Severfield — Converting orders into profitability

Severfield (LSE: SFR)

Last close As at 12/07/2024

GBP0.81

2.00 (2.54%)

Market capitalisation

GBP249m

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Research: Industrials

Severfield — Converting orders into profitability

FY19 results were in line with guidance and our expectations, with the Indian JV performance a clear highlight, while investment and order book development in the year in both the UK and India bode well for future progress. In the near term, the dividend yield is an obvious attraction but we believe converting strong order positions into profitability represents the driver of share price progress from here.

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Industrials

Severfield

Converting orders into profitability

FY19 results

Construction & materials

27 June 2019

Price

69.0p

Market cap

£210m

Net cash (£m) at end March 2019

25.2

Shares in issue

303.9m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.5)

4.6

(21.8)

Rel (local)

(7.0)

1.6

(19.6)

52-week high/low

87.0p

64.6p

Business description

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

Next events

FY19 final DPS 1.8p ex dividend

15 August

AGM

4 September

FY18 final DPS to be paid

13 September

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Severfield is a research client of Edison Investment Research Limited

FY19 results were in line with guidance and our expectations, with the Indian JV performance a clear highlight, while investment and order book development in the year in both the UK and India bode well for future progress. In the near term, the dividend yield is an obvious attraction but we believe converting strong order positions into profitability represents the driver of share price progress from here.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS**
(p)

P/E
(x)

Yield**
(%)

03/18**

274.2

24.0

6.5

4.3

10.6

6.2

03/19

274.9

25.2

6.8

2.8

10.1

4.1

03/20e

285.9

27.3

7.4

3.0

9.3

4.4

03/21e

292.5

28.1

7.6

3.3

9.0

4.8

Note: *PBT and EPS are Edison normalised, excluding pension net finance costs, intangible amortisation and exceptional items. **FY18 DPS included a 1.7p special dividend.

UK stability, strong Indian JV growth

Although revenue was flat year on year, Severfield delivered increased underlying company-defined PBT and EPS (by 5%) with an 8% uplift in conventional DPS (no special dividend was declared for this year, as expected). The Indian JV was the strongest contributor to progress in the year with profitability more than doubling as the sharp pick up in orders started to translate into revenue. In the UK, the performance was generally robust with stable operating margins in both half years and modest y-o-y progress on a reported basis. After funding investment in the UK and India and paying the FY18 special dividend, Severfield ended FY19 with c £25m net cash.

Estimates unchanged, momentum building

The headline order book positions (ie UK/Europe £295m, Indian JV £134m) are clear positives. Management has reiterated confidence in attaining its £26m+ PBT target for FY20; our estimates for the next two years (including £26.8m for FY20, company norm) are unchanged and we expect further progress in FY22. We have elected to remain cautious on margin development pending further updates on UK order intake, European project delivery and expansion in India. Order book development suggests activity will build as the year progresses and momentum here will provide a benchmark for our assumptions.

Valuation: Yield pick-up, delivery to drive rating

After a rebound post year end, Severfield’s share price has retraced and currently sits c 5% below the level it began the year. As a result, the current year P/E and EV/EBITDA are now 9.3x and 5.5x respectively. In addition, there is a c 2.5% yield pick-up with the FY19 final DPS and a full-year FY20 prospective yield of 4.4%. Operational and financial delivery has been robust and order books have grown but it feels as though weak investor sentiment on the UK construction contractor sector is casting a shadow. A firmer UK backdrop would probably be seen as a catalyst for share price progress but we believe the successful conversion of orders to profitability as outlined above can have a similar effect.

FY19 results overview

Severfield’s FY19 financial performance was in line with (perhaps marginally ahead of) our expectations on most headline metrics, including year-end net cash of £25m. Within the mix, UK operating profit was slightly on the low side compared to our estimates but the Indian JV contribution was clearly stronger. As we had anticipated, no special dividend was declared this year while conventional DPS rose by +8% y-o-y to 2.8p. Our existing estimates are unchanged and, absent any new material investment programmes, we expect the company’s net funds position to build, raising the possibility of special dividend payments in future.

UK operations: Robust performance and order book evolution

FY19 revenue was similar to the prior year but UK operations delivered a £0.4m increase in reported operating profit and a 20bp margin uplift to 8.5%. (Under our adjustment for share-based payments and pension net finance costs, operating margin was unchanged at 9.2%.)

Exhibit 1: Severfield interim splits

Mar y/e £m

H118

H218

2018

H119

H219

2019

% change y-o-y

H1

FY

Group revenue

137.1

137.1

274.2

149.1

130.2

274.9

8.7%

0.3%

Group operating profit

12.7

10.2

22.9

12.5

10.8

23.3

-1.7%

1.7%

Operating margin %

9.3%

7.4%

8.3%

8.4%

8.3%

8.5%

-90bp

+20bp

Group operating profit – adj*

13.5

11.9

25.4

12.8

12.6

25.4

-5.2%

0.1%

Operating margin %

9.8%

8.7%

9.2%

8.6%

9.7%

9.2%

-90bp

---

Order book**

245

242

230

295

Source: Company, Edison Investment Research. Note: *Reported operating profit is adjusted for share-based payments and estimated pension net finance costs. Neither profit line includes any contribution from JV/associates. **UK & Europe, at date of reporting results.

Tonnage volume was probably at the lower end of earlier expectations; this is reflected to some extent in sequential revenue development from H1 to H2, although Severfield demonstrated a robust and very stable reported margin performance over the year, within its target 8–10% range. (The first part of FY18 benefitted from some good contract outcomes, which also skewed profitability to its H1 trading period.) FY19 was the first full year following the reorganisation of fabrication (fab) facility operations1 and the rollout of the StruMIS IT platform (for fab production and control, integrated with commercial management and project reporting) was completed. The benefits from these actions should continue to accrue gradually; this may not be visible through a step change in margins but could underpin through-the-life-cycle project management and risk control, particularly for new jobs as they are brought onto the order book and progressed through to commercial completion. In support of incremental production efficiencies, Severfield continued to invest in capex; this ran at almost 2x depreciation and c £5m of the £7m total spend concerned production-related equipment.

Sherburn, North Yorkshire is now the base for servicing the steelwork package requirements of smaller contractors following the consolidation of its primary fabrication activities into the main Dalton site (also North Yorkshire). In addition, some line were moved from Lostock, Greater Manchester were also moved to Dalton with the former site concentrating on specialist, slower throughput sector work. Sherburn is now referred to as Severfield (Products & Processes).

Project profile: the new Google HQ building is the largest project underway (c £50m value, started end FY19, completion anticipated in FY21) with four others above £20m having cycled – or substantially done so – through the order book. Mid-sized commercial offices in London and the regions, rail, road and pedestrian transport bridges and ongoing healthy demand for logistics/distribution and data centre projects all contributed to FY19 revenues. The order book stands at £295m (versus £274m at the year end and £230m when the H119 results were reported). As previously noted, larger commercial scheme work has dipped in the near term and is around a three-year low in order book terms as are stadia/leisure projects. This partly reflects progress with existing large projects in these sub-sectors and the phasing of opportunities where management considers there is good potential on a two- to three-year view. More positively in the near term, the industrial/distribution sector order position has strengthened to around a quarter of total UK and Europe orders on hand, although data centres have risen to almost the same amount from a much lower level when the interims were reported.

Outlook: management referred to a stable pipeline but softer UK markets. Within the order book development described above, the UK portion now represents just under two-thirds of the total (implied c £186m versus c £228m in November) versus virtually all of the six months previously. This partly reflects the cycle through of larger commercial office projects and an element of delay and deferral such that an activity lull has occurred in this segment and, consequently, the value of orders on hand is around its lowest level for around three years. Similar comments apply to the stadia/leisure sector but brighter prospects are flagged in both areas on a two- to three-year view. The overall order book increase therefore has been driven from Europe (including the Republic of Ireland) with an uplift of £100m+ from very low levels over the last six months. The company’s European sales office has successfully supported UK tenders for data-centre work and secured a significant scientific research establishment project in Lund, Sweden.

We should also mention that British Steel went into administration in May. Having diversified its supply base in recent years, Severfield has been sourcing around half of its long sections (c 35% of total steel requirements) and no plate sections from this long-time supplier. Arcelor Mittal (UK subsidiary/ European mills) is the primary dual source and we believe has the capability to provide increasing volumes if required. In the short term, British Steel is continuing to trade and supply under its administrators so there has been no near-term disruption. If the volume requirement from Mittal increases, there could be a small lengthening of the supply chain in the ramp-up period. As Severfield is an existing customer, it would be reasonable to expect no major business dislocation. Steel stockholders could also be used as a buffer for small volumes on a short-term basis.

India JV operations (JSSL): Scaling up for growth

A growth trajectory has been apparent in previous six-month periods but a strong end to FY19 drove record turnover, with H219 exceeding that generated in the whole of the prior year. While operating margins did narrow (see below) the higher revenue base and reduced JV debt meant that underlying profitability and Severfield’s share of after tax profit more than doubled year on year (to £1.2m).

Exhibit 2: Indian JV (JSW Severfield Structures or JSSL) interim splits

Mar y/e £m

H118

H218

2018

H119

H219

2019

% change y-o-y

H1

FY

Revenue

21.8

26.8

48.6

31.8

52.3

84.1

45.9%

73.0%

Operating profit

2.0

2.5

4.5

2.2

3.2

5.4

10.0%

20.0%

Op margin %

9.2%

9.3%

9.3%

6.9%

6.1%

6.4%

+10bp

-290bp

Finance expenses

-1.8

-1.3

-3.1

-1.1

-1.1

-2.2

PBT

0.2

1.2

1.4

1.1

2.1

3.2

Tax

---

-0.4

-0.4

-0.3

-0.6

-0.9

PAT

0.2

0.8

1.0

0.8

1.5

2.3

Severfield share of PAT (50%)

0.1

0.4

0.5

0.4

0.8

1.2

300.0%

130.0%

Order book

79

106

124

134

Source: Company

We understand the Bellary fab volume processed was c 44,000 tonnes of c 68,000 tonnes sold in total. In other words, around one-third was outsourced to third parties; management commented that this volume was spread rather than concentrated, which indicates that JSSL has developed an extensive supply chain at the same time as building its own market presence. As the order backlog has built ahead of capacity (c 60,000 tonnes per year, partly depending on workflow type) the benefit of having cultivated local industry partners is now being seen. While the use of third parties could have partly contributed to keener margins, the primary driver was business mix, with a higher proportion of industrial versus commercial work. This includes steelwork on behalf of JV partner JSW, which is investing in its domestic steelmaking capability and capacity. JSSL oversees the fabrication work undertaken by its supply chain partners and retains full control over projects and their progression to completion.

Outlook: the £134m order book position (vs £124m at H1 stage and £149m at year end) is very strong in a historic context. We suspect the reduction seen since March is a timing effect and reflects good existing project progress. Encouragingly, the commercial proportion now approaches 60% of the total; although some of this will be for delivery beyond the current financial year, management has stated it expects the entity’s FY20 operating margin at or above 7%. The c £16m capacity expansion at Bellary is underway (adding 30,000 tonnes to capacity) and is expected to complete within the financial year. The partners injected half of the project capex in equal proportion during FY19 and new loan financing to cover the remainder will be drawn down as required by the build programme.

Other JV: Construction Metal Forming

This cold-rolled steel building products business contributed c £0.4m to Severfield’s PBT, reported under the JV/associate line, in line with the prior year. Established as a supplier of metal decking, through investment Construction Metal Forming’s (CMF’s) product portfolio has expanded to include purlins, rails and framing for steel structures since Severfield acquired its interest. As well as being an adjacent business investment, CMF is able to supply ancillary steelwork that complements Severfield’s core operations and enhances the project package offered to its customers.

Capital allocation reduces net funds, future cash inflows seen

Net cash stood at £25.2m at the end of FY19, similar to the interim stage and a reduction of almost £8m over the year. We have already alluded to some of the capital allocation actions taken during the year with growth capex, JV investment and dividend payments all featuring.

EBITDA was comparable to the prior year at just over £29m but reversion to a more normal working capital position and other adjustments resulted in operating cash flow of £18m, c £5m lower than seen in FY18. The main contributor to this was the creditor outflow, which approached £7m for the year; we believe this partly reflected a reduction in advance payments and project phasing (bearing in mind that revenues were flat for the year and lower sequentially in H2). We also understand that retentions were considered to be normal at the year and with no particular impact as some of the larger projects come to a conclusion. Otherwise, c £2m adjustments (eg for share-based payments and asset disposal profits) were similar to the prior year.

Net interest, tax and capex cash outflows totalled c £10m. We highlight that capex was a significant proportion of this movement and note the resulting overall £8m positive free cash flow. Conventional cash dividend payments (boosted by the FY18 special distribution of c £5m, making c £13m in total) and the aforementioned Indian JV investment of c £4m were the major discretionary capital allocations in the year and a small new equity cash inflow (from employee share schemes, as seen in H1) completed the reported group cash movement.

Cash flow outlook: our model includes rising EBITDA and lower working capital outflows than seen in FY19 across our estimate years, which drives significantly higher free cash flow generation of c £14m in FY20 with further small improvements in each of the following two years. This comfortably funds a rising conventional cash dividend. Beyond this, in the absence of any further discrete investments, the c £5-7m per year net cash flow could possibly trigger future special dividend payments at some point although we do not model this.

We should also mention the intended adoption of IFRS16 by Severfield in its new financial year. We have not yet adjusted our estimates to reflect this standard but it will have the effect of increasing both the fixed asset base and headline net debt as lease arrangements and associated assets are brought onto the balance sheet. There may be a small net asset reduction as a result but no net impact on the P&L is anticipated.

Order books point to growth, existing estimates retained

Management has reminded us that the company is on track to achieve the 2016 target of doubling profitability by FY20, requiring the generation of £26m or more PBT to achieve this. Our pre-results PBT estimate for this financial year was £26.8m (company basis, after pension net finance costs).

FY19 revenues were modestly below our expectations but, given the UK/Europe order book position, there is likely to be upward pressure on our revenue estimates in the current year with this becoming more apparent in H2. It remains to be seen whether the new international work – requiring additional transportation costs – can be delivered with comparable margins. We also acknowledge that near-term UK market conditions appear softer so, for now, we make no adjustments to this part of our model. With regard to the Indian JV, it should be noted that its FY19 contribution was almost £0.5m higher than our existing projection for FY20. An improving order book mix should support higher margins here. However, some loan financing is going into the JV to part fund capacity expansion and this development phase could to be a distraction to running the existing fab operations so we have also adopted a cautious stance regarding the flow through of benefits at this stage. Consequently, our existing overall group estimates are unchanged and we now project to FY22.


Exhibit 3: Financial summary

£m

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021e

2022e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

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

12m to Mar

12m to Mar

12m to Mar

PROFIT & LOSS

Revenue

 

 

267.8

256.6

318.3

231.3

201.5

239.4

262.2

274.2

274.9

285.9

292.5

296.5

Cost of Sales

(246.9)

(268.8)

(330.9)

(217.8)

(186.7)

(219.6)

(236.3)

(244.9)

(244.6)

(253.2)

(258.9)

(262.0)

Gross Profit

20.9

(12.2)

(12.7)

13.5

14.9

19.8

25.9

29.3

30.3

32.7

33.6

34.4

EBITDA

 

 

19.5

(13.6)

(13.6)

12.0

13.6

18.9

25.7

29.0

29.0

32.4

33.6

34.7

Operating Profit - Edison

 

 

15.0

(17.7)

(18.6)

8.4

10.0

15.2

22.1

25.4

25.4

28.3

29.0

29.6

Net Interest

(1.6)

(1.6)

(2.0)

(0.6)

(0.5)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.1)

(0.1)

Associates

(2.5)

0.2

(0.3)

(3.0)

(0.2)

(0.2)

0.5

0.9

1.7

1.2

1.3

2.2

SBP

(0.3)

(0.0)

(0.1)

(0.2)

(0.5)

(1.1)

(2.0)

(2.0)

(1.6)

(2.0)

(2.0)

(2.0)

Intangible Amortisation

(2.7)

(2.7)

(3.5)

(2.7)

(2.6)

(2.6)

(2.6)

(1.3)

0.0

0.0

0.0

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(0.6)

(1.0)

(3.8)

(5.3)

(5.9)

(0.9)

0.8

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm) - Edison

 

10.6

(19.1)

(20.9)

4.5

8.8

13.7

20.3

24.0

25.2

27.3

28.1

29.7

Profit Before Tax (norm)

 

 

10.1

(19.6)

(21.5)

4.0

8.3

13.2

19.8

23.5

24.7

26.8

27.6

29.2

Profit Before Tax (statutory)

 

6.8

(23.3)

(28.9)

(4.1)

(0.2)

9.6

18.1

22.2

24.7

26.8

27.6

29.2

Tax

(0.9)

3.9

5.7

1.4

0.3

(1.0)

(2.7)

(4.1)

(4.5)

(4.8)

(5.0)

(5.1)

Profit After Tax (norm)

7.7

(16.2)

(17.9)

3.1

7.4

11.4

17.0

19.5

20.7

22.5

23.2

24.6

Profit After Tax (statutory)

5.8

(19.4)

(23.1)

(2.6)

0.1

8.6

15.3

18.0

20.2

22.0

22.7

24.1

Avge Number of Shares Outstanding (m)

89.3

89.3

89.3

295.8

297.5

297.5

298.9

299.7

303.1

303.5

303.5

303.5

EPS - norm (p) - Edison

 

 

4.51

(9.42)

(10.42)

1.05

2.47

3.84

5.70

6.52

6.82

7.40

7.64

8.10

EPS - norm (p)

 

 

4.21

(9.72)

(9.45)

0.88

2.31

3.67

5.53

6.35

6.65

7.24

7.47

7.94

EPS - statutory (p)

 

 

3.41

(11.33)

(13.49)

(0.89)

0.05

2.89

5.13

6.02

6.65

7.24

7.47

7.94

Dividend per share (p)

5.0

1.5

0.8

0.0

0.5

1.5

2.3

4.3

2.8

3.0

3.3

3.6

Gross Margin (%)

7.8

-4.8

-4.0

5.8

7.4

8.3

9.9

10.7

11.0

11.4

11.5

11.6

EBITDA Margin (%)

7.3

-5.3

-4.3

5.2

6.7

7.9

9.8

10.6

10.6

11.3

11.5

11.7

Operating Margin - Edison (%)

5.6

-6.9

-5.8

3.6

4.9

6.4

8.4

9.2

9.2

9.9

9.9

10.0

BALANCE SHEET

Fixed Assets

 

 

156.9

155.6

154.9

147.7

145.1

149.3

148.3

154.5

163.0

167.6

171.7

176.3

Intangible Assets

72.9

70.4

69.8

64.6

61.8

59.2

56.3

54.8

54.7

54.7

54.7

54.7

Tangible Assets

79.6

76.2

76.1

74.1

76.6

77.4

78.9

81.2

84.0

86.8

89.2

91.0

Investments

4.4

8.9

8.9

9.0

6.7

12.7

13.1

18.5

24.3

26.0

27.8

30.5

Current Assets

 

 

100.5

69.8

80.5

72.2

76.3

75.1

107.1

99.2

91.8

101.6

113.0

124.1

Stocks

9.1

7.1

8.2

5.8

4.8

5.3

7.8

9.6

8.9

9.2

10.4

11.6

Debtors

89.2

61.2

71.6

60.8

64.6

50.7

66.5

56.4

57.7

62.4

66.4

69.9

Cash

2.3

1.4

0.7

5.5

6.9

19.0

32.8

33.1

25.2

30.0

36.2

42.6

Current Liabilities

 

 

(103.6)

(97.0)

(112.5)

(57.9)

(59.7)

(58.2)

(78.7)

(66.1)

(58.6)

(60.7)

(61.8)

(62.7)

Creditors

(70.3)

(66.1)

(70.9)

(52.7)

(59.5)

(58.1)

(78.5)

(65.9)

(58.6)

(60.6)

(61.8)

(62.6)

Short term borrowings

(33.3)

(30.9)

(41.7)

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.0)

(0.0)

(0.0)

(0.0)

Long Term Liabilities

 

 

(21.6)

(21.7)

(20.4)

(18.5)

(21.1)

(17.9)

(22.5)

(18.7)

(21.2)

(21.2)

(21.2)

(21.2)

Long term borrowings

(0.3)

(0.3)

(0.2)

(0.0)

(0.6)

(0.4)

(0.2)

(0.0)

0.0

0.0

0.0

0.0

Other long term liabilities

(21.3)

(21.4)

(20.2)

(18.5)

(20.5)

(17.5)

(22.3)

(18.6)

(21.2)

(21.2)

(21.2)

(21.2)

Net Assets

 

 

132.3

106.6

102.4

143.4

140.6

148.2

154.2

169.0

175.0

187.3

201.7

216.5

CASH FLOW

Operating Cash Flow

 

 

(5.4)

12.9

3.1

2.1

11.4

24.8

27.4

22.9

18.0

27.3

28.0

29.2

Net Interest

(2.0)

(1.3)

(1.7)

(0.8)

(0.8)

(0.2)

(0.1)

(0.2)

(0.4)

(0.1)

(0.1)

(0.1)

Tax

(3.7)

(2.7)

(2.3)

0.4

(1.0)

(0.9)

(2.4)

(3.9)

(3.4)

(6.2)

(4.8)

(5.0)

Capex

(1.5)

(0.2)

(1.4)

(1.5)

(1.3)

(4.3)

(5.3)

(5.4)

(6.3)

(7.0)

(7.0)

(7.0)

Acquisitions/disposals

(0)

(2)

(3.0)

(3.5)

(1.7)

(4.1)

(0.4)

(5.5)

(4.2)

(0.5)

(0.5)

(0.5)

Financing

0

0

0.0

44.8

0

0

0

0

2

0

0

0

Dividends

(3.6)

(4.5)

(4.5)

0.0

0.0

(3.0)

(5.1)

(7.5)

(13.4)

(8.6)

(9.3)

(10.3)

Net Cash Flow

(16.3)

1.7

(9.7)

41.5

6.7

12.4

14.0

0.4

(8.0)

4.8

6.3

6.4

Opening net debt/(cash)

 

 

15.0

31.3

31.3

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(29.9)

(36.2)

Finance leases

0.0

0.1

0.0

(0.2)

(0.3)

(0.2)

(0.2)

(0.2)

(0.2)

0.0

0.0

0.0

Other

(0)

(0)

(0)

0.2

(0.6)

0.2

0

0

0

(0)

(0)

(0)

Closing net debt/(cash)

 

 

31.3

29.7

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(29.9)

(36.2)

(42.5)

Source: Company accounts, Edison Investment Research


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This report has been commissioned by Severfield and prepared and issued by Edison, in consideration of a fee payable by Severfield. 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.

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New Zealand

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United Kingdom

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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.

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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

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

1,185 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 commissioned by Severfield and prepared and issued by Edison, in consideration of a fee payable by Severfield. 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 research department of Edison 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

This document is prepared and provided by Edison 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.

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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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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