Pental Ltd. Interim Result shows the benefits from recent initiatives. 28 March Positive outlook in a competitive market

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1 Pental Ltd Interim Result shows the benefits from recent initiatives The 1H FY17 result was in line with expectations in the seasonally weaker half, with some initial benefits from initiatives underway across plant upgrades, improved logistics, new product development and market expansion. PTL reported a 28.7% increase in EBITDA to $5.2m on a 6.8% increase in Net Revenue to $41.7m, resulting in a 35% increase in Net Profit to $2.5m, with: Australia - Net Revenue growth of 6.2%, with: strong growth in White King of 6.7%, expansion in personal care with the launch of Country Life liquids, and ongoing promotional activity for Pears; the benefits of a strong firelighter season, with growth of 9.9%; and a recovery in Private Label. New Zealand While Net Revenue rose 1.2% to $6.6m, Gross sales fell 7.2% in NZ$ terms with weak sales in the competitive Dishwashing Sector, although market share increased in key Toilet/Household Cleaning sectors. Asia - A $0.6m increase in Sales to $0.7m from soap and cleaning products, predominantly into China, through both physical and online channels. Cash Flow Net Cash Outflow of $2.9m was after Tax of $3.2m, Capex of $2.2m and a Final Dividend of $2.7m. Balance Sheet Strengthened, with Cash of $9.4m and no debt, with a 1.8% increase in Net Asset Value to 61 ps and 41.6% in NTAV to 43 ps. Positive outlook in a competitive market While limited growth and strong competition is expected in the Soap and Cleaning sector over the next 3 years, escalating Revenue growth is anticipated across the range of products, helped by the strategy plan and initiatives around: Maximizing production and flexibility while controlling costs; Implementing further capex programs; Optimising its power and trading brands and adding new innovative products; Building export markets in China and elsewhere in Asia; and building new channels in Commercial, Industrial and Food Service. Stronger EBITDA growth is expected over the new few years with leverage from an expanded production base, increased productivity and continued focus on cost control. This will be helped by the repurchase of its Shepparton site in 1H FY18, eliminating lease costs and increasing flexibility and EPS. Profit growth to continue For FY17, Veritas forecasts an 11.7% increase in EBITDA to $11.8m on a 7.9% increase in Net Revenue to $85.5m, with the benefits from the capex program, expanded distribution and the realisation of cost savings. For FY18, we forecast a further 11.7% increase in EBITDA to $13.3m on an 11.4% increase in Net Revenue to $95.3m, with the full benefit of an expanded product range and entry into new markets both in Australia and offshore. Reasons to BUY Recommendation Our BUY Recommendation and 12 month Price Target of $0.89 is based on: A leading market position in the household cleaning, soap and fire-lighting markets, with iconic brands, a strong customer base and efficient logistics. Improving production and profitability with completion growth options for increased capacity and production flexibility, brand extensions and new channels, supported by a strong Balance Sheet with Net cash of $12.3m. PTL is trading at a 30% discount to our Valuation, a substantial discount to its peers, despite an attractive, Fully Franked Yield. PTL.ASX Price Price Target Valuation Method GICS Sector 12 Mth Price Range Avg Monthly Share Turnover Market Capitalisation Shares on Issue Enterprise Value Previous Rating BUY 28 March 2017 Household Products Year Ended June 30 14A 15A 16A 17E 18E Operating Revenue $m Growth % Gross Op Profit $m GOP Growth % Gross Op Margin % EBITDA $m EBITDA Growth % EBITDA Margin % NPAT $m NPAT Growth % EPS ps EPS growth % DPS ps Franking % DPR % PER x Dividend Yield % NTA/share ps EV/EBITDA x Gearing (D:E) % P/OCF x ROA % ROE % Interest Cover (EBIT) x na na na Small Ords Small Ind Activities Bleach and household cleaning products, soaps, toothpaste and firelighters within Australia and New Zealand w w w.pental.com.au Brent Mitchell bmitchell@veritassecurities.com.au $0.62 $0.89 EVR/DCF $ m $84m 136m $66m BUY PTL v XSI (S&P/ASX Small Ind) Indexed to 100

2 Pental Ltd (PTL) Current Price: $0.62 ps Target Price:$0.89 ps PROFIT & LOSS CASH FLOW Year ended 30/06 13A 14A 15A 16A 17E 18E Year ended 30/06 13A 14A 15A 16A 17E 18E Sales Revenue (Gross) $m Operating EBITDA $m Rebates, Discounts etc $m Net Interest Paid $m Sales Revenue (Net) $m Tax Paid $m Cost of Goods Sold $m Chg WorkCap $m Gross Operating Profit$m Other $m Expenses $m Operating Cash Flow $m EBITDA $m Capex $m Depreciation & Amort $m Development Cost $m EBIT $m Free Cash Flow $m Interest (Net) $m Acquisitions/Asset Sales$m Pre Tax Profit $m Dividends Paid $m Tax $m Equity Raised $m Minorities $m Debt (change) $m Normalised Profit $m Other $m Significant Items & Co $m Change in Net Cash $m Reported Profit $m BALANCE SHEET at 30/6 13A 14A 15A 16A 17E 18E Growth 13A 14A 15A 16A 17E 18E Cash $m Revenue (Gross) % Receivables $m Revenue (Net) % Inventory $m COGS % Other Current Assets $m Gross Operating Profit % na Current Assets $m Expenses Investments $m EBITDA % Property, Plant & Equi$m Normalised Profit % na Intangibles $m EPS % na Other NC Assets $m Non Current Assets $m P&L Ratios 13A 14A 15A 16A 17E 18E Total Assets $m Gross Operating Profit /% Payables $m EBITDA / Sales % Current Debt $m EBIT / Sales % Other Current Liabilitie$m Net Profit Before Tax / % Current Liabilities $m Effective Tax Rate % Non Current Debt $m Interest Cover x na na na Other NC Liabilities $m Non Current Liabities$m Per Share 13A 14A 15A 16A 17E 18E Total Liabilities $m Issued Shares m Shareholder Funds $m Issued Shares (Wt Avg)m EPS ps BALANCE SHEET Ratios 13A 14A 15A 16A 17E 18E Operating Cash Flow ps ps Receivables turn x Free Cash Flow ps Inventory turn x DPS ps Net Debt $m Franking % Gearing (D:D+E) % Dividend Payout Ratio % Current Ratio (CA / CL) x Working Cap Ratio (Rev x Parameters 13A 14A 15A 16A 17E 18E Net Assets ps PE Ratio x Net Tangible Assets ps Enterprise Value / EBITDx Cash ps Enterprise Value / Revenue Price to Book Value x Cash Flow ratio x Return On Assets % Dividend Yield % Return on Equity % VALUATION MAJOR SHAREHOLDERS Valuation Method $ Discount (-), Premium (+) to Alan Johnstone m % Private Shareholder Mid Point EVR/DCF 0.89 Current Price Allan Gray m % Aust Institution Current Price 0.62 John Homewood m % MD, Ace Waste M'ment, Qld Market Capitalisation $78.3m Enterprise Value $66.0m Elevation Capital M'ment m % NZ Institution REGIONS - Revenue 13A 14A 15A 16A 17E 18E Top 20 (20/08/15) m % Australia $m DIRECTORS MANAGEMENT NZ $m Peter Robinson N-E Ch Charlie McLeish CEO Asia $m John Rishworth N-E Dir Albert Zago CFO Revenue Growth John Etherington N-E Dir Australia % Mel Sutton N-E Dir NZ % Kimberley Wells N-E Dir Source: PTL (Act), Veritas (Est) Veritas Securities Page 2 Pental Limited (PTL)

3 Revenue ($m) Revenue EBITDA & NPAT 1H 17 2H 16 1H 16 2H 15 1H 15 2H 14 1H EBITDA NPAT Revenue EBITDA & NPAT ($m) FY17 Interim Result The EBITDA result was in line with expectations in the seasonally weaker 1H, with the initial benefit from major Property, Plant and Equipment upgrades, cost saving initiatives, product development and new product releases. Profit & Loss Cash Flow 6 Mths to 31/12 ($m) 1H 16 1H 17 % Ch 6 Mths to 31/12 ($m) 1H 16 1H 17 % Ch Total Revenue Operating Cash Flow Rebates & Discounts Capex Net Sales Investment/Acquisitions Cost of Goods Sold Equity Gross Operating Profit Debt Expenses Dividends EBITDA Net Cash Flow na Depreciation Balance Sheet 1H 16 1H 16 % Ch Amortisation Current Assets EBIT Non Current Assets Interest (Net) Total Assets Pre-Tax Profit Current Liabilities Tax Non Current Liabilities Normalised Profit Total Liabilities Significant Items (Net) Shareholder Funds Reported Profit Cash ( ps) Gross Margin (%) Net Cash ($m) EBITDA Margin (%) Gearing D:E (%) EBIT Margins (%) Interest Cover (x) Effective Tax Rate (%) NTAV ( ps) EPS ( ps) Net Assets ( ps) Cash Flow ( ps) Regional Sales 1H 16 1H 16 % Ch DPS ( ps) Australia Franking (%) New Zealand Dividend Payout Ratio (%) Asia Source:PTL Source: PTL NPAT Bridge ($m) 1H 17 Tax Interest Amort Depn Expenses COGS Revenue 1H 16 Key points Revenue Gross Revenue increased by 6.6% to $57.6m, with increases in Australia of 7.7% and a $0.7m contribution from Asia, offset by a 3.3% fall in New Zealand. While Trade Spend increased by 5.9%, with the launch in Australia of Country Life liquid, it fell from 27.9% to 27.7% of Revenue, resulting in a stronger 6.8% increase in Net Revenue. COGS The increase was due to the higher volume, the launch of multiple new products, the expansion in China and other new initiatives, such as the launch of a new range of liquid soaps and expansion into the commercial/industrial sectors. Expenses The increase of 2.9% was across employee ($0.3m) and other expenses ($0.3m), partially offset by a $0.3m reduction in supply chain costs, which fell from 6.3% of revenue to 5.5%. EBITDA Increased 28.7% to $5.2m after excluding a $0.3m FX Loss (1H FY16 +$0.2m), with margins increasing from 7.4% to 9.0%, mostly from operating efficiencies. Depreciation Increased with recent Capex at Shepparton. EPS - Increased by 35.4% to 1.8 ps in line with Net Profit, with a 15% increase in DPS to 1.15 ps FF. Cash Flow Operating Cash Flow fell by $3.5m to $2.0m, mostly due to a $3.2m tax payment (1H FY16 $0.1m). Net Cash Outflow of $2.9m was after capex of $2.2m and a $2.7m Final Dividend. Balance Sheet Remained strong, with Cash of $9.4m and no debt. This will provide the capacity to repurchase the Shepparton site in August 2017 for $7.3m. Working Capital fell by $0.6m to $15.2m, with tighter controls, increasing the ratio of Revenue to Working Capital from 7.3x to 7.6x. Net Asset value increased by 1.8% to 61 ps, with NTAV increasing by 41.6% to 43 ps. Veritas Securities Page 3 Pental Limited (PTL)

4 By Region Net Revenue by Region ($m) Australia Gross Revenue increased by 7.7%, mainly Branded sales, with: Strong growth in White King of 6.7%, especially bathroom cleaning products, with the range further expanded with the release of a non-bleach Bathroom Cleaner and Kitchen Cleaner, both to be ranged by major retailers in Q3 FY17. Growth in personal care with the launch of Country Life liquids, and ongoing promotional activity for Pears soap products. A strong firelighter season, with growth of 9.9%, helped by the launch of individually wrapped firelighters and repositioning of Little Lucifers to target the Foodie market H 14 2H 14 1H 15 2H 15 1H 16 2H 16 1H 17 Net revenue increased by a lesser 6.2% with increased promotional activities associated with the launch of the Country Life liquids and to support the expansion of the White King range. Private Label sales recovered, with PTL maintaining margins and not discounting its tender prices. Asia NZ Australia New Zealand Gross sales fell by 3.3% (7.2% in NZ$) with weak sales in the Dish Washing Sector, due to aggressive marketing by competitors, although PTL increased market share in the key Toilet and Household Cleaning categories. However, Net Revenue (in A$) increased by 1.2% to $6.6m, with reduced promotional activity. Asia - A $0.6m increase in Sales to $0.7m from soap products (Country Life & Velvet) and cleaning products (White King & Softly). This was predominantly into China, with the launch into a number of physical and online channels. To repurchase Shepparton property for $7.3m Repurchase of Shepparton Property PTL intends to exercise an option as at 1/7/17 to repurchase the Shepparton site at a Total Cost of around $7.3m, utilising current cash reserves. Settlement is expected in August or September This will increase flexibility and increase EBITDA and EPS through the elimination of $0.7m in lease costs, although partly offset by an increase in depreciation and interest adjustment. ACCC Proceedings While the ACCC instituted proceedings against PTL on 13/12/16, there has been no announced progress. However, we would expect an out of court settlement, with PTL experiencing some penalties. Veritas Securities Page 4 Pental Limited (PTL)

5 3 year strategy plan to drive growth Outlook While limited growth and strong competition is expected in the Soap and Cleaning sector over the next 3 years, escalating revenue growth is anticipated across the range of products. This will be a result of the continuation of its strategy plan and further initiatives around: Maximizing production and flexibility while controlling costs; Implementing further capex programs; Optimising its power and trading brands and the launch of new innovative product; Further building export markets in China and developing other Asian markets; building new domestic channels across Commercial, Industrial and Food Service; and controlling the Cost Base. First stage of Capex program completed Maximising production and flexibility PTL completed the $5.3m Capex Program in 1H FY17, across: Bleach Line A & B: The upgrade and replacement of the Line A filler to minimise waste and downtime, completed in December 2015; and automation of Line B, resulting in increased capacity and speed to improve efficiency and productivity, and to reduce labour and wastage, completed in May This will significantly increase production, efficiency and margins in 2H FY17 and FY 18, without the significant teething problems during FY16, although PTL did suffer some downtime in 2H FY17. Soap Plant Modernisation: The installation of a new SWING saponification plant and the consolidation of soap lines, completed in December This will result in significant cost savings and increased flexibility in supporting increasing export demand. Firelighter Carton Palletiser; Completed in March 2016, reducing labour costs and increasing efficiency, especially with new product development. Bulk Filling Line; Completed in September 2016 at a cost of around $1.4m, allowing PTL to: Significantly reduce unit costs (previously outsourced); and produce a new range of commercial and industrial cleaning products, including White King Sanitiser & Disinfectant and Floor Cleaner, and Sunlight Rinse Aid, Laundry Liquid and Hand Wash, all to be released in 2H FY17 across new Commercial and Industrial channels. Warehouse Consolidation PTL has leased additional warehouse space, completed in April 2016, eliminating all Australian third party storage and handling. PTL has initiated a number of programs, including further improvements to the procurement and supply chain resulting in non-commodity cost savings. Further Capital Investment Program underway Implementing further capex programs - Additional programs are under consideration to: modernise and increase capacity in the Soap plant and liquid lines; further streamline operations; increase capacity and reduce costs, covering: Soap Packaging - New equipment to facilitate wire cutting and wrapping of soap bars, to be completed at a cost of $0.6m. This will allow PTL to handle initial growth in the Asian market. However, strong acceptance and growth will require further capex. Soap Plant Modernisation Stage 2 Planning is underway for Stage 2 to consolidate of soap lines, at a cost of around $2.4m, which will increase operational flexibility and reduce operating costs. Liquids upgrade The upgrade of the liquids plant, which will increase operational flexibility and throughput rates. A step up in marketing Optimising its power and trading brands - To further increase brand awareness, customer retention and sales, with increased marketing across: Further advertising campaigns, based on the success of the previous White King campaigns, which boosted sales of toilet, bathroom and household cleaners. This includes a relaunch of Softly as a power brand through a national advertising program, and the recent Escape Everday with Country Life campaign and online Consumer Giveaway promotion. Increase in-shop presence with an increase in dedicated retailer support. The recent Upgrade of Digital and ecommerce presence with the possible addition of Velvet, Softly, Little Lucifer and Country Life websites with the future introduction of live chat forums. White King sponsorship of the Western Bulldogs, AFL premiers in CY16. Source: PTL Veritas Securities Page 5 Pental Limited (PTL)

6 New Product development program continuing New Product development Continuation of the program which resulted in new releases, including: White King - a Range of non-bleach and chemical free Kitchen and Bathroom Cleaners. Soaps A range of Country Life liquid soaps and a range of Velvet specialty soaps for the domestic and export markets. Little Lucifer Individually wrapped and Foodie Choice firelighters, with expected release of Infused Flavoured Woodchips, Charcoal Beads and Barbeque Cleaners. Industrial Products New products, including: White King Toilet, Floor, Glass & Chrome, Oven cleaners; and Sunlight Bulk Dishwashing, Rinse Aid, Automatic Dishwashing and Hand Wash liquids. Looking to expand export opportunities Building Export Markets PTL is looking to further build export opportunities in 2H FY17 and FY18 into Asia, especially China, with Velvet and Country Life Australiana and White King products, through channels, such as supermarkets (Bailian, Intime and Choice Supermarkets), pharmacy, airports and online retailers (FTZMALL.com.cn, JD.com and Kaoloa.com). These products have been developed with the Asian market in mind, in terms of packaging and formulation, with a higher fragrance element and characteristics. PTL has an Asian Business Development Manager with strong operational experience in establishing FMCG and has established a warehouse in the Shanghai Free Trade Zone. To access new channels New Channels in Commercial, Industrial and Food Service As IBISWORLD has estimated that Industrial/commercial/institution combined is a $936m market, there is a substantial opportunity for PTL to expand in the sector. This will be helped by the ability to supply in new and larger formats for White King, Sunlight, Softly and Huggie, from the installation of a bulk filling line commissioned in September Key potential areas include manufacturing, contract cleaning, institutions, such as Nursing Homes, Government Departments, such as Defence, food outlets, hotels, stadiums etc. Further Reductions in the Cost base Opportunities to further reduce costs through: A reduction in wastage through recycling, specific capex and changes in formulations and processes. A continued improvement in Logistics following the move of all on-site warehousing and order picking to its Shepparton site and a further reduce handling costs, with the continuing renegotiation of transport costs. Reduced manning levels with increased automation. Veritas Securities Page 6 Pental Limited (PTL)

7 Forecasts Apart from including the purchase of the Shepparton property and adjustments to the lease costs, there are no significant changes to our Forecasts for FY17 and FY18 and our Price Target of $0.89 ps. EBITDA growth of 11.7% in FY17 Further EBITDA growth of 12.5% in FY18 FY17 - We are forecasting an EBITDA increase of 11.7% to $11.8m on a Net Revenue increase of 7.9% to $85.8m, with a further improvement in margins from 13.3% to 13.8%, which reflects the benefit from the recent capex program, the escalation of export sales and new industrial and commercial channels. This includes a 2H FY17 EBITDA increase of 1.3% to $6.8m, with the lower 2H increase mostly due to Forex, product mix and a short term disruption to the Bleach Line A. FY18 Further growth is expected, with an EBITDA increase of 12.5% to $13.5m, on Net Revenue growth of 10.0% to $95.3m and a further improvement in margins to 14.2%. This includes savings in lease costs following repurchase of the Shepparton property, to be completed in September Gross Profit & EBITDA ($m) Revenue, Gross Profit and EBITDA GrossProfit EBITDA Revenue Revenue ($m) 12 month Price target of $0.89 ps Valuation We have a valuation of $0.89, which is the mid-point of our EBITDA/Enterprise Value (EVR) and our Discounted Cash Flow (DCF) valuations, based on: EVR A valuation of $0.88, based on a multiple of 8.5x FY18 Forecast EBITDA and estimated Cash at 30/6/18 (the end of the current Capex program) of $5.4m. We believe this multiple is valid, as: It s a 39% discount to the weighted average of similar companies in both Australia and internationally of EVR of 14.1x. Using the weighted average EVR multiple would increase our valuation to $1.24. Recently, Henkel paid 220m (A$320m) for Colgate Palmolive s Australian brands, equating to a FY15 Revenue multiple of 2.0x. On this basis, the PTL valuation would be $160m ($1. 45 ps). The EV/EBITDA multiple of 6.1x is below Asaleo Care (9.5x), PTL s closest comparable in Australia, with operations across personal hygiene in Australia, New Zealand and Fiji. PTL is trading on an attractive yield of 5.6% for FY18 Fully Franked. DC F A DCF valuation of $0.90 ps, based on a discount rate of 8.0% and a terminal growth rate of 3%. Name Price Mkt Cap Ent Val EV / Revenue (x) EV/EBITDA (x) PER (x) Yield (%) A$ A$m A$m 2016A 2017E 2018E 2016A 2017E 2018E 2016A 2017E 2018E 2016A 2017E 2018E Pental Ltd Australian Asaleo Care Ltd , Blackmores Limited ,958 2, Duluxgroup Limited ,589 2, International Local Currency Aceto Corporation US$ Bunzl plc ,937 9, Church & Dwight Co. US$50 12,788 13, Clorox Company US$138 17,638 19, Colgate-Palmolive Co US$74 65,067 70, Henkel AG & Co. KGa ,242 47, PZ Cussons Plc ,392 1, Reckitt Benckiser Gro ,098 53, Unilever PLC , , Source: Veritas & Factset Veritas Securities Page 7 Pental Limited (PTL)

8 Sales Research Robert Scappatura Andrew McCauley Patrick Ford Clay Melbourn Bryce Reynolds Industrials Brent Mitchell Levi Hawker Resources Piers Reynolds Nick Raffan RATING BUY anticipated stock return is greater than 10% SELL anticipated stock return is less than -10% HOLD anticipated stock return is between -10% and +10% SPECULATIVE High risk with stock price likely to fluctuate by 50% or more This report has been issued by Veritas Securities Limited A.B.N , Australian Financial Services Licence Number Disclaimer. The information contained in this document is general securities advice only and does not take into account your specific financial situation, particular needs and investment objectives and you should consider your own circumstances before acting on the advice. This document has been prepared from sources which Veritas Securities Limited ( Veritas ) believes to be reliable, but none of Veritas, its directors, employees and associates ( Veritas Parties ) give or make any representation or warranty that any such information is accurate, complete, reliable or up-to-date, and Veritas disclaims all liability for loss or damage, direct or indirect, suffered by any person arising from any use of or reliance on such information. Veritas recommends that you consult your financial adviser before making any financial or investment decision. Veritas does not accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. Disclosure of interest. Veritas Parties may receive or may have received fees, commissions and brokerage by acting as corporate adviser or broker for companies described in this document, and may hold directorships or other offices with such companies. Veritas Parties may hold an interest in securities or financial products described in this document, may benefit from an increase in the price or value of them, and may effect or participate in transactions which are inconsistent with any statement made in this document. Veritas Securities Limited A.B.N AFSL No GPO Box 4877, Sydney, NSW, Sydney Level 4, 175 Macquarie Street Sydney, NSW, 2000 Tel: (02) Fax: (02) Melbourne Level 8, 350 Collins Street Melbourne, VIC, 3000 Tel: (03) Fax: (03) Veritas Securities Page 8 Pental Limited (PTL)