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 profitRecord 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 centsPortfolio 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 StrategyStrategy 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 $65 million equity raise in the half to fund portfolio of |
of cost saving initiatives to | sale | the business | acquisitions | |||
date Focus on sub-optimal branch | | Restructure of insurance back office following ACB JV | | Net operating cash out flow in the half in line with seasonal trend and | | Leverage (r12 measure) impacted by initial debt funding |
performance | transaction | increase reflective of larger business | of acquisitions and earnings | |||
Ongoing generation of cost- | | 5 equity transactions to increase | underperformance in 2H16 | |||
out initiatives | % held by Ruralco in existing JV's |
7
N.B for definitions of the above measures see "Glossary: Financial References"
Financial OverviewHalf year ended 31 March | ||||
2017 | 2016 | Change % | Commentary | |
Sales revenue ($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
Rural Services : Strong growth in rural supplies sales, real estate sales and continued high livestock and wool prices
Live Export : Impact of restructuring undertaken in the prior year and reduced supply chain costs
Financial Services : Increase in seasonal finance product uptake and benefit from new ACB JV contributing $0.1million EBITDA
9
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
Corporate & Other : Corporate and back office cost base improved offset by further centralisation (and associated cost transfer)
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
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
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.
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
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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