Margin targets met, new goals set

Severfield 18 July 2016 Update

Severfield

Margin targets met, new goals set

FY16 results

Construction & materials

18 July 2016

Price

47.6p

Market cap

£142m

Net cash (£m) at end March 2016

18.4

Shares in issue

297.5m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.9)

(10.8)

(18.6)

Rel (local)

(4.1)

(15.5)

(10.0)

52-week high/low

73.25p

51p

Business description

Severfield is a leading UK structural steelwork fabricator operating across a broad range of market sectors. An Indian facility currently undertakes structural steelwork projects for the local market and is fully operational.

Next event

AGM

6 September 2016

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Severfield is a research client of Edison Investment Research Limited

The achieved FY16 margin was as an ambitious target when set in 2013, but is now seen as a staging post to the new aim of doubling PBT by FY20. Our revised estimates track towards this. With double-digit earnings progress expected (and a PEG below 1x), plus a rising dividend profile, Severfield now clearly offers both income and capital growth attractions.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

201.5

8.8

2.5

0.5

19.0

1.1

03/16

239.4

13.7

3.8

1.5

12.5

3.2

03/17e

244.1

16.8

4.7

1.8

10.1

3.5

03/18e

256.1

20.5

5.8

2.0

8.2

4.0

Note: *PBT and EPS are normalised, excluding pension net finance costs, intangible amortisation and exceptional items.

Ahead of expectations

Reported FY16 revenue and EBIT came in 3.1% and 10.4% ahead of our estimates respectively, with an achieved margin of 5.7%, towards the upper end of the target 5-6% range. Margin recovery has been a central focus over the last three years and has been unequivocally delivered. Market conditions have been better latterly, but the margin gains have been substantially generated through actions taken to improve business processes and operational performance. After a cash inflow of over £12m in the year, Severfield ended FY16 in an £18.4m net cash position. Lastly, the full year dividend of 1.5p (including a 1p final) also exceeded our 1p estimate and there is a clear commitment to growing the payout going forward.

Raised estimate profile tracks new target

The 1 June order book of £270m is in line with the February update, so our revenue estimates are unchanged for now. We have nudged EBIT margins ahead slightly to reflect FY16 momentum, resulting in increases in our FY17 (+£0.6m) and FY18 (+£0.5m) PBT expectations. Management’s new target is to double company underlying PBT to c £26.2m by 2020. The main driver behind this organic target is improving margins. Our new FY19 PBT estimate (company basis) is £23.0m, so our three-year profile is tracking towards the new target, representing a material increase in expected profitability. Maintaining a robust commercial approach, project mix effects, further operational efficiencies and a positive Indian JV contribution could all contribute to this uplift.

Valuation: Margin growth compresses rating

FY16 results were well received (rallying to 58p, back up to February levels) but Severfield’s share price has since slipped below 50p. Despite strong business performance, it has underperformed the FT All Share Index by c 35% YTD. In valuation terms, the FY17e P/E now stands at 10.1x and EV/EBITDA of 5.3x. Our estimates are predicated on relatively modest revenue and market growth and largely self-generated margin improvements. On this basis, the P/E and EV/EBITDA ratings come down to 7.1x and 3.2x in FY19.

FY16 results overview

Severfield’s FY16 results were ahead of our expectations on most measures including revenue, profit, earnings, dividends and cash generation. We believe that the outlook remains positive for further progress across each of these metrics.

Exhibit 1: Severfield interim splits

(£m)

H115

H215

FY15

H116

H216

FY16

Chg y-o-y

Chg y-o-y

Chg y-o-y

H116

H216

FY17

Group revenue

97.4

104.1

201.5

117.1

122.3

239.4

20.2%

17.5%

18.8%

Group operating profit

3.6

5.4

9.0

5.0

8.6

13.7

41.1%

60.1%

52.5%

Op. margin

3.7%

5.2%

4.5%

4.3%

6.9%

5.7%

+60bp

+170bp

+120bp

Group operating profit - adjusted*

4.0

5.9

10.0

5.8

9.4

15.2

45.2%

58.3%

53.1%

Op. margin – adjusted

4.1%

5.7%

4.9%

5.0%

7.6%

6.4%

+90bp

+190bp

+150bp

Source: Company, Edison Investment Research. Note: *Reported operating profit is adjusted for share-based payments and pension net finance costs. Neither profit line includes any contribution from JV/associates.

UK: Target margins delivered, now moving onto the next phase

Good double-digit y-o-y revenue progress was delivered in both half years, with improved operating margins in both periods also. From a reported low of £168m in May 2014, the June 2016 order book stands at £270m, having been broadly stable around £185m between November 2014 and November 2015. Allowing for lags, we note that the rate of revenue growth in FY16 exceeded that of the order book in CY15.

In FY15, Severfield increased profitability despite a c 13% reduction in revenue; greater project selectivity and improved operational performance were cited as reasons for this. With a significant increase in revenue in FY16, the headline achievement for Severfield was the delivery of a company reported EBIT margin of 5.7%, at the upper end of the 5-6% target range established in 2013 and up 120bp versus the previous year. We understand that the company’s H2 performance was not distorted by an unusual concentration of favourable final account settlements and should be considered as a normal trading pattern. While operational gearing will have contributed in part to the full year margin performance, we suggest that it also underlines the earlier points concerning selectivity and more efficient operations. Maintaining good business control disciplines in a higher-volume environment is a positive affirmation of the enhanced and more integrated practices and processes introduced in the last three years, in our view. These include more rigorous tendering, reduced fabrication costs and effective site execution. Together, this translates to managed risk exposure and project delivery performance – on both original terms and subsequent variations – such that the retained margin is in line with or better than predicted.

We now look at the development of Severfield’s order book in the context of the last three years.

Exhibit 2: Severfield order book and sector split progression

Source: Company, Edison Investment Research

Exhibit 2 shows the recent reported order book uptick after an extended period of stability at lower levels. We understand that, of the £270m orders on hand as at 1 June, Severfield expects around £211m of work to be undertaken in the next 12 months. This provides good forward cover for factory scheduling in the current financial year, with higher than normal visibility into the following year also. There are more of the larger, longer-gestation projects coming through now. Not having worked on any projects valued above £20m in H116, Severfield now has three in its order book, being Goldman Sachs’s new London head office, the new Tottenham Hotspur FC stadium and the replacement roof for Wimbledon No.1 Court, as reflected in the increasing proportion of the higher order book accounted for by the commercial and stadiums & leisure sectors shown in Exhibit 2. We would expect fuller order books to support ongoing project selectivity and further margin progression subject to maintaining the project management disciplines outlined above at higher steel tonnage throughput levels.

Indian JV: More stable financial performance confirmed

The outlook for this JV was reviewed around two years ago, since which time financial performance has stabilised with small post-tax losses reported in FY15 and now FY16 validating the platform. The operation has scale capability (up to c 60k tonnes of fabrication capacity) and the potential for it to contribute to group profitability remains. Severfield only includes its share of the 50:50 JV’s PAT in its P&L; in FY16 this was a loss of £0.3m, compared to a £0.2m loss in the previous year. Behind these numbers, the JV delivered c £40m revenue and EBIT of c £2.8m (down c 6% and c 25% respectively), but also an implied reduction in finance costs from a combination of lower average net debt and falling interest rates (with no tax charge in either period due to deferred tax loss adjustments). The sterling/rupee cross rate was broadly stable and did not have a material impact on the reported result. A higher proportion of commercial work (c 30% of the total c 36k tonnes processed versus c 20% and 48k tonnes in the prior year) contributed to revenue per tonne and an achieved c 7% EBIT margin, despite the lower throughput. This demonstrates some resilience in the business model. At the same time, c £2m of term debt was repaid (leaving c £13m outstanding) from internally generated cash flow. With an order book of c £33m, near-term prospects remain relatively subdued, although India’s requirement for a new convention centre ahead of hosting the G20 nations in 2018 represents a clear target. Management has outlined an illustrative three- to four-year scenario in which the JV could attain a c £60m revenue level and c 10% EBIT margin with much reduced interest costs. If we assumed a normalised c 30% tax charge, this would imply a c £1-2m share of JV PAT for Severfield, which would contribute to the group-level target of doubling underlying FY16 PBT by 2020.

Strong net cash position expected to improve further

Severfield ended FY16 in an £18.4m net cash position compared to £6.1m a year earlier (and £12.9m at the interim stage, all excluding unamortised debt fees). At the headline level, the associated £12.4m cash inflow was almost double that of the previous year. In underlying terms, free cash flow rose by almost £9m y-o-y (to £18.8m), driven primarily by increased operating profit (up over £5m) and stronger working capital performance (£2m+ higher inflow). Lower financing costs and gross capex in the year also contributed to this outturn.

Severfield’s working capital performance (a net inflow of £7m, with year-end levels around 2-4% of annual sales) was flattered by a c £3m favourable debtor profile at the period end. We should also point out that almost £4m of provisions for Leadenhall Building remedial work were used up in FY16 (and are now substantially consumed). So, in fact, the reported working capital movement actually understated the underlying inflow modestly, in our opinion. That said, with residual cash provision outflows to come and the unwinding debtor position, cash working capital is unlikely to be as favourable in FY17. For the record, management expects invested working capital to run at between 4-6% of annualised revenue. As far as fixed capital investment is concerned, gross capex continued to run above depreciation (at 1.3x), reflecting a drive to upgrade factory and site equipment to improve operational efficiency. In addition, Severfield invested £4.1m to take a 50% stake in CMF (a supplier of metal decking and other cold rolled building products), as announced in November. FY15 cash flow benefited from the disposal of an investment property that did not recur in FY16, although £0.7m other asset disposal proceeds were received. Lastly, Severfield made £3m of cash dividend payments in FY16 versus none in the previous year.

We expect another good free cash flow performance from Severfield in FY17, albeit below FY16 levels. After taking into account higher capex, c £0.5m pa deferred CMF consideration and rising cash dividends in each of these years, our estimates show a net c £4m cash inflow this year, rising to c £13m by FY19. Management has prioritised future cash allocation to include growth in working capital and a rising core dividend. Further strategic investment (following CMF) has also been flagged subject to opportunities and the retention of a good (unspecified) balance sheet net funds position. After these aims have been met, there is a willingness to return surplus cash to shareholders. With a rising net cash position and term debt facilities in place (of £25m plus a £20m accordion, both out to 2019), there is a clear agenda for organic and acquisitive earnings growth and above average dividend progression, with funding already in place to achieve this.

Estimates increase as EBIT margin nudged ahead

Management sees a fairly stable, modestly growing UK economic backdrop and expects this to be supportive of growth in the construction sector. Severfield’s order book currently stands at £270m (up 57% y-o-y) and the pipeline of prospects is understood to be healthy. With a strong end to FY16 in both revenue and EBIT terms, supported by a healthy order book, we have increased our operating profit expectations by £0.5m for the next two years (on unchanged revenues) and added an FY19 estimate for the first time, which shows further progress.

Exhibit 3: Severfield revised estimates

EPS* (p)

PBT* (£m)

EBITDA (£m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2016

3.42

3.84

12.3

12.3

13.7

11.4

17.9

18.9

5.6

2017e

4.52

4.72

4.4

16.2

16.8

3.7

21.7

21.8

0.5

2018e

5.57

5.78

3.8

20.0

20.5

2.5

25.7

25.7

---

2019e

N/A

6.61

N/A

N/A

23.5

N/A

N/A

28.8

N/A

Source: Company, Edison Investment Research. Note: *We exclude pension net finance costs (c £0.5m pa).

Note that our estimates currently include a zero contribution from JVs (ie JSW Severfield and now CMF also).

Brexit considerations

FY16 results were announced on 15 June, before the referendum and Brexit outcome were known. In the past European markets, especially the Republic of Ireland have been more significant but represented less than 4% of FY16 revenues. The vast majority of Severfield’s costs (including materials) and revenues are in sterling. Severfield’s order book typically runs up to 18 months out and the targeted projects or pipeline can have long gestation periods. Our high level views on the impact of Brexit on the company’s prospects are as follows:

Commercial – expect orders on hand to be executed though there may be a period of inertia in awarding new projects especially in London in the short term.

Industrial/distribution – GDP driven over the medium and longer terms; trade flows unlikely to change materially in our view and investment trends remain strong.

Stadia/leisure – we see no impact on Severfield’s major projects highlighted above.

Infrastructure/transport – the commitment to infrastructure spending usually rises during periods of perceived economic uncertainty but the new Cabinet’s position is yet to be clarified.

Exhibit 4: Financial summary

£m

2010

2011

2012

2013

2014

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

12m to Dec

12m to Dec

12m to Dec

15m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

PROFIT & LOSS

Revenue

 

 

266.7

267.8

256.6

318.3

231.3

201.5

239.4

244.1

256.1

262.1

Cost of Sales

(242.6)

(246.9)

(268.8)

(330.9)

(217.8)

(186.7)

(219.6)

(221.5)

(229.7)

(232.6)

Gross Profit

24.1

20.9

(12.2)

(12.7)

13.5

14.9

19.8

22.6

26.4

29.5

EBITDA

 

 

21.6

19.5

(13.6)

(13.6)

12.0

13.6

18.9

21.8

25.7

28.8

Operating Profit - Edison

 

 

17.1

15.0

(17.7)

(18.6)

8.4

10.0

15.2

17.9

21.5

24.4

Net Interest

(0.9)

(1.6)

(1.6)

(2.0)

(0.6)

(0.5)

(0.2)

0.0

0.1

0.2

Associates

(0.4)

(2.5)

0.2

(0.3)

(3.0)

(0.2)

(0.2)

0.0

0.0

0.0

SBP

(0.0)

(0.3)

(0.0)

(0.1)

(0.2)

(0.5)

(1.1)

(1.1)

(1.1)

(1.1)

Intangible Amortisation

(2.7)

(2.7)

(2.7)

(3.5)

(2.7)

(2.6)

(2.6)

(2.6)

(1.7)

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(1.4)

(0.6)

(1.0)

(3.8)

(5.3)

(5.9)

(0.9)

0.0

0.0

0.0

Profit Before Tax (norm) - Edison

 

15.8

10.6

(19.1)

(20.9)

4.5

8.8

13.7

16.8

20.5

23.5

Profit Before Tax (norm)

 

 

15.3

10.1

(19.6)

(21.5)

4.0

8.3

13.2

16.3

20.0

23.0

Profit Before Tax (FRS 3)

 

 

11.1

6.8

(23.3)

(28.9)

(4.1)

(0.2)

9.6

13.7

18.3

23.0

Tax

(3.5)

(0.9)

3.9

5.7

1.4

0.3

(1.0)

(2.7)

(3.4)

(3.8)

Profit After Tax (norm)

11.7

7.7

(16.2)

(17.9)

3.1

7.4

11.4

14.1

17.2

19.7

Profit After Tax (FRS 3)

7.6

5.8

(19.4)

(23.1)

(2.6)

0.1

8.6

10.9

15.0

19.2

Average Number of Shares Outstanding (m)

89.0

89.3

89.3

89.3

295.8

297.5

297.5

297.5

297.5

297.5

EPS - normalised (p) - Edison

 

 

6.82

4.51

(9.42)

(10.42)

1.05

2.47

3.84

4.72

5.78

6.61

EPS - normalised (p)

 

 

6.51

4.21

(9.72)

(9.45)

0.88

2.31

3.67

4.56

5.61

6.44

EPS - FRS 3 (p)

 

 

4.47

3.41

(11.33)

(13.49)

(0.89)

0.05

2.89

3.68

5.03

6.44

Dividend per share (p)

7.5

5.0

1.5

0.8

0.0

0.5

1.5

1.7

1.9

2.0

Gross Margin (%)

9.0

7.8

-4.8

-4.0

5.8

7.4

8.3

9.2

10.3

11.3

EBITDA Margin (%)

8.1

7.3

-5.3

-4.3

5.2

6.7

7.9

8.9

10.0

11.0

Operating Margin - Edison (%)

6.4

5.6

-6.9

-5.8

3.6

4.9

6.4

7.3

8.4

9.3

BALANCE SHEET

Fixed Assets

 

 

165.0

156.9

155.6

154.9

147.7

145.1

149.3

149.3

148.9

150.0

Intangible Assets

75.2

72.9

70.4

69.8

64.6

61.8

59.2

56.4

54.7

54.7

Tangible Assets

82.9

79.6

76.2

76.1

74.1

76.6

77.4

79.7

80.5

81.0

Investments

6.9

4.4

8.9

8.9

9.0

6.7

12.7

13.2

13.7

14.2

Current Assets

 

 

88.1

100.5

69.8

80.5

72.2

76.3

75.1

83.8

97.6

112.4

Stocks

12.6

9.1

7.1

8.2

5.8

4.8

5.3

5.3

5.5

5.6

Debtors

71.9

89.2

61.2

71.6

60.8

64.6

50.7

55.4

58.5

60.5

Cash

3.6

2.3

1.4

0.7

5.5

6.9

19.0

23.1

33.5

46.3

Current Liabilities

 

 

(99.8)

(103.6)

(97.0)

(112.5)

(57.9)

(59.7)

(58.2)

(59.7)

(62.1)

(63.3)

Creditors

(81.2)

(70.3)

(66.1)

(70.9)

(52.7)

(59.5)

(58.1)

(59.5)

(61.9)

(63.2)

Short term borrowings

(18.6)

(33.3)

(30.9)

(41.7)

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Long Term Liabilities

 

 

(22.3)

(21.6)

(21.7)

(20.4)

(18.5)

(21.1)

(17.9)

(17.9)

(17.9)

(17.9)

Long term borrowings

0.0

(0.3)

(0.3)

(0.2)

(0.0)

(0.6)

(0.4)

(0.4)

(0.4)

(0.4)

Other long term liabilities

(22.3)

(21.3)

(21.4)

(20.2)

(18.5)

(20.5)

(17.5)

(17.5)

(17.5)

(17.5)

Net Assets

 

 

130.9

132.3

106.6

102.4

143.4

140.6

148.2

155.6

166.5

181.1

CASH FLOW

Operating Cash Flow

 

 

(5.8)

(5.4)

12.9

3.1

2.1

11.4

24.8

17.4

23.6

27.1

Net Interest

(0.8)

(2.0)

(1.3)

(1.7)

(0.8)

(0.8)

(0.2)

0.0

0.1

0.2

Tax

(5.4)

(3.7)

(2.7)

(2.3)

0.4

(1.0)

(0.9)

(1.9)

(2.7)

(3.4)

Capex

(2.8)

(1.5)

(0.2)

(1.4)

(1.5)

(1.3)

(4.3)

(6.3)

(5.0)

(5.0)

Acquisitions/disposals

(2.9)

(0)

(2)

(3.0)

(3.5)

(1.7)

(4.1)

(0.5)

(0.5)

(0.5)

Financing

0

0

0

0.0

44.8

0

0

0

0

0

Dividends

(8.9)

(3.6)

(4.5)

(4.5)

0.0

0.0

(3.0)

(4.6)

(5.1)

(5.7)

Net Cash Flow

(26.6)

(16.3)

1.7

(9.7)

41.5

6.7

12.4

4.1

10.4

12.8

Opening net debt/(cash)

 

 

(11.5)

15.0

31.3

31.3

41.2

(0.3)

(6.1)

(18.4)

(22.5)

(32.9)

HP finance leases initiated

0

0.0

0.1

0.0

(0.2)

(0.3)

(0.2)

0.0

0.0

0.0

Other

0

(0)

(0)

(0)

0.2

(0.6)

0.2

0

(0)

0

Closing net debt/(cash)

 

 

15.0

31.3

29.7

41.2

(0.3)

(6.1)

(18.4)

(22.5)

(32.9)

(45.7)

Source: Company accounts, Edison Investment Research


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

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Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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