HRL : Appendix 4C Quarterly Report

HRL Holdings Limited

Level 8 Waterfront Place, 1 Eagle Street Brisbane Queensland 4000, Australia

GPO Box 216

Brisbane Queensland 4001, Australia

Tel +61 7 3105 5960

Email admin@hrlholdings.com

QUARTER HIGHLIGHTS

• HRL Holdings to acquire Analytica Laboratories, a leading analytical chemistry laboratory business based in New Zealand

• Institutional placement of ~A$15m at the offer price of A$0.085, subject to shareholder approval

• Securities purchase plan to be offered to existing eligible shareholders at the offer price of A$0.085, capped at A$1m

• Continued strong quarterly performance from existing businesses on the back of increased activity in New Zealand

During the quarter, HRL generated $405k net cash from operating activities. After excluding payments for tax and Analytica acquisition costs, operating cashflows were $559k. Full details are included in the attached Appendix 4C.

Trading in the quarter was solid with the Group generating revenues of $5.3M.

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

-

FY2016 FY2016 FY2016 FY2016 FY2017 FY2017 FY2017 FY2017 FY2018 QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 QTR 4 QTR 1

The Group had $925K in cash and a further $1.2M in undrawn loan facilities at the end of the quarter.

New Zealand

New Zealand operations were very strong during the quarter, with all branches performing above expectations. Property contamination testing was particularly strong with Precise continuing to win jobs in new territories.

Precise expects to maintain this momentum into the next quarter. Precise is seeking out opportunities to expand its field sampling business for tier 1 consultancies and engineering firms.

Australia

Australian activity saw solid results during the quarter, albeit with a small decrease on the record previous quarter.

The Queensland market remains strong. The 3-year asbestos audit cycle for state based assets continued. The environmental engineering/sciences service line continued its recent growth securing a number of large contaminated land projects during the year.

The NSW loose-fill asbestos insulation program has been put on hold temporarily by the NSW government. Activity in the ACT branch consequently fell back to its normal operating level, with excess staff redeployed to the Northern Territory. HRL understands the NSW loose-fill asbestos insulation program will resume sometime in calendar year 2018.

In late FY2017, OCTIEF was awarded a significant contract by the Northern Territory Department of Housing and Community Development to carry out asbestos surveys across a range of public housing assets throughout the Darwin, Casuarina and Palmerston regions of the Northern Territory. Works on this contract commenced in late August 2017.

Morrison Geotechnic continues to contribute well to the group's results, with the business currently on track to meet the second highest earn-out target.

Morrison Geotechnic has a number of very large civil works tenders submitted, with the successful bidders due to be announced before year end.

On 16 October 2017, HRL Holdings Limited (HRL or the Company) entered into a conditional agreement with the shareholders of Analytica Laboratories Limited (Analytica) to acquire all of the issued capital in Analytica.

Analytica is a privately owned, New Zealand-based analytical chemistry laboratory business specialising in mass spectroscopy analysis to the milk, honey, drugs of abuse and environmental markets.

Analytica has a strong competitive position in high-end environmental and food/agricultural testing markets with industry leading customers/partners. Key features include:

• Market leader in honey testing in New Zealand, both among industry organisations and producers/distributors

• Dominant position in the liquid milk analysis and food origin testing, via strategic alliance with market leading partners

• Strong and growing exposure to the environmental testing and methamphetamine property screening market with the recent launch of innovative testing services

  Strategic Rationale

  The acquisition is transformational and positions HRL for its next stage of growth by expanding the business' capabilities and expertise in new markets.

• Highly complementary acquisition adding scale and enhancing competitive position

  • Combined businesses FY18 forecast to deliver in excess of $33m revenue and in excess of

    $7.3m underlying EBITDA with 22% EBITDA margin (assumes run rate to achieving full earn out)

  • Provides rapid entry into the high value environmental and food/agriculture testing market, building on HRL's strategy to focus on more sophisticated and advanced analysis with higher barriers to entry

  • Leverages highly skilled technical and operational staff across a broader operational base

  • Provides ability to leverage strong existing brand and reputation when entering new markets

  • Compliments existing operations through advanced technology and equipment

• CAIQtest (Pacific) provides a unique opportunity to support the growing export market to China

  • Incorporated joint venture led by Analytica (26% interest) and supported by the Chinese Academy of Inspection and Quarantine

  • New Zealand based laboratory, providing pre-shipment testing services for clients exporting goods from Australasia to China assisting greatly with supply chain bottlenecks - a key concern for exporters

  • Currently services the dairy export market, with a focus on infant milk formula

  • CAIQtest (Pacific) developed a first mover advantage by achieving accreditation with the Chinese National Accreditation Service (August 2017) for a broad dairy testing scope - can now provide services to commercial dairy exporters

In consideration for 100% of the share capital of Analytica, HRL will pay a purchase price of up to NZ$30m to the vendors of Analytica (Analytica Vendors).

The purchase price is broken down as follows:

• NZ$13.3m upfront cash consideration on completion of the Analytica acquisition;

• NZ$5.7m upfront HRL scrip consideration on completion of the Analytica acquisition, subject to a 2- year escrow period; and

• Up to NZ$11m cash earn-out consideration, based on the following criteria:

  • Analytica business to achieve 12-month post-settlement EBITDA in excess of NZ$3m;

  • Analytica Vendors to receive a 6x multiple on each NZ$1 of EBITDA greater than NZ$3m, up to a maximum earn-out consideration of NZ$11m; and

  • 50% of earn-out is payable 12 months post-settlement, and 50% in 12 equal monthly instalments thereafter.

    The payment of the earn-out consideration is also contingent on the Analytica Vendors providing ongoing services for a minimum of 2 years post-settlement.

    Under the terms of the acquisition agreement, Analytica Vendors will have the right to appoint a Director to the Board of HRL.

    Completion of the Analytica acquisition is conditional on a number of factors, including:

• all necessary ASX and ASIC approvals, waivers and confirmations being obtained by HRL;

• shareholder approval being obtained by HRL for the proposed Analytica acquisition and placement; and

• other conditions which are standard for a transaction of this nature.

To fund the upfront cash consideration of the Analytica acquisition price, HRL is undertaking a conditional placement, subject to shareholder approval, to raise A$15m, by issuing 176,500,000 shares at a price of A$0.085 (Conditional Placement).

The Conditional Placement was strongly supported by domestic and international sophisticated and institutional investors. Settlement of the Conditional Placement will be subject to shareholder approval of the Analytica acquisition at a General Meeting to be held on 23 November 2017.

In addition to the Conditional Placement, the Company is offering existing eligible shareholders with registered addresses in Australia and New Zealand the opportunity to subscribe for up to approximately A$15,000 or 176,470 shares under a Securities Purchase Plan (SPP). The issue price under the SPP is A$0.085 per share, which is the same price as under the Conditional Placement. The amount raised under the SPP will be capped at A$1m.

All shares issued under the Conditional Placement and SPP will rank equally with existing HRL shares on issue.

For further information contact:

Investor and media:

Ph: +61 405 770 166

steven.dabelstein@hrlholdings.com