Epwin Group — Raised estimates and margin upside potential

Epwin Group (AIM: EPWN)

Currency in GBP

Last close As at 25/01/2023

GBP0.76

2.00 (2.70%)

Market capitalisation

GBP107m

Research: Industrials

Epwin Group — Raised estimates and margin upside potential

Epwin’s FY21 results exceeded our modestly upgraded estimates following a year-end update. The other highlights of the year were confirmed de-leveraging in line with guidance and a confident DPS uplift. Further recovery of industry input cost inflation through margin performance will be keenly watched but we have raised estimates for FY22 and FY23, including a stronger dividend expectation. In our view, the margin and share price risks are now firmly to the upside.

Industrials

Epwin Group

Raised estimates and margin upside potential

FY21 results

Construction & materials

19 April 2022

Price

94.4p

Market cap

£137m

Covenant net debt (£m)
at 31 December 2021

9.4

Shares in issue

144.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.8)

(12.3)

(12.5)

Rel (local)

(10.6)

(15.5)

(11.7)

52-week high/low

119p

85p

Business description

Epwin Group supplies functional low-maintenance exterior building products (including windows, doors, roofline and rainwater goods) into a number of UK market segments and is a modest exporter. It has a vertically integrated model in windows and doors and a leading market position in roofline products.

Next events

FY21 final DPS 2.35p XD

12 May 2022

AGM

24 May 2022

FY21 final DPS to be paid

6 June 2022

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

Epwin’s FY21 results exceeded our modestly upgraded estimates following a year-end update. The other highlights of the year were confirmed de-leveraging in line with guidance and a confident DPS uplift. Further recovery of industry input cost inflation through margin performance will be keenly watched but we have raised estimates for FY22 and FY23, including a stronger dividend expectation. In our view, the margin and share price risks are now firmly to the upside.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20

241.0

5.0

4.0

1.0

23.7

1.1

12/21

329.6

13.3

8.8

4.1

10.7

4.3

12/22e

350.4

14.5

8.1

4.2

11.6

4.4

12/23e

355.5

16.2

8.8

4.5

10.7

4.7

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals, on an IFRS 16 basis. Dividends: FY20 represents a final payment only.

FY21 profitability ahead of expectations

Compared to pre-COVID FY19, group revenues rose by 17% in FY21 and, while the 5.6% underlying, IFRS 16 EBIT margin reflected a lag pass-through effect of progressively higher input costs, EBIT was still £1.4m ahead of our estimate. PBT was also ahead and EPS was boosted by a low tax charge after a deferred tax adjustment. Divisionally, Extrusion & Moulding (E&M) absorbed more input cost inflation and operational pressures, but Fabrication & Distribution (F&D) had a very strong year, supplemented by three acquisitions. Core net debt (pre IFRS 16) ended the year in line with guidance at £9.4m (or 0.4x EBITDA on the same basis), which was almost half of the end-FY20 level, even after c £5m spend on acquisitions.

Further upgrade, profit upside illustration intact

Growth at the beginning of FY22 has been in line with management expectations, but was not quantified. Ongoing price inflation should continue to feature in FY22, although industry supply chain strains appear to be easing. Rising living costs may affect consumer propensity to spend on residential home improvements at the same rate as seen in 2021, but recorded housing transactions suggest that near-term activity will continue to be supported. Our PBT estimate for FY22 has increased modestly (+5%), with FY23 unchanged following FY21 results, and we now model a rising tax charge. Our recent note outlined a case for Epwin delivering record profit levels in due course; F&D’s margin performance, medium-term business drivers and the company’s market position all suggest to us that this is still very much achievable.

Valuation: Lagging the equity market recovery

Equity markets understandably weakened in Q1 following the start of the war in Ukraine. Some recovery has been seen subsequently, although Epwin’s share price is trading in the lower half of its range for the year (and down c 11% ytd). As a result of this and our estimate upgrades, FY22 valuation multiples now stand at a P/E of 11.6x and EV/EBITDA (pre-IFRS 16 basis) of 6.1x. Moreover, the FY21 final DPS alone yields 2.4%, with a prospective 4.4% for FY22 as a whole.

FY21 results overview

Epwin’s FY21 revenues were in line with our expectation, but PBT came in £1m ahead of our (slightly increased at year end) estimate,2 driven by F&D profitability. Behind this performance, the divisional mix was also more in favour of F&D than we had anticipated – at both revenue and EBIT levels – partly offset by a softer E&M contribution. Year-end core net debt was in line with guidance at c £9m, broadly half of the level seen at the start of the year.

PBT norm Edison £13.3m, after £0.4m share based payments (vs PBT norm company £13.7m, before SBP).

Exhibit 1: Epwin Group divisional & interim splits

£m

H119

H219

2019

H120

H220

2020

H121

H221

2021

H121/FY21 % change
versus corresponding period

H119

FY19

H120

FY20

Group revenue

140.0

142.1

282.1

93.3

147.7

241.0

157.8

171.8

329.6

12.7

16.8

69.1

36.8

Extrusion & Moulding

87.8

89.8

177.6

60.7

93.6

154.3

97.0

105.3

202.3

10.5

13.9

59.8

31.1

Fabrication & Distribution

52.2

52.3

104.5

32.6

54.1

86.7

60.8

66.5

127.3

16.5

21.8

86.5

46.8

Group EBIT profit*

9.4

11.8

21.2

-1.8

11.2

9.4

9.4

9.1

18.5

0.0

-12.7

N/M

96.8

Extrusion & Moulding

8.6

10.1

18.7

-0.3

8.6

8.3

6.4

5.8

12.2

-25.6

-34.8

N/M

47.0

Fabrication & Distribution

1.8

2.8

4.6

-0.4

3.6

3.2

4.0

4.4

8.4

122.2

82.6

N/M

162.5

Group costs

(1.0)

(1.1)

(2.1)

(1.1)

(1.0)

(2.1)

(1.0)

(1.1)

(2.1)

H121/FY21 BP change
versus corresponding period

Group EBIT margins*

6.7%

8.3%

7.5%

-1.9%

7.6%

3.9%

6.0%

5.3%

5.6%

-70

-190

N/M

-200

Extrusion & Moulding

9.8%

11.2%

10.5%

-0.5%

9.2%

5.4%

6.6%

5.5%

6.0%

-320

-450

N/M

60

Fabrication & Distribution

3.4%

5.4%

4.4%

-1.2%

6.7%

3.7%

6.6%

6.6%

6.6%

320

220

N/M

290

Source: Company, Edison Investment Research. Note: *Underlying, IFRS 16 basis.

Group revenues saw a16.8% uplift versus FY19, around half of which was generated from increased selling prices and surcharges, c 30% from higher volumes and c 20% from acquisitions. Against the same comparator, group gross margin declined to 28.1% (down 340bp) given input cost pressures and pass-through lags, although this was partially mitigated at the underlying EBIT level (5.6% margin, down 190bp) with some evidence of tighter opex control. Specifically, administration costs only rose by 4.7% and, while distribution expenses increased by 14.8% (including fuel and transportation cost inflation), this was still below the rate of revenue progress.

We understand that the net impact of higher input costs (ie after taking higher selling prices and surcharges into account) effectively more than explained the gross margin movement. Positive volume drop-through effects, acquisition contributions and other items collectively exceeded wage cost pressures in the period (which would have fed into both COGS and opex). Divisionally, F&D hitting and sustaining record EBIT margins (of 6.6%) was the clear trading highlight, while E&M performance was clearly more subdued largely due to input cost pressures. Lastly, we note that group central costs have been flat now over the last three years, which will have partly contributed to the limited administration cost uplift referred to earlier.

Extrusion & Moulding: Healthy demand, margin pressures

Manufacturing operations continued to generate the largest share of group profitability in FY21, although below pre-pandemic levels in absolute terms. Compared to FY19, divisional revenues rose by c 14%, while EBIT was over one third lower, generating an EBIT margin of only 6.0%.

Following the broad pandemic lockdown in H120, the constituent businesses largely recovered well from the second half of 2020, benefiting from strong volume demand. While this continued into 2021, a related uptick in input cost inflation right across the building materials product spectrum gathered momentum, arising from below normal inventories in distribution networks, raw material production lagging demand and some transport constraints. In Epwin’s case, its cellular (eg roofline, cladding), rainwater and decking lines fared relatively well with product availability and pass-through of higher input costs. In contrast, window systems was more challenged, factoring in additional logistics strains which affected service levels, lead times and probably pricing leverage to some extent. In other words, the rate at which input price increases were passed through is likely to have seen a greater lag here than elsewhere in the group. In order to limit any further short-term impacts on customer supply, the final relocation of finished window profile inventory into the new purpose-built warehouse facility at Telford was put on hold, to be completed in FY22.

Excluding the pandemic-affected FY20 trading year, the E&M division has historically reported EBIT margins in the low double-digit, 10–13% range, so we believe that the FY21 result should be seen as an aberration for the above reasons. Rebalanced inventory, reduced order backlogs and full use of the new warehouse facility should all serve to normalise customer service levels during FY22. As an illustration, restoring a 10% EBIT margin on maintained FY21 revenue levels would generate an incremental c £8m of EBIT for the division. However, virgin polymer costs firmed again in March. So, while we consider it reasonable to expect some improvement in divisional margin in FY22, with some ongoing lag on pass through to selling prices, historic levels are unlikely to be attained this year in our view.

Fabrication & Distribution: Record year

At the headline level, the F&D division delivered FY21 revenues almost 22% higher than in FY19, with EBIT ahead over 80% on the same basis and a 220bp EBIT margin increase to 6.6%, all of which represented record levels. Epwin made three in-year acquisitions,3 which contributed £9.5m to the top line and £1.1m to EBIT; excluding this, the underlying revenue and EBIT increases from ongoing operations were c 13% and c 60% respectively.

All 2021: SBS Cumbria (January; eight branches, northern England, Scotland), Plastic Building Supplies or PBS (June; four branches, East Anglia) and Accrington Plastics (November; one branch, northern England) for a combined net cash consideration in the period of £5.3m. Total number of divisional distribution branches was over 100 at the year end.

Distribution accounts for around 60% of divisional revenues and the fabrication of windows and doors makes up the majority of the remainder (with decking installation a small contributor also). We believe that these larger activities grew underlying revenues by similar, low double-digit percentage points in FY21 versus FY19. Within this, trade fabrication subsector growth was especially strong, but diluted to some extent by slower progress in the social housing subsector, which started the year more slowly with housing association budgets more focused in other areas. Distribution underlying revenue growth improved slightly as the year progressed, which may have been due to a strengthening price effect to recover input cost increases. Incremental revenues from acquisitions (see above) would also have skewed headline revenues a little more towards H2.

The achieved 6.6% EBIT margin was particularly noteworthy, a new record level despite supply chain cost pressures and achieved in both the first and second halves of FY21. Excluding acquisitions, the underlying margin was c 6.2% which was 100bp+ higher than the best previously reported for the division. This was further enhanced by acquiring existing customers, capturing incremental distribution revenue and profit contributions. Otherwise, effective management of price lists and further harmonising product lines and IT platforms across the distribution branch portfolio is likely to have aided margin improvement. (Note that an exit from sealed glass unit fabrication at the beginning of 2019 was reported as a discontinued operation in that year, so should not have affected the FY19/FY21 margin comparison.) Overall, the margin outturn for the year compared favourably to our own illustrative level, recently used as an input into our investment case for generating record group profitability. Specifically, based on historical levels and work undertaken to improve performance, we highlighted a 4–6% F&D EBIT margin range as a reasonable medium-term expectation, using a 5% midpoint as a building block in support of a potential record level of group profitability proposition. Hence, we see the FY21 performance as a strong endorsement of the F&D potential in this context.

Ongoing cash inflow reducing core net debt to low levels

Epwin ended FY21 with £9.4m core net debt (pre IFRS 16) down from £18.5m 12 months earlier. With asset disposal proceeds effectively matching cash acquisition spending in the period, underlying cash generation comfortably funded a resumption of dividend payments.

Although FY21 EBITDA (excluding right-of-use asset depreciation) at c £25m was c £4m lower than in FY19, operating cash flow for the year on the same basis was comparable at c £25m. In other words, the net effect of very modest working capital investment and non-cash adjustments was negligible in the latest year (but a net outflow in FY19). The composition of working capital flows included a £10m inventory investment arising from a relatively low position at the beginning of the year and build-up of a buffer position at the year end, amplified by rising input costs. The c £6m absorption in H2 was more than matched by good receivables collection and a further increase in payables, which partly reflected and offset the inventory movement.

Cash interest and tax combined saw a £2m outflow (bank interest costs being stable at £1.5m while tax of £0.5m was in line with the P&L charge). Gross capex totalled £5.5m and was substantially spent on maintenance of owned tangible assets, with no specific new projects highlighted. This was almost matched by the final net proceeds from the new Telford (Hortonwood) warehouse sale and leaseback as that facility was completed. After the above items, free cash flow for the year was c £22m (or c £17m underlying excluding the Telford site proceeds).

Epwin spent just over £5m cash on the three acquisitions referenced earlier and distributed £4m in the form of cash dividend payments in FY21. The net cash outflow associated with reported IFRS 16 line items (ie right-of-use asset depreciation and associated interest and capital repayments) was £3.5m in the period. Consequently, overall net cash inflow for Epwin was c £9m, which almost halved core bank debt on the balance sheet to £9.4m at the year-end compared to a year earlier. For the record, £77.5m of IFRS 16 leases were on the balance sheet at the end of FY21.

Cash flow outlook: on our revised estimates (see below), we anticipate EBITDA to improve in each successive estimate year. However, we assume normalising cash tax payments, capex ahead of depreciation and a step-up in dividend payments also. As a result, we expect Epwin to generate net cash inflows in the single-digit million pounds across our estimate years, progressively rising from FY22 levels when we have factored in further working capital investment. No further acquisitions are included in our estimates at this stage and, on this basis, we expect Epwin to be effectively ungeared by the end of FY23. This said, M&A opportunities remain on management’s radar.

Further growth expected

Management outlook comments referred to y-o-y revenue growth so far at the beginning of FY22, in line with company expectations, although this was not quantified. Price inflation should continue to feed through, although underlying volume growth is likely to track below the prior year levels in our opinion. We would expect residential spending on repair, maintenance and improvements to continue to be supported by the lag effect from high housing transaction levels (especially to mid-2021), as well as increasingly established home-working drivers, although rising living costs (and interest rates) will provide a less benign backdrop. For the other subsectors served, residential newbuild activity looks to be robust and the social housing sector appears to be showing signs of improving.

We have increased our group revenue and EBIT expectations, chiefly due to the performance of the F&D division in FY21 and the ongoing effects of price inflation. Conservatively, our estimates include some improvement in E&M margins (although not back to historic levels) and F&D margins towards the upper end of our previously described 4–6% range expectation.

Exhibit 2: Epwin Group revised estimates

EPS, fully diluted, normalised (p)*

PBT, normalised (£m)*

EBITDA (£m)**

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

FY21

6.9

8.8

+27.5%

12.3

13.3

+8.1%

24.9

22.0

-11.6%

FY22e

7.8

8.1

+3.8%

13.8

14.5

+4.3%

26.5

23.7

-10.6%

FY23e

9.2

8.8

-4.3%

16.2

16.2

---

29.0

25.6

-11.7%

FY24e

N/A

9.7

N/A

N/A

18.2

N/A

N/A

27.8

N/A

Source: Edison Investment Research. Note: FY21 old = estimate, new = actual. *IFRS 16. **Pre IFRS 16; changes include a slightly higher pre IFRS adjustment and a lower owned asset depreciation charge run rate compared to previous estimates. FY21 EPS benefited from a deferred tax adjustment reducing the effective tax rate to 3%.

Investors should also note that the stronger FY21 final dividend declaration versus our expectations has caused us to raise our projected DPS for FY22 by c 23% and by c 6% for FY24. Despite this faster rate of increase (in FY22 in particular), we expect dividend cover to remain at around 2x.

Exhibit 3: Financial summary

£m

2016

2017

2017

2018

2019

2020

2021

2022e

2023e

2024e

December

IFRS

IFRS

IFRS

IFRS

IFRS*

IFRS*

IFRS*

IFRS*

IFRS*

IFRS*

PROFIT & LOSS

 

 

 

 

Restated

 

 

 

 

 

 

 

Revenue

 

 

293.2

298.3

292.8

281.1

282.1

241.0

329.6

350.4

355.5

362.1

Cost of Sales

 

 

(200.6)

(207.5)

(201.5)

(196.4)

(193.3)

(168.8)

(236.9)

(250.5)

(252.4)

(255.3)

Gross Profit

 

 

92.6

90.8

91.3

84.8

88.8

72.2

92.7

99.9

103.1

106.8

EBITDA (pre IFRS 16)

 

 

33.3

30.3

32.1

26.7

26.4

14.1

22.8

24.5

26.4

28.5

EBITDA (IFRS 16 norm)

 

 

 

 

 

 

38.2

26.0

34.8

36.5

38.4

40.5

Operating Profit (pre IFRS 16 norm)

 

25.6

22.3

24.2

18.7

19.1

7.3

16.4

17.9

19.5

21.4

Operating Profit (IFRS 16 norm)

 

 

 

 

 

21.2

9.4

18.5

20.0

21.6

23.5

SBP

 

 

(0.3)

(0.6)

(0.6)

(0.7)

(1.4)

0.0

(0.4)

(0.7)

(0.7)

(0.7)

Net Interest

 

 

(1.0)

(1.2)

(1.2)

(1.5)

(4.8)

(4.4)

(4.8)

(4.8)

(4.7)

(4.6)

Intangible Amortisation

 

 

(1.1)

(1.1)

(1.1)

(1.2)

(0.3)

(0.3)

(0.3)

(0.3)

(0.3)

(0.3)

Exceptionals

 

 

(0.2)

(7.4)

(7.4)

(2.0)

(2.3)

(2.8)

(0.1)

0.0

0.0

0.0

Profit Before Tax (IFRS 16 norm) 

 

24.3

20.5

22.4

16.5

15.0

5.0

13.3

14.5

16.2

18.2

Profit Before Tax (statutory)

 

 

23.0

12.0

13.9

13.3

12.4

1.9

12.9

14.2

15.9

17.9

Tax

 

 

(3.4)

(1.9)

(2.3)

(2.5)

(2.8)

0.7

(0.4)

(2.6)

(3.2)

(4.0)

Profit After Tax (norm)

 

 

20.9

17.6

19.1

14.0

12.1

5.7

12.9

11.9

12.9

14.2

Profit After Tax (statutory)

 

 

19.6

10.1

11.6

10.8

9.5

2.6

12.5

11.6

12.6

13.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

 

141.5

142.6

142.6

142.9

142.9

143.0

145.2

144.9

144.9

144.9

EPS - normalised (p) – IFRS 16 from 2019

 

 

14.8

12.4

13.4

9.8

8.5

4.0

8.9

8.2

8.9

9.8

EPS - normalised (p) FD – IFRS 16 from 2019

 

 

14.7

12.4

13.4

9.8

8.5

4.0

8.8

8.1

8.8

9.7

EPS - statutory (p)

 

 

13.8

7.1

7.1

4.1

6.7

1.8

8.6

8.0

8.7

9.6

Dividend per share (p)

 

 

6.6

6.7

6.7

4.9

1.8

1.0

4.1

4.2

4.5

4.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

31.6

30.4

31.2

30.2

31.5

30.0

28.1

28.5

29.0

29.5

EBITDA pre IFRS 16 Margin (%)

 

 

11.3

10.2

11.0

9.5

9.3

5.9

6.9

7.0

7.4

7.9

Operating Margin pre IFRS 16 norm (%)

 

 

8.7

7.5

8.3

6.7

6.8

3.0

5.0

5.1

5.5

5.9

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

108.5

106.2

 

111.7

125.6

108.2

111.0

111.5

111.8

111.9

Intangible Assets

 

 

70.2

69.6

 

73.7

75.7

75.0

77.9

77.6

77.3

77.0

Tangible Assets

 

 

37.9

36.0

 

37.3

46.1

29.5

28.5

29.3

29.9

30.3

Other

 

 

0.4

0.6

 

0.7

3.8

3.8

4.6

4.6

4.6

4.6

Current Assets

 

 

82.6

82.2

 

75.7

91.5

76.8

94.6

105.3

112.6

121.5

Stocks

 

 

28.2

29.6

 

29.2

30.3

29.6

41.0

44.4

44.7

45.2

Debtors

 

 

41.4

45.3

 

40.4

44.0

45.0

43.8

48.6

49.8

51.2

Cash

 

 

13.0

7.3

 

6.1

17.2

2.2

9.8

12.3

18.2

25.1

Current Liabilities

 

 

(79.2)

(79.2)

 

(69.3)

(77.4)

(58.8)

(73.6)

(79.2)

(80.4)

(81.9)

Creditors

 

 

(62.9)

(58.2)

 

(63.7)

(76.1)

(58.8)

(73.1)

(78.7)

(79.9)

(81.4)

Short term borrowings

 

 

(16.3)

(21.0)

 

(5.6)

(1.3)

0.0

(0.5)

(0.5)

(0.5)

(0.5)

Long Term Liabilities

 

 

(21.0)

(15.5)

 

(28.1)

(36.7)

(24.8)

(22.2)

(22.2)

(22.2)

(22.2)

Long term borrowings

 

 

(17.3)

(11.4)

 

(25.3)

(32.3)

(20.7)

(18.7)

(18.7)

(18.7)

(18.7)

Other long-term liabilities

 

 

(3.7)

(4.1)

 

(2.8)

(4.4)

(4.1)

(3.5)

(3.5)

(3.5)

(3.5)

Net Assets

 

 

90.9

93.7

 

90.0

103.0

101.5

109.8

115.4

121.9

129.3

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

30.8

19.9

18.1

25.8

34.8

23.7

34.9

33.2

37.4

39.4

Net Interest

 

 

(1.0)

(1.0)

(1.0)

(1.3)

(1.6)

(1.4)

(1.5)

(1.1)

(1.0)

(0.9)

Tax

 

 

(3.8)

(2.7)

(2.7)

(2.6)

(3.3)

(0.8)

(0.5)

(2.6)

(3.2)

(4.0)

Capex**

 

 

(12.7)

(7.1)

(5.3)

(12.5)

1.5

(8.0)

(0.6)

(7.7)

(7.7)

(7.7)

Acquisitions/disposals

 

 

(10.2)

(3.9)

(3.9)

0.0

(2.2)

0.0

(5.3)

0.0

0.0

0.0

Financing

 

 

0.0

0.0

0.0

(0.0)

(12.3)

(13.4)

(13.3)

(13.4)

(13.4)

(13.4)

Dividends

 

 

(9.1)

(9.5)

(9.5)

(8.8)

(7.1)

0.0

(4.0)

(5.9)

(6.2)

(6.5)

Net Cash Flow

 

 

(6.1)

(4.3)

(4.3)

0.6

9.7

0.1

9.7

2.5

5.9

6.9

Opening net debt/(cash)

 

 

14.4

20.6

20.6

25.1

24.8

16.4

18.5

9.4

6.9

1.0

Finance leases

 

 

1.9

(1.4)

(1.4)

(1.1)

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

(2.1)

1.2

1.2

0.8

(1.4)

(2.2)

(0.6)

0.0

0.0

0.0

Closing net debt/(cash)***

 

 

20.6

25.1

25.1

24.8

16.4

18.5

9.4

6.9

1.0

(5.9)

IFRS 16 Leases

 

 

 

 

 

 

71.0

80.8

77.5

77.5

77.5

77.5

Source: Company accounts, Edison Investment Research. Note: *IFRS 16 from 2019. **FY21 net capex comprises £5.5m gross less receipt of Telford II final proceeds. ***Consistent with company defined pre-IFRS 16 net debt, which includes some other (non-IFRS 16) finance leases. We have assumed this category of leases to be constant in our estimate years.

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60325 Frankfurt

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United Kingdom

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This report has been commissioned by Epwin Group and prepared and issued by Edison, in consideration of a fee payable by Epwin Group. Edison Investment Research standard fees are £60,000 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 2022 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

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

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

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