

N/A

N/A

12/17e

10.8

(42.5)

(5.2)

0.0

31.8

N/A

N/A

12/18e

48.3

(29.9)

(3.7)

0.0

7.9

N/A

N/A

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

R2R rollout is on track... and may be accelerated

Management has reported that plant acquisition for the move to roll-to-roll (R2R) printing in the US is on track and on budget ($32m). CEO Davor Sutija has also flagged the potential to accelerate the programme if demand continues to surprise on the upside. In this case we see a likely positive impact on the group DCF valuation as likely higher cash flows from the stronger demand scenario offset higher early capex impact.

First quarter results support full year forecasts

We see the Q1 results as supportive of our full year forecasts. EBITDA and pre-tax losses for the quarter at $11.4m and $11.5m were 29% and 26% of our full year forecast. Stripping out cash absorbed by capex and capex down payments, underlying cash burn was 33% of our full year expectation. Helped by the positive momentum from current pilot and trial orders, management believes that sales of NFC products could double in Q2 and double again in Q3, which may require us to increase forecasts as the year progresses. EAS sales are also expected to continue to rise over the next two quarters from the 5m unit sales in Q1. This reflects THIN’s current 16m unit order backlog and the potential for further order inflows if its EAS tags are qualified for use in denim, as is likely.

Valuation: NOK8.19 DCF valuation still supported

Over the last month, Thinfilm shares have staged a 17% rally after a declining trend since late October. We believe that recent news of new pilot programmes, the coming together of the CNECT platform and the publication of an innovative marketing book – NFC Mobile Marketing for Dummies – may have awakened investors to the potential upside in demand for NFC. Our DCF valuation of NOK8.19 remains unchanged and has been helped by recent weakness in the Norwegian krone. It reflects our positive expectations of the strong pick-up in both output and demand with the launch of R2R printing in San Jose over the next 18 months.

Business update

Thinfilm has had a very strong last few months in terms of business development in its key areas of EAS (Electronic Article Surveillance for anti-theft purposes), NFC and sensor labels. EAS orders have resumed in volume after trailing off in H216 (on need for a new wet inlay layer) and prospects for further growth in coming quarters appear good based on the existing 16m order backlog and the potential for THIN’s EAS tags to qualify for inclusion in denim items with its go-to-market partner. The launch of the CNECT platform for NFC labels has enabled the group to tie its tags into a complete marketing suite, which is attracting significant interest from new brands. Management sees the potential to double and then redouble revenues from NFC tags over each of the next two quarters helped by the momentum already created. Also, after many delays in recent years, Thinfilm has launched its first hybrid commercial sensor product, using R2R technology to cheaply print displays in Sweden. Coming quarters should bring yet further developments in all three areas, with the launch of R2R printing of EAS tags later this year, signalling a new era for the group.

R2R plant on track: Management considering acceleration

Thinfilm management has reported that capital expenditure on the new R2R facility is on track and on budget. CEO Davor Sutija has suggested that the programme may be accelerated if Thinfilm experiences strong order flows from current NFC pilot and field trial orders. No decisions have yet been taken but we understand that this would likely take the form of capex spending being brought forward by a quarter or so. This means that we would expect approximately one-quarter of 2018 capex to fall into the 2017 capex spend. If it does, however, then the total 2018 capex should be reduced by a similar amount. With our forecast of R2R capex at $14m in 2018 this could mean an additional spend of c $3-4m on PPE in 2017 (but then also the same reduction in 2018). Rather than bringing production schedules forward by a similar amount, we understand that management may decide to spend the extra few months on process development work to further improve start-up production yields. This could be expected to have a positive impact on production levels from the launch of NFC production in H218.

EAS: Orders flowing in again, giving rise to a 16m unit backlog

After a hiatus in late 2016 caused by the need to incorporate a wet inlay (glue layer) to its EAS (anti-theft) tags, there was a surge in EAS tag sales in the first quarter of this year. Unit sales increased 10-fold from Q416 to 5m as new orders flowed in from THIN’s go-to-market partner. The order backlog was increased by a further 11m to 16m units in April, which, assuming a unit sales price of 5 cents, should add approximately $0.8m to revenues in coming quarters.

At the same time THIN has reduced costs of EAS tag manufacture by a 500-600 fold increase in batch sizes, led by die (label size) shrinkage. Helped by lower price points there also appears to be good potential for THIN to qualify for denim apparel with the lead customer of its go-to-market partner. At the same time, we understand that this customer has indicated that it will roll out the use of printed electronic tags across its worldwide operations, which brings a further potential boost to order sizes. This comes at a good time, with THIN planning to transfer EAS production to its R2R facility in Q417, with a resulting increase in annual capacity to 1.2bn units, with substantially reduced unit costs.

CNECT platform strengthens the NFC label proposition

Thinfilm launched its CNECT cloud-based NFC marketing platform on 22 February (see our note, Cloud portal launch strengthens NFC proposition, 6 March 2017), but has since announced that it now has four live field trials ongoing with CNECT, covering markets in the US, Europe, China and Canada. The trials consist of Coronado Brewery, a Fortune 500 pharmaceutical company, a medical marijuana dispensary, an Asian cosmetics firm and alcoholic beverage producer Northern Lights Spirits. Preparation for a further six to ten trials are also underway and the company is shortly to launch “IoT Connect in a Box”, which will provide brand managers with a set of different NFC tag types to test different configurations and the abilities of the CNECT platform. With the launch on 28 April of Thinfilm’s book, produced together with publisher John Wiley and Sons, NFC Mobile Marketing for Dummies (see Exhibit 2), the company has created a complete ecosystem for its NFC labels encompassing hardware, tracking, analytics and education.

It is worth noting that the Asian cosmetics company is trialling NFC OpenSense labels for a quite different use case than seen to date. It is looking to monitor assembly of its products in China to ensure that only authentic components that are still fresh are incorporated in its products.

Exhibit 1: Thinfilm Smart Sensor Labels

Exhibit 2: Cover of Thinfilm’s new book NFC Mobile Marketing for Dummies

Source: Thinfilm

Source: Thinfilm

Exhibit 1: Thinfilm Smart Sensor Labels

Source: Thinfilm

Exhibit 2: Cover of Thinfilm’s new book NFC Mobile Marketing for Dummies

Source: Thinfilm

First commercial sales of sensors – using R2R printed displays

Official launch of Thinfilm’s new temperature sensors is set to take place in Q417, but Thinfilm was able to deliver its first commercial shipment of the product to two distributor partners in the first quarter. Emerson (which acquired sensor label specialist PakSense in August 2016) is to market the labels to the perishable foods industry and Temptime will be used to distribute the product to the drug industry.

The company’s hybrid product (see display in Exhibit 1) contains standard silicon chip based electronics for the temperature sensing component, added to a printed electronics display produced-in-house using THIN technology. This enables the company to make the tags thinner and at a lower cost point than standard tags employing silicon chips. In comparison with the cheaper chemical alternatives, the clear display and on switch functionality enable users to quickly determine which stock has been compromised and to store the tags in their off state without regard to the temperature (which would trigger reactions in the chemical labels).

Thinfilm has been able to reduce the cost of producing these displays by printing them in volumes of 10s of millions using pre-existing R2R technology in its Linkoping plant in Sweden. In addition, given the more complex nature of back-end work in the sensor market, the company is very pleased to have partnered with a tier-two back-end operator in China, which has the capacity to assemble high volumes of the product, giving the product a high degree of scalability. Thinfilm expects, at least initially, to sell most of its products via its partners, which are established distributors in the sensor field. Price points are likely to be between those of chemical and electronic labels, ie in the $2-6 range before volume and distributor discounts (each potentially 30-40%).

Thinfilm is likely to add further sensor labels to its range in coming years featuring different combinations of sensors and features aimed at different verticals.

Exhibit 3: Thinfilm Q117 results summary

US$000s

Q117

Q117 change
y-o-y (%)

Q117

% of FY17e

Q117

change
q-o-q (%)

Q116

Q416

2017e

2016

Change
y-o-y (%)

Sales Revenue

677

351.3

7.9

45.4

150

466

8,555

1,460

485.9

Other Operating revenue

319

(42.7)

15.6

(28.7)

557

447

2,050

1,964

4.4

Other Income

120

15.4

54.7

13.9

104

105

219

421

(47.9)

Total revenue

1,115

37.6

10.3

9.6

811

1,018

10,824

3,845

181.5

Payroll

(6,151)

32.3

26.6

13.7

(4,648)

(5,410)

(23,115)

(20,674)

11.8

Premises, supplies

(3,672)

48.1

39.5

(13.9)

(2,479)

(4,263)

(9,288)

(11,970)

(22.4)

Other operating costs

(2,315)

20.8

13.9

(10.3)

(1,916)

(2,581)

(16,694)

(8,327)

100.5

Total operating costs

(12,514)

35.6

24.7

(0.4)

(9,229)

(12,561)

(50,668)

(42,151)

20.2

EBITDA

(11,399)

35.4

28.6

(1.2)

(8,418)

(11,543)

(39,844)

(38,306)

4.0

less Share based payments

(377)

102.7

24.0

22.4

(186)

(308)

(1,572)

(1,180)

33.2

EBITDA (norm)

(11,022)

33.9

28.8

(1.9)

(8,232)

(11,235)

(38,272)

(37,126)

3.1

less Expensed R&D

(3,464)

31.3

21.0

1.4

(2,638)

(3,417)

(16,506)

(15,068)

9.5

EBITDA (norm, excl expensed R&D)

(7,935)

41.8

36.5

1.5

(5,594)

(7,818)

(21,766)

(22,058)

(1.3)

D&A

(900)

63.0

22.0

(20.1)

(552)

(1,126)

(4,087)

(3,176)

28.7

Operating profit

(12,299)

37.1

28.0

(2.9)

(8,970)

(12,669)

(43,931)

(41,482)

5.9

Operating profit (norm)

(11,922)

35.7

28.1

(3.6)

(8,784)

(12,361)

(42,359)

(40,302)

5.1

Net financial items

788

NA

(483.6)

(155.5)

(967)

(1,421)

(163)

(2,731)

(94.0)

Profit Before Tax

(11,510)

15.8

26.1

(18.3)

(9,937)

(14,090)

(44,093)

(44,213)

(0.3)

Profit Before Tax (norm)

(11,133)

14.2

26.2

(19.2)

(9,751)

(13,782)

(42,522)

(43,033)

(1.2)

Tax

(1)

NA

N/A

(105.3)

(299)

19.0

0.0

(282.0)

NA

Profit After Tax

(11,511)

12.5

26.1

(18.2)

(10,236)

(14,070)

(44,093)

(44,495)

(0.9)

Profit After Tax (norm)

(11,511)

14.5

27.1

(16.4)

(10,050)

(13,762)

(42,522)

(43,315)

(1.8)

EPS (norm) ($)

(0.014)

(13.6)

27.1

(23.3)

(0.016)

(0.018)

(0.052)

(0.066)

(20.8)

Earnings per ADR (norm) ($)

(0.141)

(13.6)

27.1

(23.3)

(0.163)

(0.184)

(0.520)

(0.657)

(20.8)

Cash flow from operations

(17,045)

172.6

44.0

65.1

(6,253)

(10,325)

(38,752)

(37,530)

3.3

Purchases of PPE

(4,752)

179.6

28.0

207.7

(1,700)

(1,544)

(17,000)

(4,464)

280.8

Cash flow from investments

(4,866)

174.7

28.4

176.9

(1,771)

(1,757)

(17,163)

(5,262)

234.6

Cash burn (Ops and investments)

(21,911)

173.1

39.2

81.4

(8,024)

(12,082)

(55.915)

(42,792)

31.7

Cash flow from financing activities

24

(99.9)

(8.8)

(100.0)

40,950

59,475

(272)

101,124

(100.3)

Total cash

52,597

7.1

N/A

(29.1)

49,122

74,205

18,018

74,205

(76.9)

Net debt (cash)/equity (%)

(73)

(15.6)

N/A

(17.5)

(87)

(89)

(44)

(89)

(52.3)

Net cash/(debt)

40,061

(18.4)

N/A

(34.7)

49,122

61,355

5,887

61,355

(91.9)

Source: Thinfilm accounts, Edison Investment Research

First quarter 2017 results review

Thinfilm achieved a 38% increase in revenues to $1.1m in Q117, boosted by a revival of sales (over 5m units) of EAS anti-theft tags. Continued focus on process development ahead of the move to R2R printing resulted in an ongoing high level of raw material expenses, resulting in a 48% y-o-y increase in premises and supplies costs. At the same time, additional technical hires in the new US plant resulted in payroll rising 32%. This contributed to a 35% increase in EBITDA losses to $11.4m. FX gains resulted in a positive financial line and enabled net losses to rise only 12% to $11.5m.

Down payments for equipment orders for the new R2R plant absorbed a high $4.1m of working capital, with purchases of plant and equipment an additional $4.7m. Together with operating cash outflows this led to $21.9m outflows from operations and investment, leading to a $21.6m decline in cash balances to $52.6m.

EBITDA and pre-tax losses for the quarter were 29% and 26% of our full year forecast (the latter helped by non-cash FX gains). We see these figures as supportive of our full year estimates based on the company’s and our expectation that revenues from NFC and EAS product sales should increase in coming quarters. The cash burn in the quarter at $21.9m represents a high 39% of our full year expectation of $56.4m. Stripping out the $9.0m of cash absorbed by capex ($4.9m) and capex down-payments ($4.2m) reported in working capital in Q117 gives rise to $12.9m non-capex cash burn, which represents 33% of the full year $38.9m in forecast cash burn stripping out our assumption of $17.0m capex. In coming quarters, we assume that growth in operating revenues will boost operating cash flows from the Q117 level to enable the company to reach our full year expectations. If the mooted acceleration of R2R capex does take place we assume that the company will employ an additional $3-4m in capex this year with a corresponding increase in cash burn, offset by a corresponding reduction in 2018.

Changes in forecast

Apart from minor rounding differences in the 2018 P&L, we have made two changes to our model since our last report, both solely affecting the balance sheet. The first is a $269k reduction in the 2016 cash balance to $74.2m occurring as a result of an input error in our model. This reduction carries forward into our forecasts of cash balances.

The second is an adjustment to our cash balances of the $473k cash raised from share issues and the conversion of subscription rights thus far this year, the latest being the raising of $449k (NOK3.87m) from the exercise of employee subscription rights. This has resulted in the issue of 2.06m shares, to bring the number of shares in issue to 818.8m.

Netting these changes has resulted in a $0.2m increase in our forecast net cash balances at end-2017 to $5.9m and a $0.2m reduction in net debt in 2018 to $32.8m (including finance lease liabilities that are treated as debt of $11.0m).

These changes have not materially altered our per share DCF valuation, which in Norwegian krone terms has been strengthened by the 3.1% depreciation in the krone vs the dollar since our last update.

Exhibit 4: Financial summary

US$000s

2014

2015

2016

2017e

2018e

Year end December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

4,479

4,413

3,845

10,824

48,333

EBITDA (norm)

 

 

(23,550)

(29,187)

(37,126)

(38,272)

(23,362)

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

 

 

(24,855)

(30,724)

(40,302)

(42,359)

(29,244)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

(941)

(1,064)

(1,180)

(1,572)

(1,706)

Operating Profit

(25,796)

(31,788)

(41,482)

(43,931)

(30,950)

Net Interest

701

2,406

(2,731)

(163)

(680)

Profit Before Tax (norm)

 

 

(24,155)

(28,318)

(43,033)

(42,522)

(29,923)

Profit Before Tax (FRS 3)

 

 

(25,096)

(29,382)

(44,213)

(44,093)

(31,630)

Tax

0

0

(282)

0

0

Profit After Tax (norm)

(24,155)

(28,318)

(43,315)

(42,522)

(29,923)

Profit After Tax (FRS 3)

(25,096)

(29,382)

(44,495)

(44,093)

(31,630)

Average Number of Shares Outstanding (m)

493.5

535.4

659.1

817.8

818.8

EPS - normalised (c)

 

 

(4.9)

(5.3)

(6.6)

(5.2)

(3.7)

EPS - (IFRS) (c)

 

 

(5.1)

(5.5)

(6.8)

(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

24,903

36,751

43,804

Intangible Assets

2,319

2,602

3,142

3,142

3,142

Tangible Assets

4,870

7,788

9,155

22,068

30,186

Investments

0

0

12,607

11,542

10,476

Current Assets

 

 

33,870

19,425

79,231

25,124

11,511

Stocks

451

367

1,086

2,843

3,130

Debtors

2,565

3,118

3,940

4,237

7,869

Cash

30,854

15,940

74,205

18,045

513

Other

0

0

0

0

0

Current Liabilities

 

 

(4,748)

(5,170)

(8,058)

(9,632)

(34,882)

Creditors

(4,748)

(5,170)

(7,789)

(9,363)

(12,613)

Short term borrowings

0

0

(269)

(269)

(22,269)

Long Term Liabilities

 

 

0

0

(12,581)

(11,863)

(11,040)

Long term borrowings

0

0

(12,581)

(11,863)

(11,040)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

36,311

24,645

83,495

40,381

9,392

CASH FLOW

Operating Cash Flow

 

 

(24,079)

(26,036)

(37,248)

(38,752)

(24,030)

Net Interest

569

146

88

(163)

(680)

Tax

0

0

(282)

0

0

Capex

(3,217)

(4,751)

(4,806)

(17,000)

(14,000)

Acquisitions/disposals

(2,700)

(799)

(544)

0

0

Financing

16,477

16,527

101,057

473

0

Dividends

0

0

0

0

0

Net Cash Flow

(12,949)

(14,914)

58,265

(55,442)

(38,709)

Opening net debt/(cash)

 

 

(43,803)

(30,854)

(15,940)

(61,355)

(5,913)

Finance leases initiated

0

0

(12,850)

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(30,854)

(15,940)

(61,355)

(5,913)

32,797

Source: Thinfilm accounts, Edison Investment Research

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Copyright 2017 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. 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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 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. 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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Walker Greenbank — Branding strength, manufacturing restored

FY17 was a testing year but management emerges with credit, having restored and improved flood affected fabric printing operations and added another mid-market brand (Clarke & Clarke) to the portfolio. International exposure, acquisition effects and the absence of flood distractions mean that Walker Greenbank is well positioned for good earnings growth. We would expect this momentum to translate to share price performance.

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