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Strategic progress in challenging markets

Walker Greenbank 2 November 2020 Update
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Walker Greenbank

Strategic progress in challenging markets

H121 results

Care & household goods

2 November 2020

Price

59.0p

Market cap

£42m

Net cash (£m) at end July 2020
(excludes IFRS 16 lease liabilities of £7.2m)

4.5

Shares in issue

71.09m

Free float

92%

Code

WGB

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.4

23.7

(26.4)

Rel (local)

8.7

30.6

(5.8)

52-week high/low

91p

27.5p

Business description

Walker Greenbank is a luxury interior furnishings group combining specialist design skills with high-quality upstream UK manufacturing facilities. Leading brands include Harlequin, Sanderson, Morris & Co, Scion, Anthology, Zoffany and Clarke & Clarke. FY20 revenue was split UK 53%, international 42% and licence income 5%.

Next events

FY21 year end

January

Analyst

Toby Thorrington

+44 (0)20 3077 5721

The impacts of COVID-19 on trading were visible in the H121 outturn but management actions resulted in an improved net cash position at the period end. Walker Greenbank will be renamed the Sanderson Design Group as part of a wider strategic improvement programme. Noting a solid start to H2 so far, management’s messaging is rightly still cautious about the market outlook but it is encouraging to see the combination of close operational control and strategic improvement are running in parallel.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/18**

112.2

12.7

14.4

4.4

4.1

7.4

01/19

113.3

9.5

10.8

3.2

5.5

5.5

01/20

111.5

7.4

9.2

0.5

6.4

0.9

Note: *PBT and EPS (fully diluted) are company normalised, excluding pension scheme costs, LTIP charges and exceptional items. **Restated for IFRS 15. The FY20 DPS represents the declared interim dividend only; no final dividend was announced.

Lower sales and cost actions define H121 trading

Reported revenue for H120 declined by almost 31% y-o-y. Brands product sales were c 28% lower y-o-y while third-party manufacturing revenue was c 33% down. In both cases, international sales overall fell by less than their UK equivalents. The sales improved in Q2 and in the month of July, group sales had recovered to flat y-o-y. The headline revenue performance for the period affected gross margin (down 450bp to 59%, chiefly due to lower volume but also mix and licence income effects), although two thirds of the monetary reduction was offset by significant opex cost category reductions, partly aided by COVID-19-related government support schemes. The company still managed to report a modest profit for the period.

Liquidity improves further

Notwithstanding reduced profitability, Walker Greenbank actually had a better liquidity position at the end of H1 end than at the beginning, boosted by inventory inflows in particular. For the record, end July core net cash (pre-IFRS 16) stood at £4.5m – an uplift of £3.2m from January – and the company retained c £20m headroom under its banking facilities at this time.

Steady start to H2

Given that July revenues had regained parity with levels a year earlier and the July to September period is stated as having been down 0.8% versus the corresponding three-month period in the prior year, this infers that trading in the first two months of H2 was also broadly flat y-o-y overall. The autumn selling season is an important one for the group and management noted good momentum based on orders on hand and sample enquiry levels at the end of H1 though it retains a cautious outlook for FY21 as a whole. New collection launches by Harlequin, Morris & Co and Zoffany should aid Brands’ sales development and support the strategy for clearer individual brand identities. Our estimates remain suspended.

H120 results overview

Market disruption caused by COVID-19 lockdowns dented the H121 sales performance though a small profit was generated in the period which ended with a monthly revenue run rate in line with the prior year. Actions to manage the cost base and cash flows, including government furlough monies, contributed to an improved net cash position of £4.5m at the end of July. No interim dividend was declared and some redundancies have been announced. Management is retaining a cautious outlook for the remainder of the year.

Exhibit 1: Walker Greenbank interim and divisional splits

Year end January (£m)

H120

H220

FY20

H121

Reported

Constant FX

% chg y-o-y

% chg y-o-y

H121

H121

Group revenue

55.9

55.5

111.5

38.8

-30.6%

N/A

Brands

46.3

43.9

90.2

32.4

-30.0%

-29.9%

UK

22.2

22.7

44.9

15.4

 

-30.2%

 

-30.2%

International

20.9

18.9

39.8

15.6

 

-25.4%

 

-25.0%

Licence income

3.2

2.3

5.5

1.3

 

-59.4%

 

-59.4%

Manufacturing – gross*

17.1

18.4

35.5

10.5

-38.5%

N/A

UK

6.6

7.8

14.4

4.1

 

-37.4%

 

-37.4%

International

3.0

3.8

6.8

2.3

 

-21.8%

 

N/A

Inter company

(7.6)

(6.7)

(14.3)

(4.1)

-46.1%

Group operating profit

4.9

2.1

7.0

0.2

-96.9%

Brands

5.6

2.5

8.2

2.3

-58.3%

Manufacturing

1.0

1.2

2.2

(0.4)

-142.1%

Central items**

(1.8)

(1.6)

(3.4)

(1.8)

-0.4%

Source: Edison Investment Research, Walker Greenbank data. *Manufacturing – gross includes intercompany transfers to Brands, which is netted out on consolidation.

Brands: Mitigating COVID-19 effects and strategic actions

Internationally recognised heritage and contemporary, premium and mid-market, wall covering and furnishing brands (Sanderson, Morris & Co, Harlequin, Zoffany, Scion, Anthology, Clarke & Clarke, Studio G).

Trading performance: Product sales (ie wallpapers and fabrics) fell by 35% y-o-y in the first five months of FY21 according to AGM comments, so the 28% reduction reported for the half as a whole indicates that momentum was somewhat better at the period end. We believe that July had recovered to similar levels to the prior year after a sharp contraction around the UK lockdown, especially in April.

UK revenue, which represented around half of product sales, was c 30% lower y-o-y while international sales overall were 25.4% lower. Individual brands’ trading highlights were substantially as had been previously noted by management with Morris & Co continuing to outperform its in-house peers and this fed into northern Europe (revenue -13%) being the best of the three international regions served. Sales in the other two reporting regions were more broadly in line with the UK performance, including North America (c -33%) and Rest of the World (c -28%). Overall, products accounted for c 96% of Brands division sales in the first half. In headline terms, licence income (generated from the use of group designs by third parties) was almost 59% below the prior year though this masked resilience in underlying core (non-apparel) income, being down c 7% against H1 last year. Hence, the absence of apparel-related income and any material new other licensees1 were the major y-o-y swing factors.

As well as any underlying maiden in-year contribution from a new licence agreement, IFRS 15 requires the advance recognition of revenue from future years where the agreement contains minimum annual income levels.

Total divisional revenue declined by 30.6% y-o-y (or by £13.9m) while EBIT reduced by £3.3m to £2.3m. Applying a group gross margin of c 60% to the sales foregone due to market disruption from COVID-19 would translate to a c £8m gross profit reduction. Significant reductions in distribution and administration costs were seen at the group level and we presume that management actions taken to control some of these fixed and semi-fixed costs were important contributors in mitigating the divisional EBIT reduction. Government furlough receipts also aided this process but we are unable to identify the quantum at divisional level.

Visible management activity: Judging by commentary from other home improvement names (including B&Q, Screwfix, Wickes and Toolstation), the UK lockdown has actually been a catalyst for a significant upswing in sector demand across a broad front. Operationally, the early decision to keep warehousing facilities open in the UK and US almost certainly avoided a larger sales hit in the first half and captured some of this benefit. The prior year consolidation of Clarke & Clarke inventory into the group facility also lowered the ongoing cost base. The majority of staff furloughed earlier in the year are now back full time, although Walker Greenbank has also announced redundancies of 10% of pre-lockdown levels. These have occurred across the business, in both divisions as well as centrally.

We have previously commented on gathering momentum behind collection collaborations. The company undertook its first digital pattern book launch in July (Harlequin, Little Book of Treasures); as well as lower launch costs, tracking feedback through initial sales and sample requests will bring downstream benefits in production and inventory management and, most likely, in more focused physical pattern books where they follow. Other new brand collections launched around the period end – slightly later than originally planned – included those by Morris & Co (Ben Pentreath, Queens Square) and Zoffany (Palladio, including Sam Wilde designs).

Outlook: In an operational sense, the current business challenge is to maintain an appropriate balance between somewhat uncertain and potentially variable, but currently flat y-o-y, market demand and inventory and supply chain management. At a corporate level, the near-term business development focus is on enhanced customer interaction. Digital pattern books are one example of this. An intended name change to The Sanderson Design Group (at the end of November) will also be reflected in a re-skinned website at that time followed by a fully renewed version with enhanced functionality at the end of December. These steps bring together management’s aspirations for an elevated strategy – across traditional and contemporary individual brands – with increased digitalisation and ease of doing business under a simplified company structure at a time when the importance of having online marketing and distribution channels has been a key differentiator. Over time, new digital launches and lifecycle management will account for an increasing proportion of the design portfolio and feed into rationalisation of the number of product stock-keeping units (SKUs) carried, underpinned by a collection level return on investment methodology. We would expect there to be some working capital and manufacturing benefits arising from this process but they have not been formally communicated externally. With regard to new Licensing income, discussions are said to have been understandably pushed back, we presume due to potential licensees dealing with COVID-19 impacts in their respective markets.

Manufacturing: Managing operational fluctuations

Two locations, Anstey (wallcoverings) and Standfast & Barracks (fabrics), which print high-end furnishings; c 60% of FY20 gross divisional revenue was to third-party customers, c 40% supported the group’s Brands division.

Trading performance: Overall, gross manufacturing revenue declined by c 38% comprising a 32.5% reduction in external/third-party sales, slightly lagging the Group’s own Brands division performance, and 46.1% lower internal Brands sales. As distribution activities were generally less restricted and able to sell from warehouse inventory during the COVID-19 lockdown period, a weaker relative manufacturing outcome is intuitively right and certainly applied to this division. We note the difference in (gross) sales progression between Standfast & Barracks and Anstey which were c 23% and c 51% lower y-o-y respectively. Starting inventory positions may have contributed to this variance but we believe that the larger digital printing capability (c 60% of capacity versus c 10% at Anstey) was a more important factor. Greater flexibility in run length and changeover times means that a post-lockdown re-start at Standfast would have been more straightforward than Anstey. Underlying demand of course will also been a factor but we do not have any insight regarding the relative volumes of fabric and wallpaper pulled through by the group’s Brands division. With regard to third-party sales, as seen in the Brands division, international performed better than the UK.

At the EBIT level, the Manufacturing division moved from a £1m H120 profit (6.1% margin) to a £0.4m loss in H121. For illustration, if we assumed that this division usually generates a gross margin in line with the group, £6.6m lower revenue y-o-y would equate to a c £4m reduction in gross margin, even before lower recoveries of fixed manufacturing overhead from reduced volumes. Consequently, we consider that a £1.4m profit reversal y-o-y is a creditable outcome in a disrupted period that included initial shutdown actions, a two-month lockdown phase followed by a managed production restart. Cost reduction actions and receipts from the UK government furlough scheme (£3.2m government support) would have served to partly mitigate the loss of manufacturing volume.

Outlook: An analysis of manufacturing operations has been undertaken and completed at group level though the details were not shared externally. In our view, the experience of trading through COVID-19 challenges has served to highlight the benefits of Walker Greenbank’s vertically integrated business model, providing supply chain reliability for Brands and enhanced demand visibility for Manufacturing. That said, improvements are to be targeted including developing closer relationships with suppliers, increased supply chain responsiveness, and active management of Environmental, Social and Governance (ESG)-related issues. In targeting a reduction in Brands SKUs over time there should also be upstream benefits in manufacturing and increased efficiencies. In turn, lower unit costs should lead to improved collection-level returns on investment and also increase the competitiveness of manufacturing operations in the commercial contract segment where management is targeting growth.

Maintaining a breadth of printing techniques at both Anstey and Standfast, coupled with in-house design capability, represents a competitive advantage in attracting and retaining third-party customers as well as supporting group brands. We do expect further investment in digital capacity at Anstey, possibly in the next financial year, but operations are unlikely to move entirely to digital in our view to retain a differentiated, UK-based service offering.

Liquidity position improves over H121

Walker Greenbank ended H121 in a £4.5m core net cash position (excluding IFRS 16 leases), having generated a £3.1m inflow in the period despite reduced profitability. Under existing committed banking arrangements (ie a £12.5m Revolving Credit Facility and £2.5m overdraft facility), the company retained almost £20m liquidity headroom at the period end. The balance sheet also recorded £8.4m IFRS 16 finance leases at the end of July.

Operating cash flow actually rose y-o-y to £5.1m (+£1.5m) in the first half. The main moving parts behind this were the £4.7m EBIT reduction shown in Exhibit 1 being more than offset by a favourable £5.3m working capital swing (from a £3m prior year outflow to a £2.3m inflow). Inventory reduction was the largest contributor to this variance with an inflow of just over £5m in H121and this is consistent with the ongoing sales and distribution/manufacturing stop scenario we outlined in the Manufacturing trading performance. Lower activity levels naturally resulted in a partial unwinding of normal receivables and payables positions. We should also note that cash recovery payments into the defined benefit pension scheme (£0.6m) benefited from a temporary three-month suspended period which preserved a further c £0.6m within the company compared to H120.

By definition, all of the other cash flow items combined resulted in a net £2m outflow in the first half, the largest component of which was £1.4m IFRS 16 lease repayments. Otherwise, capex was closely managed at £0.4m. Traditionally, Walker Greenbank pays both the prior year final and current year interim dividend in the second half of the year. So there was no outflow and no year-on-year effect in H121 and as no dividend was declared for either period, there will be no cash outflow in the second half.

As a final cash flow comment, the group’s H121 cash flow performance included some benefits from government support related to national COVID-19 restrictions. The £3.2m receipt under furlough schemes was obviously reflected in the EBIT performance. We understand that a temporary tax payment deferral of c £0.5m – expected to flow out in FY22 – benefitted H121 also.

Cash flow outlook: As noted above, no dividend payments will be made in FY21 and we would expect capex to remain tightly controlled. There will be H2 one-off costs associated with a redundancy programme (c 10% of the workforce, reflecting an uncertain macroeconomic outlook) and the corporate re-branding process, but these items should be below £1m in total. There is likely to be a natural re-build of inventory and the extent of this will be dictated by the level of sustained demand to be serviced. Over time, the stated intention is to reduce inventory SKUs and we assume that this will also release working capital. The accounting defined benefit pension deficit stood at £9.2m at the end of July and recovery plan cash contributions are set £192k per month until the outcome of the next triennial review which is to take place in April 2021.

Making progress in uncertain times

The new management team is progressively putting its mark on the business through operational and organisational changes. The plan to rename the company the Sanderson Design Group at the end of November is part of a strategy to elevate individual group brands, emphasise the core design skillset and increase the value generated from an extensive design archive. It is also paving the way for business simplification and increased digitalisation (in collection launches, marketing and customer interaction).

As far as current trading is concerned, July group revenues were in line with the prior year – representing a good close to a half in which some months were significantly down y-o-y – and August and September appear to have continued in a similar vein. October and November are seasonally strong months so the company is currently in the midst of an important trading period. Management noted that the Manufacturing division started the second half with ‘both factories having strong third-party order books and sales,’ so momentum going into the autumn selling season appears to have been encouraging. Understandably, Walker Greenbank’s management team has adopted a cautious stance with regard to the outlook for the remainder of the year. We consider this to be appropriate given ongoing uncertainties regarding the impact of COVID-19 on consumer confidence and demand.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2018R

2019

2020

Year end January

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

75.7

78.4

83.4

87.8

92.4

112.2

113.3

111.5

Cost of Sales

 

 

(30.2)

(30.3)

(32.7)

(35.9)

(36.2)

(44.0)

(45.3)

(43.3)

Gross Profit

 

 

45.5

48.1

50.7

52.0

56.2

68.2

68.0

68.1

EBITDA (pre IFRS 16)

 

 

8.6

9.7

10.7

11.8

13.1

15.7

12.9

11.0

Op Profit - Edison norm

 

 

5.8

6.5

7.3

8.2

9.5

12.2

9.3

7.0

Op Profit - company adjusted

 

 

6.6

7.5

8.3

9.1

10.6

13.0

9.8

7.8

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.3)

(0.3)

(0.4)

Intangible Amort – acquired

 

 

0

0

0

0

(0.3)

(1.0)

(1.0)

(1.0)

Pension net finance charge

(0.7)

(0.9)

(0.8)

(0.7)

(0.1)

(0.2)

(0.2)

(0.2)

Exceptionals

 

 

0

0

0

0

(1.8)

2.3

(2.2)

(1.0)

Other

 

 

0

0

0

0

0

0

0

0

Profit Before Tax (Edison norm)

 

 

 

 

 

9.3

11.9

9.0

6.6

Profit Before Tax (company norm)

 

6.4

7.3

8.1

8.9

10.4

12.7

9.5

7.4

Profit Before Tax (statutory)

 

 

4.9

5.5

6.3

7.3

7.0

13.0

5.6

4.4

Tax

 

 

(1.0)

(0.5)

(1.2)

(1.5)

(1.6)

(1.1)

(1.2)

(0.7)

Profit After Tax (norm)

 

 

5.4

6.6

6.9

7.5

8.2

10.0

7.3

6.3

Profit After Tax (statutory)

 

 

4.0

5.0

5.1

5.9

5.4

11.9

4.4

3.7

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

57.5

58.5

59.3

60.0

62.7

70.4

71.0

71.0

EPS - Edison norm (p) FD

 

 

 

 

 

 

11.5

13.3

10.1

7.9

EPS - company norm (p) FD

 

 

9.4

10.7

11.2

11.6

12.9

14.4

10.8

9.2

EPS - statutory (p)

 

 

6.9

8.6

8.6

9.8

8.6

16.9

6.2

5.2

Dividend per share (p)

 

 

1.5

1.9

2.3

2.9

3.6

4.4

3.2

0.5

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

60.1

61.3

60.8

59.2

60.8

60.8

60.0

61.1

EBITDA Margin (%)

 

 

11.4

12.4

12.8

13.4

14.1

14.0

11.4

9.9

Op Margin (Edison norm) (%)

 

7.7

8.3

8.8

9.3

10.2

10.9

8.2

6.3

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

18.5

21.1

21.5

18.9

47.5

47.7

46.0

52.3

Intangible Assets

 

 

6.7

7.3

7.2

7.1

31.6

31.8

30.8

29.8

Tangible Assets

 

 

9.8

11.7

12.7

11.7

15.8

16.0

15.2

22.5

Investments

 

 

2.0

2.2

1.6

0.1

0.0

0.0

0.0

0.0

Current Assets

 

 

32.6

35.3

37.1

40.3

51.3

52.1

49.3

52.1

Stocks

 

 

16.8

18.4

22.0

18.1

30.3

29.5

28.0

28.5

Debtors

 

 

12.8

13.9

14.1

19.3

19.5

21.3

18.9

20.5

Cash

 

 

2.9

2.8

1.0

2.9

1.5

1.3

2.4

3.1

Other

 

 

0.1

0.2

0.0

0.0

 

 

 

 

Current Liabilities

 

 

(17.3)

(19.4)

(20.7)

(19.4)

(34.8)

(28.9)

(23.8)

(27.5)

Creditors

 

 

(16.9)

(19.0)

(20.3)

(19.0)

(28.0)

(22.4)

(21.8)

(25.8)

Short term borrowings

 

 

(0.4)

(0.4)

(0.4)

(0.4)

(6.8)

(6.6)

(2.0)

(1.7)

Long Term Liabilities

 

 

(9.6)

(10.2)

(10.9)

(4.5)

(12.7)

(9.1)

(10.6)

(12.1)

Long term borrowings

 

 

(1.4)

(0.9)

(0.6)

(0.2)

0.0

0.0

0.0

0.0

Other long term liabilities

 

 

(8.2)

(9.2)

(10.4)

(4.3)

(12.7)

(9.1)

(10.6)

(12.1)

Net Assets

 

 

24.2

26.9

26.9

35.3

51.3

61.8

60.9

64.8

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

6.0

6.2

3.5

7.1

12.4

7.0

12.6

9.6

Net Interest

 

 

(0.2)

(0.2)

(0.2)

(0.1)

(0.2)

(0.2)

(0.3)

(0.5)

Tax

 

 

(0.0)

(0.0)

(0.0)

(0.6)

(2.3)

(2.2)

(0.8)

(0.8)

Capex

 

 

(3.1)

(4.7)

(3.2)

(2.5)

(6.7)

(3.5)

(2.8)

(2.4)

Acquisitions/disposals

 

 

0.0

0.0

0.0

0.0

(27.1)

0.0

0.0

0.0

Financing

 

 

(0.1)

(0.0)

(0.4)

(0.1)

18.3

1.8

0.0

0.0

Dividends

 

 

(0.7)

(0.9)

(1.1)

(1.4)

(1.8)

(2.7)

(3.1)

(2.2)

Net Cash Flow

 

 

1.8

0.3

(1.5)

2.3

(7.4)

0.1

5.7

3.7

Opening net debt/(cash)

 

 

0.7

(1.2)

(1.5)

(0.0)

(2.3)

5.3

5.3

(0.4)

Net finance leases

 

 

0.0

0.0

0.0

0.0

(0.0)

0.0

0.0

(2.7)

Other

 

 

0.0

0.0

0.0

0.0

(0.2)

(0.1)

0.0

(0.0)

Closing net debt/(cash)

 

 

(1.2)

(1.5)

(0.0)

(2.3)

5.3

5.3

(0.4)

(1.3)

Lease finance (under IFRS 16)

 

 

 

 

 

 

 

 

 

8.4

Source: Walker Greenbank, Edison Investment Research. Note: Edison norm deducts pension scheme and LTIP costs from company adjusted norm. 2018 results restated for IFRS 15 Revenue from Contracts with Customers; the primary P&L effects were to reclassify some marketing materials/services as net other income and carriage recoveries to revenue and, as they were previously netted out of distribution costs, increase this cost line. From FY20 figures are presented on an IFRS 16 basis.

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Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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