Ruralco‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌ HY2017 Results

Agenda

Half Year Highlights

Financial Overview

Balance Sheet, Cash flow, Funding

Review by Segment

Strategy Update

Market Dynamics and Outlook

Glossary

Appendices

2

Half Year Highlights

3

Half Year Highlights

Execution of Future Farming Strategy delivers record half year profit

Record performance in core traditional business

Double digit growth in existing business

Improved OPEX as % of gross profit in the half

Tight control of working capital offsetting increase from acquisitions

Portfolio management activities continued with disposal of non-core assets and increased % held in JV's

Improved Operating Leverage

4

N.B for definitions of the above measures see "Glossary: Financial References"

EBITDA up 20%

uEBITDA up 23%

NPAT up 15%

uNPAT up 20%

EPS up 5%

uEPS up 10%

Interim dividend up 12.5% to 9 cents

Portfolio of accretive acquisitions completed

Attractive metrics: Pro-forma annualised EBITDA of ~$13.6 million, Average implied EBITDA multiple of ~4.5x, EPS accretive

Increased scale, geographical and operational diversity

Maintained prudent capital structure with successful equity raise

Gearing within target range

$65 million of equity raised

Continued Execution Of Future Farming Strategy

Strategy execution via:

Portfolio of acquisitions announced and completed in the half to deliver on the Investment and Integration pillars of Ruralco's Future Farming Strategy

Step change in financial services with establishment of Ausure Consolidated Brokers (ACB) JV, connecting our network of more than 500 locations with ACB's scalable insurance offerings

Turnaround in live export business with successful restructure, backgrounding program and continued sourcing from internal agency business to maximise market share along the entire protein value chain

Key partnerships established to commercialise the 'next wave' of AgTech

Digital transformation on track with Program Elevate

New recruitment and online performance management

system launched

5

Financial Overview

6

Focused Financial Management "Strategy Execution + Improved Operating Leverage = NPAT and EPS growth"

Financial Discipline

Strong internal focus on disciplined cost control and efficiency to drive positive operating leverage

Portfolio Management

Decisive action in restructuring operations, divesting non-core operations and increasing equity interest in subsidiaries

Cash Flow Generation

Continuous pursuit of working capital efficiency and disciplined capital expenditure and investment decisions

Balance Sheet Strength

Maintaining the strength of the balance sheet and funding flexibility underpins the ability to fund growth

Measure

HY17

HY16

OPEX % of GP (r6)

81.0%

82.9%

Operating leverage (r6)

5.1

0.3

Measure

HY17

HY16

Underlying ROCE (r6)

8.9%

8.4%

# JV equity transactions

5

-

Measure

HY17

HY16

Average Working capital % sales (r12)

8.1%

8.2%

Operating Cash Flow

($37.5m)

($29.5m)

Measure

HY17

HY16

Gearing % (spot)

28.3%

33.0%

Leverage (r12)

2.3x

1.4x

Improvement driven by growth in top line earnings plus impact

Disposal of farm machinery business and property held for

Improvement in working capital efficiency despite increased size of

Successful $65 million equity raise in the half to fund portfolio of

of cost saving initiatives to

sale

the business

acquisitions

date

Focus on sub-optimal branch

Restructure of insurance back office following ACB JV

Net operating cash out flow in the half in line with seasonal trend and

Leverage (r12 measure) impacted by initial debt funding

performance

transaction

increase reflective of larger business

of acquisitions and earnings

Ongoing generation of cost-

5 equity transactions to increase

underperformance in 2H16

out initiatives

% held by Ruralco in existing JV's

7

N.B for definitions of the above measures see "Glossary: Financial References"

Financial Overview

Half year ended 31 March

2017

2016

Change %

Commentary

Sales revenue ($m) 1

841.4

805.4

4%

Growth in rural supplies and agency sales from strong seasonal conditions across most of the country

Gross profit ($m)1

166.7

153.8

8%

Improved margin in rural supplies and impact of continued high livestock and wool prices offset by margin pressure in existing water services (projects) business

OPEX as % of GP (r6)

81.0%

82.9%

(1.9ppts)

Impact of cost-out initiatives assisted by gross profit growth

Underlying EBITDA ($m)1

33.3

27.1

23%

Strong improvement in operating leverage (result includes $2.1 million attributed to new acquisitions)

Underlying NPAT ($m)

13.8

11.5

20%

Record H1 earnings result

Reported NPAT ($m)

12.4

10.8

15%

After $1.4 million net impact of non-recurring items 2

Working capital ($m)3

162.1

159.6

2%

Strong working capital management offsetting growth from acquisitions

Average Working Capital as % of Sales (r12)

8.1%

8.2%

(0.1 ppts)

Improved efficiency in average working capital relative to sales growth

Operating cash flow ($m)

(37.5)

(29.5)

27%

Net outflow in line with seasonal trend and reflecting increased size of the business

Underlying ROCE (r6) (%)

8.9%

8.4%

0.5 ppts

Positive ROCE trend despite impact of acquisitions on capital employed without the commensurate full 6 months of earnings

Gearing (%) (spot)

28.3%

33.0%

(4.7 ppts)

Improved working capital efficiency and benefit of equity raise proceeds used to fund acquisitions

Underlying EPS (cents)

16.0

14.6

1.4 cents

10% increase despite increase in weighted average of shares on issue as result of the equity raise

Reported EPS (cents)

14.4

13.7

0.7 cents

Interim dividend- fully franked (cents)

9.0

8.0

1 cent

12.5% increase in dividend reflecting EPS growth

Underlying dividend payout ratio (%)

56%

55%

1 ppt

Within preferred payout ratio range

8

N.B For definitions of the above terms see "Glossary: Financial Terms" at the end of this presentation

1 PCP revenue and cost of sales (and therefore gross profit and EBITDA) adjusted to include reclass of certain items, such as sales commissions paid to employee agents and merchant fees previously in finance cost, to align with current period presentation

2 See Appendix 1 for further details on non-recurring significant items

3 PCP working capital and net debt adjusted for reclass of certain related party receivables/payable amounts from working capital to net debt to align with 2016 year end presentation

Underlying NPAT Drivers

Segment EBITDA growth +$6.2 million (+23%)

1.5 0.5

7.7

(3.0) (0.5) 17.7 0.2 (0.2)

11.5

(2.2)

(1.7) 13.8

1 2 3 4 5 6

$m

1H16

NPAT

Underlying

Rural Services Live Export Financial

Services

Water Services Corporate &

Other

Sub-total with EBITDA

Depreciation

& amortisation

Bank costs Minority Interest Tax

1H17 NPAT

Underlying

  1. Rural Services : Strong growth in rural supplies sales, real estate sales and continued high livestock and wool prices

  2. Live Export : Impact of restructuring undertaken in the prior year and reduced supply chain costs

  3. Financial Services : Increase in seasonal finance product uptake and benefit from new ACB JV contributing $0.1million EBITDA

    9

  4. Water Services: Above average rainfall in Q1, particularly in WA and Southern Australia, has restricted growth in existing water business. Acquisitions in key catchment areas and agricultural centres will improve diversity of water earnings going forward

  5. Corporate & Other : Corporate and back office cost base improved offset by further centralisation (and associated cost transfer)

  6. Minority Interest : Increased share of NPAT attributable to minority interest shareholders reflecting strong seasonal conditions in key rural supplies and agency JVs plus turnaround in some previously loss making JV's

  1. Segment EBITDA movements align with the Segment note (Note 9) in the Interim Financial Statements and includes the share of associates profits in the respective segment, e.g. ACB JV results are included in the Financial Services segment

    Balance Sheet

    Cash Flow Funding

    10

    Balance Sheet

    Continued focus on maintaining balance sheet strength with strong working capital management offsetting growth from acquisitions

    Balance as at 31 March 1

    Abridged balance sheet

    2017

    $m

    2016

    $m

    Change

    $m

    Change

    %

    Commentary

    Trade receivables (incl prepayments)

    438.5

    389.0

    49.5

    13%

    Organic sales growth reflecting positive seasonal conditions plus impact of acquisitions. Underlying improvement in ageing profile (past due debtors down 43%)

    Inventory (incl livestock)

    162.7

    165.5

    (2.8)

    (2%)

    Continued focus on SLOB stock and inventory management has resulted in lower inventory despite organic growth and acquisitions. Includes $10.7million of inventory held by acquisitions

    Trade payables (incl derivative financial instruments)

    (439.1)

    (394.9)

    (44.2)

    11%

    Reflects growth in size of business and seasonal conditions. Overall improvement in AR/AP spread

    Working capital2

    162.1

    159.6

    2.5

    2%

    Strong result given seasonal conditions and impact of acquisitions

    Average working capital (r12)

    143.1

    134.8

    8.3

    6%

    Impact of acquisitions and growth in the size of the business

    Avg. working capital as % of sales

    8.1%

    8.2%

    (0.1 ppts)

    Improved efficiency in average working capital relative to sales growth

    Property, plant & equipment

    43.2

    41.9

    1.3

    3%

    Primarily acquisition related

    Intangibles

    202.6

    139.8

    62.8

    45%

    Primarily acquisition related plus increase in capitalised IT development costs (includes $3.9 million from Program Elevate)

    Investment - associates

    17.2

    9.0

    8.2

    91%

    Purchase of 50% interest in ACB

    Net tax items

    12.9

    5.0

    7.9

    158%

    Increase in deferred tax assets from impact of timing differences with respect to provisions and accruals and tax losses recognised as part of FY16

    Other items (net)

    (42.4)

    (21.7)

    (20.7)

    95%

    March 2017 includes $18.5 million of both deferred and contingent consideration liabilities with respect to acquisitions

    Total capital employed2

    395.6

    333.6

    62.0

    19%

    Increase primarily driven by impact of acquisitions

    Underlying ROCE (r6)

    8.9%

    8.4%

    0.5 ppts

    Positive ROCE trend despite impact of acquisitions on capital employed without the commensurate full 6 months of earnings

    11

    1 March to March abridged balance sheet presented given the seasonality differences between the balance sheet at half year (March) and year end (September)

    2 PCP working capital (and hence total capital employed) and net debt adjusted for reclass of certain related party receivables/payable amounts from working capital to net debt to align with 2016 year end presentation

    Cash Flow

    $65 million equity raise used to fund $60 million1 portfolio of acquisitions

    Half Year ended 31 March

    Abridged cash flow

    2017

    2016

    Change

    Change

    Commentary

    $m

    $m

    $m

    %

    Reported EBITDA2

    31.5

    26.3

    5.2

    20%

    Driven by growth in core traditional rural supplies business and impact of cost out initiatives

    Net change in working capital

    (61.2)

    (45.3)

    (15.9)

    35%

    Net outflow in line with seasonal trend plus growth in the size of the business

    Net finance income/costs

    0.1

    (0.3)

    0.4

    (133%)

    Good result in light of higher average net debt (pre-equity raise). Reflects improved funding mix

    Tax paid

    (7.9)

    (10.2)

    (2.3)

    (23%)

    Higher tax instalment rate paid in the PCP

    Net operating cash flows

    (37.5)

    (29.5)

    (8.0)

    27%

    Driven by seasonal trend in working capital cash flows with increase in line with growth in size of the business

    Capital expenditure

    (9.4)

    (6.0)

    (3.4)

    57%

    Program Elevate spend in the half ($3.9 milion) offset by lower maintenance capex spend

    Acquisitions, net of cash acquired

    (60.0)

    (6.2)

    (53.8)

    868%

    Portfolio of acquisitions announced with equity raise. PCP included the acquisition of Mackay Rural

    Divestments and other

    2.4

    1.2

    1.2

    100%

    Disposal of non-core assets, primarily property previously held for sale

    Change in non-controlling interest

    (0.4)

    -

    (0.4)

    100%

    Increase ownership in certain JV's

    Investing cash flows3

    (67.4)

    (11.0)

    (56.4)

    513%

    Primarily reflects acquisitions plus Program Elevate spend offset by proceeds received from disposal of non- core assets

    Dividends paid

    (7.1)

    (8.9)

    1.8

    (20%)

    Lower dividends paid to non-controlling interest shareholders following lower operating result in 2H16

    Equity raise, net of raise costs

    63.3

    -

    63.3

    100%

    $65 million cash proceeds net of raise costs paid in cash in the half

    Purchase of treasury shares3

    (0.6)

    (2.1)

    1.5

    (71%)

    Lower level of spend required to purchase shares on market to satisfy LTI vesting and grants

    Net change in borrowings

    65.2

    65.4

    (0.2)

    (0.3%)

    Used to fund working capital

    Financing cash flows3

    120.8

    54.4

    66.4

    122%

    Proceeds from equity raise used to fund purchase of portfolio of acquisitions

    Change in cash held

    15.9

    13.9

    2.0

    14%

    12

  2. Represents the initial cash consideration paid for these acquisitions, i.e. excludes estimated contingent consideration to be paid at the end of contractual multi-year earn-out periods.

  3. PCP "Reported EBITDA" adjusted to include the impact of the reclass of merchant fees from net finance costs to cost of sales to reflect current period classification

  4. 3 Purchase of treasury shares reclassified as a financing cash flow in the current and prior period to align with interim financial statement presentation

Ruralco Holdings Limited published this content on 15 May 2017 and is solely responsible for the information contained herein.
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