London Stock Exchange

A Discussion on Equity Primary Markets

September 2014

2

1) Introduction to the London Stock Exchange Markets

3

London Stock Exchange Group:

A leading diversified international Exchange Group

Source: www.lseg.com

Primary Markets Trading POST TRADE SERVICES

INFORMATION SERVICES

TECHNOLOGY

CAPITAL MARKETS

Main Market

AIM

Professional Securities Market

Specialist Fund Market

MTA

AIM Italia

MIV

LCH Clearnet

FTSE Indices

Proquote Information Terminals

Real Time Data UnaVista Transaction reporting

and reconciliations

RNS Historical &

Reference Data

Hosting and Connectivity MillenniumIT Capital Markets Technology & Services

Gatelab Front Office trading Solutions

CC&G

Monte Titoli

Start - Up Early Stage Expansion Consolidation &

further capital raising

Diversification of investors, M&A

and International Expansion

EU Regulated

Concept &

seed stage

Fu

nd

ing

re

qu

ire

me

nt

£500k

£1m

£100k

£50k

£150m

£1bn

Not public Exchange regulated Market

designation

Strategic consideration

Official List & EU Regulated

Routes to market available for all

sizes, strategies and development stages

4

5

Choice for companies and investors

EU

Regulated

markets

Exchange

Regulated

markets

Securities admitted

to official list (maintained by UKLA)

Securities not admitted

to official list (maintained by UKLA)

The route to market a

company choses will depend

on a number of factors

including:

• Stage in a company’s

development

• Complexity of the offer

and securities issued

• Target investors

• Company’s size

• Company's strategy and

objectives

Main Market

6

Main Market – Regulated by the UKLA

Admission The London Stock Exchange is responsible for admitting securities to trading

Listing Securities become officially listed on the Main Market of the London Stock Exchange

Regulation The UK Listing Authority (UKLA) is responsible for admitting securities to the Official

List

7

AIM - Unique Regulatory Framework

Nominated Advisers (NOMADs) – key roles: Assess suitability of a company

Pre-vet the admission documents

Advise companies on the AIM Rules

AIM Companies

AIM Regulation team Regulate the Nomads and keep a close oversight of their operations

8

Access to deepest pool of international capital in the world

Proven level of sustained liquidity

Access to incremental sell-side research coverage

An exit route for earlier stage investors

Ability to incentivise key employees’ commitment

Significantly enhance profile & visibility, particularly with customers & suppliers

Currency to fund business acquisitions & expand into new markets

Why list on LSE?

9

LSE Listing: access to global community

Source: London Stock Exchange statistics. Based on country of primary business.

60 +

40-59

20-39

1-19

Number of companies 2014

Our issuers operate in more than 115 different

countries across the world

10 Source: Bloomberg

* “International” classification relies on company’s Country of Domicile

London is the home of international companies

More international companies choose London for the listing home than any other

exchange. Close to 40% of all international companies are listed in London.

Thanks to tried and tested market expertise, developed financing infrastructure and

internationally minded investors community, London is the home of international

companies.

2075 2035

2540

1336

2978

582

1895 1662

635 332

292

124

119

118

70

29

0

500

1000

1500

2000

2500

3000

3500

LSEG NYSE NASDAQ Euronext TMX DB ASX HKSE

# o

f C

om

pa

nie

s*

Domestic International

International companies on major exchanges

LSEG 44%

Euronext 1%

NYSE 45%

NASDAQ 6%

ASX 1%

HKSE 1%

TMX 1%

DB 1%

LSEG 37%

Euronext 7%

NYSE 19%

NASDAQ 17%

ASX 4%

HKSE 2%

TMX 7%

DB 7%

By M

ark

et

Cap

B

y #

of

Co

mp

an

ies

11

Our APAC credentials – facts and figures

Sector No. of cos

Mining 30

Equity Investment Instruments 19

Financial Services 13

Oil & Gas Producers 12

Technology Hardware & Equipment 9

Electronic & Electrical Equipment 9

Food Producers 9

Industrial Transportation 9

Software & Computer Services 8

Support Services 7

Source: London Stock Exchange statistics. Based on country of primary business.

No. of companies by country Top 10 sectors by no. of companies

Main market AIM

No. of companies 89 115

Total market cap (£bn) 856.9 7.6

APAC listings on London Stock Exchange

China

Australia

Taiwan Japan

Malaysia

South Korea

Hong Kong

Singapore

Indonesia

Vietnam

Other

12

35%

10% 9%

4% 3% 3% 5%

2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

LSEG NYSE NASDAQ Euronext ASX HKSE TMX DB

% =

# o

f A

na

lysts

Co

veri

ng

In

t'l

Co

mp

an

ies/ T

ota

l # o

f A

na

lyst

# o

f A

na

lysts

Co

veri

ng

In

tern

ati

on

al

Co

mp

an

ies

Total # of Analysts Covering Int'l Companies % of Overall Analysts Covering Int'l Companies

Source: Bloomberg,

*excluding investment funds and smaller corporates

Superior analyst coverage

Analysts raise profile for listed companies which they cover

Analyst reports deepen issuers’ liquidity

potential

London listed companies have higher analyst coverage compared to peers

Average of analyst

recommendations per

London listed int’l

company

11.4

11.4

9.8 9.3

8.2 8.1 8.0

4.8 4.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

LSEG TMX Euronext NASDAQ HKSE NYSE ASX DB

Avera

ge

of

An

aly

sts

R

eco

mm

en

da

tio

ns

- In

t'l

co

mp

an

ies*

13

Money

raised (IPO)

(USDm)

Q2

2013

Q2

2014

%

change

Main Market 2,939 12,656 331%

AIM 306 951 210%

Total 3,246 13,607 319%

Follow on

issues

(USDm)

Q2

2013

Q2

2014

%

change

Main Market 7,465 10,138 36%

AIM 1,034 1,774 72%

Total 8,499 11,912 40%

Number of

IPOs

Q2

2013

Q2

2014

%

change

Main Market 8 29 263%

AIM 15 24 60%

Total 23 53 130%

Source: Bloomberg and Dealogic

Sustained growth in London's IPO activity

Further issues on the London Stock Exchange New issues on the London Stock Exchange

0

5

10

15

20

25

30

35

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014

VF

TS

E Index

Deal valu

e (

US

D b

n)

New Issues VFTSE

0

5

10

15

20

25

30

35

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014

VF

TS

E Index

Deal valu

e (

US

D b

n)

Further Issues VFTSE

14

The leading cross-border listings venue

Source: Dealogic – 2014 data from January to end of June

“Non-domestic” is defined as an IPO where the issuer nationality differs from the nationality of the exchange

LSEG has consistently attracted

international issuers to list on our

markets

75 ‘non-domestic’ issuers listing since

2011, representing an average of 35% of

all cross border listings in the period.

2012 2013 2014YTD

LSEG 28 28 19

Others 23 35 27

8,637

5,144

3,062

809

655

546

1,545

5,891

1,165

2,917

1,958

327

1,121

475

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2014YTD

Mo

ne

y R

iau

se

d a

t IP

O (

US

Dm

)

LSEG HKSE Nasdaq NYSE SGX TMX

# of Cross-Border Listings by Year

15

Connecting investors around the world

Asia Pacific • State Administration of Foreign

Exchange (China)

• GIC

• BNY Mellon Hong Kong

• Blackrock Japan

• Mitsubishi UFJ Trust

• Sumitomo Mitsui

• Aberdeen Asset Management

Asia

• Hang Seng Investment

Europe • Blackrock

• Legal & General

• Scottish Widows

• Invesco

• M&G

• Standard Life

• AXA

• Societe Generale

• Alecta Pension

• DWS Investment

• Swedbank Robur

• Allianz Global Investors

• BNP Paribas

• Union Investment

Privatfonds GMBH

• Norges Bank

Americas • Capital Research

• Vanguard

• SSgA Funds

• Fidelity

• Blackrock

• Thornburg Investment

• Artisan Partners

• Alliance Bernstein

• T. Rowe Price

• Caisse de dépôt et

placement du Québec

• Itau Unibanco Brazil

Africa and Middle East

• QIA

• P.I.C South Africa

• Kuwait Investment Authority

• Investec

• ABC Islamic Bank

• Abu Dhabi Investment Authority

-11

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

London trading hours

Selected major Institutional investors in London listed equities

GMT

Source: Factset

16

UK 4%

EMEA (ex-UK) 7%

North America

83%

Asia Pacific 6% UK

43%

EMEA (ex-UK) 16%

North America

28%

Asia Pacific 11%

Lat America 2%

China 33%

Asia Pacific (ex-China)

55%

North America

5%

EMEA 5% Lat

America 2%

Source: Facset and LSE calculation

Domicile of investors in listed securities (as at Q2 2014)

London

New

York

• London is the key global equity financial centre, with more international assets under management than any other global financial centre

• Companies listing in London are able to access overseas investors thorough widely used and well understood capital raising routes.

• Apart from the large investor community in London, companies raising capital can also access diverse investor across the globe base,

including sovereign wealth funds, global institutional funds, tracker funds, specialist sectorial and geographic funds etc.

The heart of the global investment community

Total Equity Assets Under

Managements (USD)

3.2 trillion 1.9 trillion International equity

AUM (USD)

Total equity AUM (USD)

4.9 trillion 1 trillion

Int’l equity EUM (USD)

Hong

Kong

232 billion 186 billion

Total equity AUM (USD) Int’l equity EUM (USD)

17

Leading the way in international equity

Equity AUM held in international portfolios, by exchange *

Source: Facset and LSE calculation

*international portfolios defined as investment in companies different to the country of domicile of the portfolio manager

4%

13%

8%

-0.1% 7%

6% 4% 11%

38% 10%

0

200

400

600

800

1,000

1,200

1,400

LSE NYSE NASDAQ HKSE EN Paris ASX ENAmsterdam

Bovespa TSX SGX

US

Db

n (

% c

ha

ng

e t

o Q

2 2

014)

• London investors have increased their exposure to international equity in four consecutive quarters. This

quarter increase 4% is at par with the previous quarter.

• London listed companies continue to enjoy support of investors based outside London. North American

investors still account for a close to a third of investors and European investors (ex UK) continue their

commitment to LSE listed companies, increasing their exposure in two consecutive quarters to 17%. LatAm

and Asian investors are unchanged at 11% and 2%, respectively.

Largest institutions investing in LSE

listed stock

EAUM in

London

(USDbn)

BlackRock Investment Management

(UK) 145

Legal & General Investment

Management 106

Norges Bank Investment Management 70

Scottish Widows Investment

Partnership 54

Invesco Asset Management 50

Standard Life Investments 49

M&G Investment Management . 48

The Vanguard Group 47

Schroder Investment Management 43

Capital Research & Management

(World Investors) 41

AXA Investment Managers UK 39

State Street Global Advisors 39

Aberdeen Asset Managers 34

Capital Research & Management

(Global Investors) 33

State Administration of Foreign

Exchange (Invt Mgmt) 31

JPMorgan Asset Management (UK) 29

Threadneedle Asset Management 29

18

Basic Materials 10%

Consumer Goods 17%

Consumer Services 9%

Financials 22%

Health Care 9%

Industrials 7%

Oil & Gas 16%

Technology 1%

Telecom 5%

Utilities 4%

Basic Materials

6% Consumer Goods

6%

Consumer Services 19%

Financials 33%

Health Care 3%

Industrials 20%

Oil & Gas 5%

Technology 3%

Telecom 3%

Utilities 2%

London peer – diversity across sectors

ICB Industry classification by market capitalisation in USD. Source: Bloomberg, August 2014

FTSE 100 FTSE 250

Access to the FTSE indices

• FTSE UK series is one of the world’s most widely tracked family of indices

• FTSE UK Series is the only flagship index series of any major exchange to admit international companies

• Premium Listing on the London Stock Exchange enables issuers to get access to tracker funds

FTSE UK Index Series

FTSE All share Index FTSE All-small Index

FTSE 100

FTSE 250

FTSE 350

FTSE All

Sector Index

FTSE Small

Cap Index

Passive and active funds in London

0%

20%

40%

60%

80%

100%

Active Passive

Source: Investment Management Association’s 10th Asset Management Survey

19

20

Strong Market Performance And Liquidity Has

Allowed Significant Further Sponsor Monetisation

Date Company name Sector Private Equity

Sponsor

% of

company

sold

Block size

(£m)

Block size

(x ADTV)

% discount

to previous

close

% stake remaining

with sponsors

14-Aug-13 Countrywide Real Estate Alchemy, Oaktree, Apollo Oaktree: 9.3%

Apollo: 6.7% 199.5 212.2x 4.5%

Alchemy: 5.9%

Oaktree: 27.6%

Apollo: 10.9%

26-Sep-13 HellermannTyton

Group

Electronic & Electrical

Equipment Doughty Hanson 20.9% 119.3 72.3x 6.4% 21.6%

27-Sep-13 Countrywide Real Estate Alchemy, Oaktree, Apollo Alchemy: 5.9% 67.7 128.6x 3.6%

Alchemy: 0.00%

Oaktree: 27.6%

Apollo: 10.9%

12-Nov-13 Countrywide Real Estate Oaktree, Apollo Apollo: 10.22% 115.5 219.8x 4.3% Oaktree: 27.6%

Apollo: 0.00%

20-Mar-14 HellermannTyton

Group

Electronic & Electrical

Equipment Doughty Hanson 21.6% 143.0 76.5x 5.6% 0%

20-Mar-14 Arrow Global Financials RBS Asset Management 23.9% 95.9 86.4x 2.1% 0%

08-Apr 14 Stock Spirits Group Beverages Oaktree 36.8% 202.6 222.2x 10.6% 0%

01-May-14 Foxtons Real Estate BC Partners 7.8% 68.6 126.0x 2.0% 14.5%

13-Jun-14 Merlin Entertainments Leisure & Recreation Blackstone, CVC 9.9% 366.0 167.0x 0.2% 0%

Source: Bloomberg, Dealogic, June 2014

*ADTV calculated over previous 20 trading days

• Strong performance of PE-backed IPOs in the secondary market has allowed PE firms to

sell down further tranches through accelerated transactions

• Investor demand has allowed placings of a significant number of days’ volume at

relatively tight discounts to market

21

Prepare Ahead

Early Look

Investor

Engagement

In an increasingly crowded primary market calendar, early preparation is critical

Very hard to accelerate an IPO process, so early preparation enhances ultimate timing flexibility

As activity has increased, pressures / bottlenecks likely to increase within advisory community – choosing the right advisers therefore

increasingly important

Buyside fund managers have been vocal in the past about wanting to meet management teams ahead of an IPO

This practice of “early look” engagement with a number of the key investors has been very valuable:

Feedback for the Company and owners at an early stage on the business model, the management team and likely valuation

parameters

Investors get an opportunity to build a rapport with management at this early stage, enhancing their likely participation at the IPO

Information at this stage can be carefully managed, such that management teams are not held to specific forecasts later at the time of the

IPO

Demand

Patterns have

Shifted

In many of the UK IPOs in 2013-14, participation from US investors (who are significantly underweight Europe still) has typically totalled

30-50% of gross demand; while this has tailed off a little in recent weeks, fund flows from the US into Europe still constructive

Appetite from retail both directly and through intermediaries has been strong and merits real consideration, especially for consumer-

oriented businesses

Important to consider complementary distribution platforms in IPO syndicates to tap all of these pockets

IPO Calendar

Busier

Increased market volatility and some weak early trading has created headwinds for some of the recent IPOs (e.g. FatFace postponing)

However, pipeline remains busy – expect a significant flurry of transactions announced in early September

With this sharp increase in supply, investors will look to be increasingly selective

In this environment, differentiation of equity story has become even more important

Demand still good for the right stories at the right valuation – across a wide variety of sectors

Seeing structures to de-risk IPO execution (shortening timetables, anchor / cornerstone orders etc.)

Observation Comment

Lessons Learned from Recent IPOs

22

2) Overview of IPO Process and Preparation

23

IPO Process Overview

Company preparation

IPO Process Preparation of the listing

Preliminary Valuation

Analyst Presentation

Investor Education

Management Roadshow,

Bookbuilding Aftermarket

Pre-IPO Preparation Preparation of the offering IPO Execution Phase

IPO Readiness

Define business

plan and strategy

Financials/

accounting/

disclosure

Capital structure/

dividend policy

Corporate structure/

governance

Management

incentivisation

Internal controls/

systems

Appoint advisers /

kick-off meeting

Develop equity story

Offer structure:

• Type & size

• Timing

• Listing

location/ target

investors

• Syndicate

structure

• Options/ESOP

Initial assessment of

demand

Due diligence

Prepare offering

prospectus and other

legal documents

Financial statements

prepared for

inclusion in

prospectus

Finalise business

plan / strategy /

equity story

Finalise offer

structure

Develop marketing

strategy

Preliminary valuation

Set initial valuation

range

Shareholders’ and

management’s views

on price, size,

structure

Analysts’ meeting/

presentation

Analysts draft

research reports

Factual accuracy

review

Publication of

research

Signals public

“launch” of IPO

Investor targeting and

education

Sound out key

investors – feedback

re: issues/concerns +

initial valuation

thoughts

Monitor market

Analyse feedback

Refine offer size,

valuation

Publish preliminary

prospectus

Management

roadshow

Analyse demand/

feedback

Sign placing

agreement

Pricing and allocation

Stabilisation

Greenshoe

Market-making

Ongoing research

Investor relations

Ongoing obligations

4-6 months + 2-3 months 1 month

Preparation for International

Market

Plan the execution phase of

potential IPO

Ensure basic readiness of Company for

the listing

Proceed with analysts

presentation

Proceed with investor

education

Launch (size, price

range decision)

Price, sign subscription

agreement and allocate shares

Life as a Plc…

PUBLIC PROCESS

24

Pre-IPO: Key Preparation Ingredients

Pre-IPO Company

Preparation

Kick-off Meeting

Start Due Diligence / Prospectus

Drafting

Business Plan /

Financial Structure

Analyst Presentation

Investor Education

Valuation / Price

Range

Management Roadshow

Bookbuilding Pricing and Allocation

Aftermarket

T + T T - 2 weeks T - 1 month T - 2 months T - 4-6 months

Business

Plan/Strategy

and Equity

Story

Financials/

Accounting/

Disclosure

The business plan translates the strategy into numbers:

• Should cover both short-term and medium-term projections

• Financial targets & funding needs

• Should be credible and deliverable

• Will draw comparison vis-à-vis comparables and help to drive relative positioning

The equity story (alongside the business plan/strategy) will drive the marketing of the IPO – key pillar of all offering-related documentation

underpinning the valuation that investors are prepared to ascribe to the Company

Together with the Company and the bookrunner(s) will develop the business plan/strategy and equity story

• This will be a priority in the months leading up to the formal IPO kick-off and during the first few weeks of the formal IPO process

• Recommendations as to offer size, capital structure and dividend policy/guidance to maximise value will result from this workstream

The transaction timetable will hinge around the timely preparation of the accounts

Early involvement of international capital markets experts is critical, as early identification of key issues is key

Base case financial requirements:

• 3 years of audited IFRS financial statements

• Reviewed or audited interim results for current and prior period (if required)

• Accounting conventions require that the transaction should close within 135 days from the end of the last audited or reviewed reporting

period

Results will likely have to be completed and audited much earlier than historically was the case

Disclosure (segmental, KPIs) will need to target “best-in-class” benchmarks set by industry peers to meet investor expectations and maximise

valuation

Internal reporting controls and systems may have to be upgraded

25

Pre-IPO: Key Preparation Ingredients (cont’d)

Pre-IPO Company

Preparation

Kick-off Meeting

Start Due Diligence / Prospectus

Drafting

Business Plan /

Financial Structure

Analyst Presentation

Investor Education

Valuation / Price

Range

Management Roadshow

Bookbuilding Pricing and Allocation

Aftermarket

T + T T - 2 weeks T - 1 month T - 2 months T - 4-6 months

Internal Planning

Corporate

Governance /

Structure /

Ownership

Internal planning ahead of IPO will be important to limit management distraction

Formation of core working party with clearly defined roles

Working party will need contacts for key areas – Finance, Marketing, Operations, Legal and HR

Company should designate an internal IPO Project Manager to oversee the transaction and ensure seamless co-ordination between

external advisers and internal teams

Focus on adequacy and readiness of internal controls & systems for a post-IPO world

Company should give thought to installing the appropriate IR officer for IPO and aftermarket

Investor Relations has an active participation in the IPO process

Corporate governance (and in particular Board composition) is a significant investor issue

Objective should be to target best practice, e.g. UK Corporate Governance Code

Key to consider Board composition early in process as can require substantial lead time and may otherwise delay IPO

Non-executives (as well as executive directors) will need to take responsibility for the prospectus

Clear and transparent ownership and legal structure recommended

Management incentivisation should also be considered early on

Offer Structure Determine offer type, size, listing location and syndicate structure

Planned option schemes and employee/retail participation in IPO should also be considered early on

Selection of

Advisors

Selecting an international legal counsel with adequate expertise in both the legal issues of the industry as well as experience in capital

market transactions

Selecting auditors with suitable experience and credibility from an investor perspective

Clear investor preference for a “big four” firm

Consider appointment of PR firm ahead of launch to manage information flow to the market

26

Prospectus Drafting and Contents

The prospectus is the key marketing and disclosure document – the

legal and selling document available to all potential international

investors

The prospectus is produced by the Company’s Counsel with significant

input from the Company, the underwriters and underwriters’ counsel

• Issuer’s counsel and the Sponsor / Bookrunner(s) will lead the drafting of the document

The prospectus will be the core document for marketing the IPO:

• Describes the terms and conditions of the securities and the plan of distribution

• Describes the Company, its business, industry, regulation, risks, directors and management, shareholder structure, financial statements and analysis, material contracts, and recent developments and outlook

• The offer document from which key selling messages will derive

• Fair and accurate depiction (full disclosure of risks, no material omissions)

• Often used as a resource of information also after listing

• Minimum required information is governed by EU prospectus directive requirements, disclosure customary in a Rule 144A offering and international best practice

• The Company will ultimately be fully responsible for the contents of these documents and has to be closely involved in the drafting process

International Prospectus Table of Contents – Illustrative

Part 1 SUMMARY

Part 2 RISK FACTORS

Part 3 OFFER HIGHLIGHTS

Part 4 SECTOR OVERVIEW

Part 5 THE BUSINESS

Part 6 SECTOR REGULATORY ENVIRONMENT

Part 7 DIRECTORS, SENIOR MANAGEMENT AND

CORPORATE GOVERNANCE

Part 8A SELECTED FINANCIAL INFORMATION

Part 8B OPERATING AND FINANCIAL REVIEW

Part 9 RELATED PARTY TRANSACTIONS

Part 10A FINANCIAL INFORMATION ON THE COMPANY

Part 10B CAPITALISATION TABLE

Part 11 THE OFFER

Part 12 ADDITIONAL INFORMATION

Part 13 DEFINITIONS AND GLOSSARY

27

Analyst Presentation and Syndicate Research

Overview of the Analyst Presentation:

Management presentation to research analysts in the syndicate

• Typically lasts half a day (minimum) to a full day

• High level of detail provided (disclosure must be in line

with prospectus)

The first non-private event in most IPOs

Used by the analysts as input for their written research reports

In order to be able to hold this presentation effectively, all due

diligence must be substantially completed, the equity story must

be finalised and the prospectus should also be substantially

completed

Presentation produced by the bookrunner together with the

Company

Recommend that one or two rehearsal and Q&A sessions are

held prior to the actual presentation to analysts

In most cases, this initial analyst meeting will be complemented,

a few days later, by follow-up Questions & Answers conference

call(s) with the Analysts to clarify any outstanding issues

Preparation to start around 4-6 weeks before meeting date

Drafting of the Presentation takes place in conjunction with

Prospectus drafting and disclosure must be in line with the

Prospectus

Syndicate Research Production:

The research report is produced by research analysts independently,

written using data from the Analyst Presentation

Note: research analysts are independent and accountable to their

institutional investor clients, not to the Company or the investment bankers

Typically reports are prepared and published 3-4 weeks post-Analyst

Presentation

Draft submitted for review of factual accuracy and consistency by the

Company, counsels and bookrunner(s)

Distribution of research and certain aspects of content are subject to

research guidelines (i.e. no recommendation, no price target or valuation,

duration of forecasts, black-out period, no distribution in the US)

The UK Corporate Governance Code

UK Corporate Governance Code “Best

Practice” Equity Market Perspectives / Recommendations

Supervisory

Board

Independence

• At least half the board (excluding Chairman)

should be independent non-executive directors

“iNEDs”

• Each board needs a senior independent director

• Independence is determined by the board subject to stringent criteria

• The market and investors will expect a high quality set of iNEDs with a range of appropriate

experience

• Re-election of a board member for a term of up to three years, extendable by no more than two

additional three-year periods, so long as members continue to be independent

Size and

Composition

• Chairman independent and separate from CEO • If the Chairman is non-independent, then greater emphasis will be placed on the identity of the

senior independent directors

• Should be of an appropriate size to maximise

effectiveness / not be so large as to be unwieldy

• Investors and the market will prefer a smaller, high quality board (most FTSE350 companies are

between 8-12)

• Needs strong non-executive representation • Executive representation (CEO and possibly CFO) would normally be expected. Unusual for a

company to have more than 3 execs on the board

Board

Committees

• Audit Committee

• Code provides at least one person should have relevant financial experience (auditor, past CFO

etc) and would typically chair committee.

• Code provides that should comprise three iNEDs (including perhaps the Chairman, but he

should not chair Audit Committee

• Nomination Committee • Nomination committee chairman should be an iNED or independent Chairman. Typically all

NEDs sit on Nomination Committee.

• Remuneration Committee

• Chaired by an iNED (typically a serving or retired CEO, a group HR director). Must be aware of

best practice and demonstrate experience of negotiating effective reward structures with

investors

• Made up of at least three iNEDs

• Additional committees • HS&E – where work fatalities a risk, e.g. extractive industries

• CSR – businesses whose products may pose varying degrees of risk to consumers

29

Comparison of different routes to market for

commercial companies

MAIN MARKET AIM

Description Premium Standard HGS AIM

Domicile Any Any EEA incorporated Any

Regulation EU Regulated Market &

Listed

EU Regulated Market &

Listed EU Regulated Market MTF

Minimum free float 25% 25% 10% with a min value of

£30m Assessment of suitability

Revenue criteria

75% of business supported

by historic financial

information (3 years)

n/a 20% CAGR in revenues

over 3 year period n/a

Admission Prospectus & Eligibility letter

to UKLA under Listing Rules Prospectus

Eligibility letter to Exchange

under HGS rules &

Prospectus to UKLA

AIM Admission Document &

Nomad declaration of

suitability

Adviser Listing Sponsor at admission

& for transactions n/a

Key Adviser at admission &

to seek advice for certain

events

Nominated Adviser at all

times

Corporate governance UK Corporate Governance

Code

Corporate Governance

statement

Corporate Governance

statement

Expected market practice &

guidance from Nomad

Ongoing obligations Disclosure & Transparency

Rules

Disclosure & Transparency

Rules

Disclosure & Transparency

Rules AIM Rules

Significant transactions Class tests as per Listing

Rules n/a

Class tests as per HGS

rulebook Class tests as per AIM rules

Cancellation 75% shareholder approval No shareholder approval

required

75% shareholder approval,

unless cancelling to transfer

to Premium

75% shareholder approval

Indices FTSE UK Series, where

eligible n/a n/a

FTSE AIM Series, where

eligible

Company Details

Company JQW

Market AIM

Sector General Retailers

Trading System SETSqx

Country of

incorporation Jersey

Transaction Details

Admission Date 9 Dec 2013

Money raised at

admission £6.8m

Market cap at

admission £138.2m

Current Market cap £155m

NOMAD Cairn Financial

Advisers LLP

Company profile

JQW plc is an investment holding company

engages in the provision of business-to-

business ecommerce services. It offers SMEs

services among small and medium-sized

domestic businesses.

Its operation platform is being carried through

the domain www.jqw.com which offers

services such as website design, commercial

search, advertising as well as the supply of

business information and opportunities.

The company was founded by Yong De Cai

and Dao Cai Chen in 2004 and is

headquartered in Yangzhou City, China.

Listing story

The capital raised will be used to raise the

Group’s profile and thereby attract more

visitors to its B2B platform, facilitate the

recruitment of highly qualified employees to

enable the Group to adapt to new initiatives

in the B2B sector, support the development

of the JQW brand in the PRC; and allow

greater access to capital to fund future

activities as the Internet industry continues to

develop rapidly in China.

In particular, JQW plans to establish new

sales agencies targeted to increase to 60

sales agencies by the end of 2015.

Case Study:

JQW plc

Source: FactSet and LSE – July 2014

Price performance rebased to 100 as of IPO date 30

Pri

ce r

eb

ased

to

100

60

70

80

90

100

110

120

130

140

Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

JQW FTSE AIM All Share Index

Case Study:

Hutchison China Meditech

Company Details

Company Hutchison China

Meditech

Market AIM

Sector Health Care

Trading System SEAQ

Ticker HCM

Country of

incorporation Cayman Islands

Transaction Details

Admission Date 10 May 2006

Money raised $74.3m

Current market cap $815.7m

Market cap at

admission $261.8

Company profile

Chi-Med is the holding company of a

pharmaceutical and healthcare group based

primarily in China.

Chi-Med focuses on researching, developing,

manufacturing and selling pharmaceuticals,

and health oriented consumer products

primarily in the China market. Chi-Med was

established in 2000 as a wholly-owned

subsidiary of Hutchison Whampoa Ltd (HWL).

Revenue for H1 2013 increased 74% to

$17.6m compared with H1 2012 while net

profit attributable to Chi-Med equity holders

grew 598% to $3.3m.

Listing story

Chi-Med was admitted to AIM in May 2006.

Lazard & Co. acted as Nominated Advisor

and Panmure Gordon were Brokers to the

Placing.

Chi-Med chose to list explaining that it was “a

natural next step, incentivising our executives

in line with our listed healthcare peers and

raising our international visibility.”

Chi-Med “felt AIM offered good

understanding and knowledge of high growth

companies particularly in the pharmaceutical

and healthcare space.”

The funds raised were used to fund Chi-

Med’s drug R&D programme, China

healthcare, and consumer businesses as well

as general corporate purposes.

Source: Bloomberg, FactSet and company website, March 2014

31

Investor Name Value held in

USD millions

Slater Investments Ltd 49.7

FIL Investment Management (Hong Kong) 44.0

M&G Investment Management 11.1

FIL Investments (Japan) 9.7

BlackRock Investment Management (UK) 5.1

Polar Capital 1.7

FIL Investments International 1.2

Petercam Luxembourg 1.1

T. Rowe Price International 0.8

FIL Investment Management (Singapore) 0.6

0

50

100

150

200

250

300

350

400

May-2006 Nov-2007 May-2009 Nov-2010 May-2012 Nov-2013

Hutchison China Meditech vs FTSE AIM All Share

FTSE AIM All Share Hutchison China Meditech

32

3) IPO Execution and Marketing Considerations

33

Refining Valuation through the IPO Process

Investment Banking Valuation Research Valuation Market Valuation

P P - 2 weeks P - 4 weeks P - 10 weeks P – 12 weeks

Com

pa

ny D

rive

rs

• Preliminary valuation

assessment, driven by

investment banking /

advisers

• Management

projections

• Equity/Macro Market

Environment

• Review of IPO

Pipeline

Ma

rket D

rive

rs

IPO Offer

Price

Views on valuation crystallise during the process – investor soundings at various points in the process are key to minimise any “surprises”

• Due diligence

• Development of the

equity story

• Analysts’ presentation

• Investor methodologies

(depending on sector) –

e.g. P/E, EV/EBITDA,

DCF

• Research publication

• Valuation “price talk” &

investor feedback

• Management roadshow

and price range

34

Management Roadshow

The management roadshow is a gruelling experience where often 80+ meetings held – need to keep the story fresh for every meeting!

• The culmination of the marketing process is the two-week Management roadshow. The

roadshow is a key marketing tool for the IPO, allowing management to meet with

investors in key investor hubs (e.g. in the UK, in continental Europe and in the US) –

cements confidence and comfort level of investors with investment case

• At start of roadshow:

• Price range announced

• Preliminary prospectus (or “pathfinder”) published

• Book of demand opened

• A concise management presentation is prepared by the bookrunner together with the

Company and management is coached on delivering it compellingly - as such, thorough

preparation is of paramount importance and external training often utilised

• Bookrunner will make all necessary arrangements (flights, hotels, transportation, venues

and meetings) occasionally assisted by an external agency

• There are essentially three types of meetings:

• One-on-one meetings – with usually one institution only at offices of institution. Given

the limited time available to management, these are generally reserved for the

highest quality investors that have shown greatest interest in the stock

• Group presentation – normally in a neutral location (hotel, restaurant) at breakfast /

lunchtimes

• Conference calls, video conferences, etc.

• Most meetings attended by salesman, banker and the management team

Illustrative Roadshow Venues / Schedule

35

0

1

2

3

Bottom of

the range

Optimum

Pricing

Top of the

range

De

ma

nd

(x C

ove

red

)

Price sensitivity once books close

• Typically demand is slow to build in the early stages of the bookbuilding as investors digest their meetings with

management, analyse the prospectus and syndicate research before they come to an investment decision

• Equally, many investors like to see some momentum in the book before placing orders as this gives comfort that the

offering is proving popular

• Pricing of the offering needs to balance maximising proceeds with sufficiently attractive pricing for institutions to be

under-allocated and shares to have the maximum chance of trading positively in the immediate aftermarket

Demand and Pricing Dynamics

Illustrative Build Up of Demand Illustrative Demand at Price

10 22

42

104 121

147 165

193

272

450

552

0

100

200

300

400

500

600

Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day10

Day11

Dem

and (

m s

hare

s)

Offer size

36

Allocation Criteria and Finalising IPO Distribution

Allocation Criteria

Type Split

• Retail / Employees vs. Institutional

• Geographical split (e.g. balance between UK / US / RoE / Asia)

• For institutional investors, quality and type of investors (e.g. long-only vs. hedge funds)

Timeliness of Order • Early orders help to generate momentum

Involvement in Marketing

Process

• Participation in roadshow meetings (one-on-ones, group meetings) and in investor education

• Quality of feedback provided (institutions show that they have done the work)

Commitment to Company

• Long-term holders of the shares – limit stock flowback

• Ownership in the sector

• Potential buyers in the aftermarket

Pricing Approach / Sensitivity • Accounts prepared to pay higher price / without price limits

Rationale of Orders • Orders consistent with their normal unit size

Quality

• Size of funds under management

• Understanding of the Company’s business

• Holdings in comparable companies / domestic equities

Allocation is critical in that it determines who the future shareholders of the Company will be – the Sponsor / bookrunners will make a

recommendation to the Company on this based on the make-up of the book and their assessment of the best long term shareholder base

37

Description • Process by which the stabilising manager (a bookrunner) enters the market for a limited

period of time following the pricing of IPO, to stabilise or maintain the market price of the

shares, by making purchases

Is Stabilisation

Permitted?

• IPOs and secondary offerings – typically not blocks / AEOs

• When the stock is at or below the offer price

How Does it Work?

Over-allocation to investors

Creating short position

Settled with borrowed stock

Stock loan repaid through

Purchases in the market Greenshoe

Stabilisation Period • Stabilisation period ends on the 30th day after the offering closes

Aftermarket: Stabilisation of the Stock

38

90

92

94

96

98

100

102

104

106

108

Day

1

Day

2

Day

3

Day

4

Day

5

Day

6

Day

7

Day

8

Day

9

Day

10

Day

11

Day

12

Day

13

Day

14

Description • Call option which entitles the stabilisation manager

to acquire up to an agreed number of additional

securities (beyond the number of “base” shares in

the offering) to cover the short position created by

any over-allocation

• Provided by shareholders

• Exercisable within 30 calendar days post-offering

• Usually 10-15% of initial offering size

• Additional proceeds to the seller of the securities

• Standard feature of almost all international equity

offerings

Purpose • Protect the new shareholders against any immediate

and sudden fall in the share price post-offering – not

for market protection

Action items • Define size of over-allotment option

• Stock borrow availability and stock lending

agreement

Aftermarket: Mechanics of the Greenshoe

90

92

94

96

98

100

102

104

106

108

Day

1

Day

2

Day

3

Day

4

Day

5

Day

6

Day

7

Day

8

Day

9

Day

10

Day

11

Day

12

Day

13

Day

14

Price Rises

Price Falls

Bookrunner can exercise the Greenshoe

Bookrunner can purchase in the market

Aftermarket Scenarios

39

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