For personal use only. Ruralco HY2017 Results

Transcription

1 Ruralco HY2017 Results

2 2For personal use only Agenda Half Year Highlights Financial Overview Balance Sheet, Cash flow, Funding Review by Segment Strategy Update Market Dynamics and Outlook Glossary Appendices

3 3For personal use only Half Year Highlights

4 Half Year Highlights Execution of Future Farming Strategy delivers record half year profit Record performance in core traditional business Portfolio of accretive acquisitions completed 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 EBITDA up 20% uebitda up 23% NPAT up 15% unpat up 20% EPS up 5% ueps up 10% 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 Improved Operating Leverage Interim dividend up 12.5% to 9 cents $65 million of equity raised 4 N.B for definitions of the above measures see Glossary: Financial References

5 Continued Execution Of Future Farming Strategy 5 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

6 Financial Overview 6

7 Focused Financial Management Strategy Execution + Improved Operating Leverage = NPAT and EPS growth Financial Discipline Portfolio Management Cash Flow Generation Balance Sheet Strength Strong internal focus on disciplined cost control and efficiency to drive positive operating leverage Decisive action in restructuring operations, divesting non-core operations and increasing equity interest in subsidiaries Continuous pursuit of working capital efficiency and disciplined capital expenditure and investment decisions Maintaining the strength of the balance sheet and funding flexibility underpins the ability to fund growth Measure HY17 HY16 Measure HY17 HY16 Measure HY17 HY16 Measure HY17 HY16 OPEX % of GP (r6) 81.0% 82.9% Underlying ROCE (r6) 8.9% 8.4% Average Working capital % sales (r12) 8.1% 8.2% Gearing % (spot) 28.3% 33.0% Operating leverage (r6) # JV equity transactions 5 - Operating Cash Flow ($37.5m) ($29.5m) Leverage (r12) 2.3x 1.4x Improvement driven by growth in top line earnings plus impact of cost saving initiatives to date Focus on sub-optimal branch performance Ongoing generation of costout initiatives Disposal of farm machinery business and property held for sale Restructure of insurance back office following ACB JV transaction 5 equity transactions to increase % held by Ruralco in existing JV s Improvement in working capital efficiency despite increased size of the business Net operating cash out flow in the half in line with seasonal trend and increase reflective of larger business Successful $65 million equity raise in the half to fund portfolio of acquisitions Leverage (r12 measure) impacted by initial debt funding of acquisitions and earnings underperformance in 2H16 7 N.B for definitions of the above measures see Glossary: Financial References

8 Financial Overview 8For personal use only Half year ended 31 March Change % Commentary Sales revenue ($m) % Growth in rural supplies and agency sales from strong seasonal conditions across most of the country Gross profit ($m) % 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) % Strong improvement in operating leverage (result includes $2.1 million attributed to new acquisitions) Underlying NPAT ($m) % Record H1 earnings result Reported NPAT ($m) % After $1.4 million net impact of non-recurring items 2 Working capital ($m) % 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) cents 10% increase despite increase in weighted average of shares on issue as result of the equity raise Reported EPS (cents) cents Interim dividend fully franked (cents) cent 12.5% increase in dividend reflecting EPS growth Underlying dividend payout ratio (%) 56% 55% 1 ppt Within preferred payout ratio range 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

9 Underlying NPAT Drivers Segment EBITDA growth +$6.2 million (+23%) (3.0) (0.5) (0.2) (2.2) (1.7) $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 9 1 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 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 6 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 N.B 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

10 10For personal use only Balance Sheet Cash Flow Funding

11 Balance Sheet Abridged balance sheet 2017 $m Balance as at 31 March $m Change $m Change % Trade receivables (incl prepayments) % Inventory (incl livestock) (2.8) (2%) Trade payables (incl derivative financial instruments) 11 Continued focus on maintaining balance sheet strength with strong working capital management offsetting growth from acquisitions Commentary Organic sales growth reflecting positive seasonal conditions plus impact of acquisitions. Underlying improvement in ageing profile (past due debtors down 43%) 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 (439.1) (394.9) (44.2) 11% Reflects growth in size of business and seasonal conditions. Overall improvement in AR/AP spread Working capital % Strong result given seasonal conditions and impact of acquisitions Average working capital (r12) % 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 % Primarily acquisition related Intangibles % Investment - associates % Purchase of 50% interest in ACB Net tax items % Other items (net) (42.4) (21.7) (20.7) 95% Total capital employed % Increase primarily driven by impact of acquisitions Underlying ROCE (r6) 8.9% 8.4% 0.5 ppts Primarily acquisition related plus increase in capitalised IT development costs (includes $3.9 million from Program Elevate) Increase in deferred tax assets from impact of timing differences with respect to provisions and accruals and tax losses recognised as part of FY16 March 2017 includes $18.5 million of both deferred and contingent consideration liabilities with respect to acquisitions Positive ROCE trend despite impact of acquisitions on capital employed without the commensurate full 6 months of earnings 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

12 Cash Flow 12For personal use only Abridged cash flow Half Year ended 31 March Change Change $m $m $m % Commentary Reported EBITDA % 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 % 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 flows 3 (67.4) (11.0) (56.4) 513% Primarily reflects acquisitions plus Program Elevate spend offset by proceeds received from disposal of noncore 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 % $65 million cash proceeds net of raise costs paid in cash in the half Purchase of treasury shares 3 (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 (0.2) (0.3%) Used to fund working capital Financing cash flows % Proceeds from equity raise used to fund purchase of portfolio of acquisitions Change in cash held % $65 million equity raise used to fund $60 million 1 portfolio of acquisitions 1 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. 2 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

13 Funding Balance as at 31 March Change Change $m $m $m % Commentary Net cash % Increase due to timing of USD denominated cash receipts at month end. Aim is to minimise cash on hand Current debt (2.4) (120.0) (98%) March 2017 balance reflects amount outstanding on Frontier s Seasonal Cattle Facility Non-current debt (130.0) - (130.0) 100% Maturity of debtor securitisation facility allows for non-current classification Gross drawn debt (132.4) (120.0) (12.4) 10% Reflects increased working capital funding requirement given growth in size of the business Other loans 0.3 (1.2) 0.9 (75%) Finance lease liabilities (1.3) (1.6) 0.3 (19%) Total net debt 2 (112.1) (110.1) (2.0) 2% Total shareholders' equity (283.5) (223.4) (60.1) 27% Impact of equity raise to fund portfolio of acquisitions Gearing ratio (spot) 28.3% 33.0% (4.7 ppts) Well within board approved range of 25% to 45% and in line with normal seasonal trend reflects benefit of equity raise Average net debt (12 months) (111.3) (74.1) (37.2) (50%) Increase due to acquisitions initially debt funded prior to equity raise Leverage (r12) 2.3x 1.4x Facility Equity raise and debtor securitisation facility allows for sufficient balance sheet capacity to maintain growth Maturity Available Utilised $m $m Reflects higher average net debt up to the point of the equity raise and underperformance in 2H16 earningsstill embedded in the denominator; will correct by end of year Commentary Debtor securitisation facility Apr Rolling13 month facilitysecured against eligiblemerchandise, water and livestock debtors Multi Option Facility Apr Reduction in limit from $60 million reflecting reduced need for this type of financing given avg. headroom availablein more cost effective debtor securitisation facility Seasonal Cattle Facility Dec New facilityavailableto liveexport business to fund cattle purchases 13 1 March to March net debt presented given the seasonality differences between net debt at half year (March) and year end (September) 2 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

14 Photo Outlook and Market Dynamics Review by x Segment 14

15 Above Average Rainfall Has Driven Strong Growth In Rural Supplies But Has Impacted The Water Business 15For personal use only First half seasonal conditions produced higher than average rainfall in many parts of the country with two key impacts on the business: Combined with the geographical diversity of operations, this has supported a record result in Ruralco s core traditional businesses; Adverse impact on the counter cyclical water business due to the geographical concentration of the existing business being weighted to the west and southern mainland. Water acquisitions completed in Q2 will diversify the water business earnings geographically Rainfall % of mean 1 October 2016 to 31 March 2017:

16 Rural Services Highlights 16For personal use only Rural supplies - New photo - Fill remaining gaps in the retail network and strategically invest along the value chain while continuing to focus on portfolio management to drive organic growth Further expansion of national footprint with acquisitions in NSW, TAS and WA Strong organic sales growth in rural merchandise, fertiliser and crop protection chemicals Bedding down of new CRT trading model and footprint expansion with net 6 new members in the first half of the year Grow high yielding agency business Lower livestock supply volume was mitigated by higher prices and improved market share, which included supply to Frontier s live export customers Demand recovery in the wool market enabled higher sales prices with good seasonal conditions also contributing to improved wool production and sales volumes Continued growth in real estate sales with more properties sold at higher average prices Outlook for H2 Despite forecasts for dry conditions, autumn has so far seen above average rainfall over much of Australia although parts of Southern QLD, Northern NSW and WA remain dry Elevated prices anticipated to continue for livestock and wool in H2 Launch of new animal health proprietary products under the Covine brand Acquisitions and full year impact of cost out initiatives expected to provide benefit in H2

17 Water Services Highlights 17For personal use only - New photo - Build on market leading position in water, the most fundamental farming input Counter cyclical nature of existing water business and impact of geographical concentration of existing water services business in the west and south evident in first half financial result Acquired 14 new locations and regional expertise in key catchment areas and agricultural centres, diversifying the water business geographical operations Cost out and business performance improvement initiatives ongoing Outlook for H2 Significant focus on successful integration of acquired businesses to optimise their operational and financial performance Positive momentum in water infrastructure projects plus impact of cost out initiatives and acquisitions expected to deliver earnings growth in H2

18 Live Export Highlights 18For personal use only - New photo - Maximise market share along the entire protein supply chain Successful restructure of live export business, establishment of new backgrounding program to lock in quality supply, and reduced supply chain costs have driven growth in earnings Over 57k head of cattle exported in the half, a 12% decline in volume vs PCP due to the closure of the southern business (which focused primarily on dairy cattle exports) Strong focus in the half on compliance, driving a culture of continuous improvement in our business and across the industry Outlook for H2 Challenging market conditions to continue Continued sourcing from internal agency network and renewed backgrounding program to lock in quality supply of cattle to satisfy demand from key international customers Long term market outlook supports our continued commitment to the live export sector

19 Financial Services Highlights 19For personal use only 19 - New photo - Step change in financial services, supporting our customers and the network Merged insurance operations with ACB to support Ruralco s network of more than 500 locations with a scalable insurance offering Insurance staff fully integrated into new business model and now focused on future growth opportunities Strong growth in Seasonal Finance product with uptake doubling in the half (Seasonal Finance is Ruralco s off-balance sheet product with Rabobank) Outlook for H2 Continued expansion of Ruralco Finance s network, filling regional servicing gaps with key appointments Continue to connect Ruralco s customers with ACB s insurance offerings and further growth expected in Seasonal Finance product Management continue to aim for this segment to achieve break even run rate by year end

20 This is the greatest organisation-wide improvement in employee understanding and support of Long Term Direction and Senior Leadership that I have seen in recent years - Sandene Chetwynd, Insync Surveys People & Culture And Scalable Back Office Investment in digital transformation, empowering employees and customers with the latest in innovation, to build a scalable back office and drive improved operating leverage Program Elevate on track and within budget (refer next page) Launch of new online performance management and recruitment system, which will extend to payroll system in H2 Increased investment in Cyber Security Continued investment in the future of Ruralco with an enhanced livestock agency trainee program and commencement of the second year intake of graduates into the successful Ruralco Graduate Program Staff share plan tenure eligibility reduced from 2 years to 1 year, with majority of employees now shareholders as of March 2017 Commenced the Lifeline Roadshow in the Gunning Region, the first stop in a roadshow that will visit regional locations in each state to educate and empower communities on suicide prevention Outlook for H2 - New photo - Program Elevate focus on delivering updated RuralcoNet, completing master data governance (MDG) and rebate system streams Implementation of Chris21 payroll system to replace existing system

21 Investment In Digital Transformation With Program Elevate Program Elevate will enable Ruralco s growth aspirations through digital transformation based on a reliable back office foundation integrated with a scalable e-commerce platform Program Elevate Digital Focus on delivering digital capability RuralcoNet replacement, POS, Customer Portal Process Focus on improving process and automation as a foundation SAP Roles, Business Process Mining, AP Automation Data Focus on improving quality of data as a foundation Master Data, Pricing, Rebates 21 The Program, consisting of multiple projects, is expected to be completed over the next 2 years with a total budget of $14 million. Program spend to date is $3.9 million, in line with budget

22 22For personal use only Strategy x Update

23 Investment Highlights in the half include: Consistent with the announcement on 15 th February 2017, a portfolio of high quality businesses have been acquired in the half, aligned with Ruralco s Future Farming Strategy Key focus in H2 will be to complete the integration of the acquisitions and to optimise their operational and financial performance Strong pipeline of future investment opportunities in place Acquisition (and % ownership if not 100%) Irrigation Tasmania Mildura Irrigation Centre Riverland Irrigation River Rain Hunter Irrigation TP Jones & Co Great Northern Rural Services (60%) Sid Newham Rural Supplies Reportable Segment Water Services Water Services Water Services Water Services Water Services Rural Services Rural Services Rural Services Ausure Consolidated Brokers (50%) Financial Services Integration status Key: Integration in progress On SAP and integrated into existing operations 23

24 Integration Highlights in the half include: Diversification of earnings Establishment of the ACB JV, which brings Ausure s leading insurance offering to Ruralco s extensive distribution network Ruralco s continued footprint expansion and diversification allows it to extract additional earnings along the value chains of each of its activities Simplified live export business with quality internal sourcing and backgrounding program to continue to maximise market share along the protein supply chain and support Ruralco s agency network Increased uptake in seasonal finance products continues to strengthen the financial services offering to Ruralco s customers Rural Supplies 38% 5% Gross Profit contribution size by activity 2006 vs 2017 Agency Rural % Supplies % 7% Agency 30% Water 21% 2% 4% 2% Rural Supplies Agency Water Livestock Export Financial Services Other 24 * The percentage of gross profit by activity is indicative of the change in mix of contribution from each activity in FY06 compared to expected split in FY17 and is not the actual split of profits

25 Innovation Highlights in the half include: Continued pursuit of strategic investments and partnerships with leading experts, with Ruralco contributing deep sector expertise and distribution capabilities Commercialised a UAV (Unmanned Aviation Vehicle) partnership model with PrecisionHawk (leading global technology platform) and The Ripper Group (Australia s leading UAV flight services and compliance organisation). UAV s are a new tool in agronomy, irrigation, animal handling and insurance services Launched an algorithm for use on UAV s for the detection of absolute nitrogen in wheat. This provides Ruralco s agronomists using the platform with a new tool to save our customers money and improve yield Australia s premier AgTech incubator, SproutX, has successfully raised a $10 million AgTech Fund to commercialise the next generation of innovation. Ruralco has first mover advantage as the distributor for selected new technologies and plays an active role in mentoring the founders to enhance their success 25

26 26For personal use only Market Dynamics and Outlook

27 Rainfall Outlook Despite forecasts for dry conditions, autumn has so far seen above average rainfall over much of Australia although parts of Southern QLD, Northern NSW and WA remain dry The BOM is forecasting below average rainfall for much of Australia over the winter period to July Good rainfall so far in autumn is seen as positive to the H2 outlook. However, the dry forecast, if realised, may have some impact on rural supplies sales if cropping areas are impacted April 2017 rainfall as percentage of Mean BOM Forecast : chance of above/below median rainfall May to July

28 Cattle 28For personal use only Reduction in proportion of females as a percentage of total slaughter signals a herd rebuild is underway Market anticipated to maintain elevated prices for the remainder of Ruralco s financial year Volume gradually increasing over the next 4 years from herd rebuild Forecast suggests annual average EYCI at ~635 /kg cwt for current 2017 season /kg cwt Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Source: MLA EYCI prices compared to prior year and 3 year avg price price 3 year avg price Long term cattle herd, prices and forecast Million head 32 EYCI Yearly Average (RHS) Source: ABS, MLA, Ag concepts Bars = Annual Herd Size (LHS) /kg cwt

29 Sheep/ Lamb 29For personal use only Reduction in lamb supply from NZ expected to keep export demand for Australian lamb firm It is anticipated that export demand, combined with tight domestic supply and flock rebuild, will continue to support local prices in the near term Volume expected to gradually increase from next year Forecast suggests an annual average ESTLI at ~670 /kg cwt for the current 2017 season /kg cwt 750 NTLI prices compared to prior year and 3 year avg price price 3 year avg price 300 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Source: MLA Million head Source: ABS, MLA Long term lamb slaughter, prices and forecast ESTLI Yearly Average (RHS) Bars = Annual Lamb slaughter (LHS) /kg cwt

30 Crops 30For personal use only 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Global grain stocks have steadily improved year on year since with no material setbacks to global production in the past 4 years Swing underway to oilseeds globally as low grain/corn prices now begin to impact supply Increase in local cotton and sugar production expected to continue Australian Wheat Production (kt) s = estimate f = forecast Source : ABARES, Mecardo Price A$/t '14 15 '15 16 s '16 17 f '17 18 f ,000 5,000 4,000 3,000 2,000 1,000 0 Australian Oil Seeds Production (kt) '14 15 Price A$/t '15 16 s '16 17 f '17 18 f ,200 1, Australian Cotton Production (kt) Price A$/bale '14 15 '15 16 s '16 17 f '17 18 f ,000 5,000 4,000 3,000 2,000 1,000 0 Australian Sugar Production Price A$/t '14 15 '15 16 s '16 17 f '17 18 f

31 Outlook For H2 Seasonal conditions outlook Good rainfall in South Australia, Victoria, Tasmania and Southern New South Wales in April has led to a solid start to the cropping season in these areas. Further rainfall is needed in Southern Queensland, Western Australia and Northern New South Wales in order to ensure a good winter cropping season in those regions Elevated prices anticipated to continue for livestock and wool in H2 Full year cost-out benefits and the impact of acquisitions combined with improved trading conditions compared to 2H16 are anticipated to lead to a more normalised H1/H2 split in earnings Focus for H2 Integration of acquisitions to optimise their operational and financial performance Growth in earnings from water business reflecting improved operational performance, healthy pipeline of water projects and benefit from larger scale business Continued improvement in operational efficiency (OPEX % of GP and Operating Leverage) with ongoing cost-out initiatives across the Group and active management of underperforming businesses Disciplined management of live export operations with quality supply (sourced from internal agency network and backgrounding program) Connecting Ruralco s more than 500 location distribution network with the expertise, systems and scale of ACB s insurance offerings Progress in digital transformation via Program Elevate, focused on delivering updated RuralcoNet for CRT members, completing master data governance (MDG) and new rebate system project streams in the next six months Continue to build a pipeline of innovation solutions to deliver to our network in collaboration with our innovation partners 31 Launch of Ruralco s animal health proprietary product range, Covine

32 Glossary Appendices 32

33 Glossary: Ruralco's Key Business Activities Segment Business Activity Meaning Rural Services Water Services Live Export Financial Services Agency Rural Supplies Water Live Export Financial Services The Agency activity within Ruralco covers all business activities that relate to the commercialisation of Australian livestock, wool and real estate including marketing, advice, and residential and export sales execution. The agency activity includes a number of respected brands that have significant market share within their geographic operating areas Rural Supplies includes a number of iconic brands including CRT, Australia s largest group of independent rural retailers. Our rural supplies businesses cater to the diversity of Australia s primary industry sector and provide a comprehensive range of animal health and crop protection products, fertilisers and general rural merchandise products. Our access to Australia s leading agricultural supply companies ensures the products we offer meet the highest standards for quality, reliability and competitiveness. Our staff s expertise and their knowledge of local conditions and markets also gives our customers confidence that that they are dealing with a true local who has their interests at heart Ruralco s professional water network works hand-in-hand with water infrastructure operators, on-farm irrigators and water traders to deliver practical and workable solutions. Together, they can provide complete water solutions, from irrigation services and planning, through to water management systems and equipment supply and installation. This service is complemented by the largest network of water brokers in Australia who facilitate all types of water trading requirements. We continually strive to be a leader in providing environmentally sustainable solutions and partner with key suppliers to ensure our customers have access to the latest water technologies. Ruralco s focus on water is a clear differentiator from its competitors. Frontier International Agri is a Ruralco partnership in Live Export. Their mission is to be the supply partner of choice for leading beef, dairy and breeding cattle and sheep customers in selected world markets. Their focus is expert management through the entire supply chain from on-farm in the country of origin through to on-farm and beyond in the destination country. Frontier aims to deliver an outstanding product to customers who demand high quality and performance, backed by outstanding service in nutrition, health and animal husbandry, and animal welfare The Ruralco Financial Services team are specialists in Ag and commercial business finance lending and insurance with a thorough understanding of the needs of rural customers. Through our access to an extensive panel of lenders, our finance representatives will source and tailor a financial solution that best suits the customer s circumstances. Ruralco can help with home or term loans, line of credit, seasonal finance, overdraft, asset or vehicle and equipment finance and insurance. 33

34 Glossary: Financial References Term Average working capital (r12) Average working capital as % of sales (r12) DIO Dividend Policy DRP DSO Equity transactions Gearing Policy Gross profit (GP) Leverage (r12) LTI Minority interest share of profit Net debt Non-recurring items OPEX % of GP (r6 or r12) Operating leverage (r6 or r12) PCP Reported EBITDA Meaning Average working capital for preceding 12 months Average Working Capital / Total Sales for a rolling 12 month period Days inventory outstanding The Board has a preference to maintain a dividend payout ratio of between 40-60% of underlying earnings per share Dividend Reinvestment Plan, when shareholders elect to utilise the plan instead of receive cash dividends it increases the number of shares on issue Days sales outstanding Transactions completed in the reporting period to increase Ruralco s % holding in a subsidiary The Board has a preference to maintain a gearing ratio of between 25-45% on a normalised business cycle basis Statutory revenue less cost of goods sold including commissions paid to employee agents/brokers Underlying EBITDA/Average net debt for the rolling 12 month period Long term incentive scheme operated for Executives and employees. Under the scheme participants are granted Performance Rights to acquire one ordinary fully paid Ruralco Holdings Limited share, at no cost, that only vests if certain time based and performance based vesting conditions are met. Profit attributable to minority interest (non controlling interest) holders of shares in some Ruralco subsidiaries, primarily certain livestock related JV businesses Cash and cash equivalents + Loans and borrowings + certain related party receivables/payables The difference between reported and underlying profit measures. Includes costs/income not considered to form part of the Group s recurring results Reported operating costs/gross profit (rolling 6 months or rolling 12 months depending on reporting period) % change in underlying EBITDA/% change in sales revenue. Denotes the change in EBITDA as a multiple of the change in sales (rolling 6 months or rolling 12 months depending on reporting period) Prior corresponding period As above but including the impact of non-recurring significant items 34

35 Glossary: Financial References (continued) Term Reported EPS Reported NPAT SLOB stock STI Total capital employed Underlying dividend payout ratio Underlying EBITDA Underlying EPS Underlying NPAT Underlying ROCE (r6 or r12) Underlying ROE (r6 or r12) Working capital Meaning Reported NPAT /Weighted average number of ordinary shares on issue for the period Statutory net profit attributable to equity holders of the company Slow and obsolete inventory Cash bonus incentive paid to employees based on performance outcomes measured over a single financial year. Statutory net assets less net debt Dividend per share/underlying EPS Underlying measures of profitability provide more useful information. Underlying EBITDA means reported earnings before interest, tax, depreciation and amortisation including share of profits from equity accounted for investments adjusted to remove the impact of non-recurring significant items (pre-tax) Underlying earnings per share = Underlying NPAT/Weighted average number of ordinary shares on issue for the period Underlying NPAT means reported net profit attributable to equity holders of the Company adjusted to remove the impact of significant items (post-tax and related non controlling interests (NCI)) Underlying EBITDA (rolling 6 or 12 months)/(6 or 12 month average total capital employed) Underlying NPAT/(6 or 12 month average shareholders equity) Trade and other receivables + Prepayments + Inventories + Biological assets + Trade and other payables + Derivative financial instruments less certain related party receivables/payables 35

36 Appendix 1: Half Year Non Recurring Significant Items Set out below is a summary of non-recurring items excluded from underlying results for the half year Underlying NPAT reconciliation: $m Reported NPAT attributable to shareholders $12.4 Net non-recurring significant items $ 1.4 Underlying NPAT attributable to shareholders $13.8 Non-recurring items $m Acquisition and divestment costs including profit/loss on disposal ($1.1) Redundancies - from cost out initiatives and impact of divestments ($0.7) Total Non recurring items (pre tax) ($1.8) Tax and non controlling interest share of non-recurring items $0.4 Net impact on Reported Profit After Tax attributable to shareholders ($1.4) 36

37 Appendix 2: Gross Profit By Activity % % % Rural Supplies: Driven by 15% organic growth combined with contribution from acquisitions Agency: Improved performance in Wool (+10%) and Real Estate (+5%) from volume and avg. price increases. Continued growth in livestock (+3%) with supply decline offset by higher prices and improved market share 30.0 (6%) 28.1 Water: Wet seasonal conditions that supported rural supplies growth have restricted growth in water services $m $m (2%) Rural Supplies Agency Water * Financial Services 1H16 1H17 +23% (38%) Live Export Other ^ Total Financial Services: Lower due to insurance profit now part of ACB JV (included in share of associate profit) Live Export: Improved contribution from quality northern supply chain and reduced supply chain costs Other: Due to the divestment of the farm machinery business 37 N.B PCP revenue and cost of sales (and therefore gross profit) 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 ^ Other includes farm machinery gross profit, rental income and sundry income/expense

38 Appendix 3: Historic H1/H2 Earnings Split 60 EBITDA underlying NPAT underlying $m % 53% 51% 53% 65% 70% 62% 55% 60% 83% FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17 1st half 2nd half 1st half 2nd half 10 5 $m 0 38

39 Disclaimer The information contained in this presentation is general information about Ruralco and its activities, and does not purport to be complete. It is not financial product advice and does not take into account the investment objectives, financial situation or particular needs of individual investors. Before making an investment decision you should consider whether it is suitable for you in light of your own circumstances, and take appropriate advice. This presentation may include information from third party sources that has not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information in this presentation or any assumptions on which it is based. This presentation may contain forward-looking statements about Ruralco's future business and operations, financial standing and market conditions. Forward-looking statements are not guarantees of future performance and are based on assumptions which are subject to change, many of which are beyond the control of Ruralco. Actual results or performance may differ materially from those expressed in, or implied by, any forward-looking statements. Therefore, readers may not rely on any forward-looking statements. The financial results of Ruralco are reported under the International Financial Reporting Standards (IFRS). Throughout this document non-ifrs financial indicators are included to assist with understanding the Group s performance. This document has not been reviewed or audited by the Group s external auditors. 39

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