INVESTOR UPDATE MAY 2017

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1 INVESTOR UPDATE MAY 2017 SPOTLESS GROUP HOLDINGS LIMITED ACN

2 IMPORTANT NOTICES Important notice and disclaimer This document is a presentation of general information about Spotless Group Holdings Limited (Spotless) current at the date of the presentation (25 May 2017). The information contained in this presentation does not purport to be complete. It does not constitute personal advice and does not take into account the investment objectives, financial situation or needs of any particular investor. It is important that you consider the information in the Bidder s Statement (together with supplementary Bidder s Statements) issued by Downer Services and the Target s Statement (together with the supplementary Target s Statement) issued by Spotless in light of your particular circumstances. You should seek advice from your financial, legal or other professional adviser before deciding whether to accept or reject the Offer. Forward looking statements This document contains certain forward looking statements and comments about future events, including Spotless expectations about the performance of its businesses and statements of current intention or expectation. Forward looking statements can generally be identified by the use of forward looking words such as, outlook, expect, anticipate, likely, intend, should, could, may, predict, plan, propose, will, believe, forecast, estimate, target, guidance and other similar expressions within the meaning of securities laws of applicable jurisdictions. Indications of, and guidance on, future earnings or financial position or performance are also forward looking statements. Forward-looking statements are subject to inherent risks and uncertainties. Although Spotless believes that the expectations reflected in any forward-looking statement included in this document are reasonable, no assurance can be given that such expectations will prove to be correct. Actual events, results or outcomes may differ materially from the events, results or outcomes expressed or implied in any forward-looking statement. None of Spotless or its Directors, officers and advisers gives any representation, assurance or guarantee to Spotless Shareholders or any other person as to the accuracy or likelihood of fulfilment of any forward-looking statement, or any events or results expressed or implied in any forward-looking statement, except to the extent required by law. You are cautioned not to place undue reliance on any forward-looking statement. The forwardlooking statements in this document reflect views held only as at the date of this document. Except as required by applicable law or the ASX Listing Rules, Spotless does not undertake to update or revise these forward-looking statements nor any other statements (written or oral) that may be made from time by or on behalf of Spotless, whether as a result of new information, future events or otherwise. Risk factors Spotless Shareholders should note that there are a number of risk factors attached to their investment in Spotless and other risks which apply in the event the Offer is accepted. You should refer to section 7.2 of the Target s Statement (as supplemented by the Supplementary Target s Statement) which sets out further information regarding those risks.

3 25 May 2017 Dear fellow Spotless Shareholder, You will have recently received the Bidder s Statement from Downer in respect of its takeover offer to acquire your Spotless Shares for $1.15 per share (the Offer), which Downer has declared as its final price, in the absence of a superior proposal. You will have also received our Target s Statement containing the unanimous recommendation of your Spotless Directors to REJECT the Offer. Spotless is currently at an inflection point and, for the reasons outlined in the Target s Statement dated 27 April 2017 (and as supplemented by the Supplementary Target s Statement dated 23 May 2017), your Board continues to believe that the Offer does not represent adequate value for your Spotless Shares and, unanimously recommend you REJECT the Offer. The management team has a clear strategy to deliver earnings growth and is executing on this strategy. Early signs are promising with an uplift in contract win and renewal rates, a growing pipeline of business development opportunities, the mobilisation of new PPPs and progress on the turnaround of Laundries. For the reasons set out in the Target s Statement dated 27 April 2017 (and as supplemented by the Supplementary Target s Statement date 23 May 2017), the Board believes that Spotless can create more value for shareholders over the medium term as an independent company through continued execution of management s strategy. The enclosed business update demonstrates the positive momentum of the business and highlights the reasons for the Directors recommendation to REJECT the Downer offer: 1. Spotless has a clear strategy to deliver earnings growth and value to shareholders as an independent company. 2. The Spotless management team has driven a strong agenda of change over the last 18 months to drive earnings growth. 3. Spotless contract portfolio is being optimised for growth. It already comprises 47% high margin, multi-service and facilities management contracts (1) and 57% of contracted revenue is in identified growth markets (2). Spotless is set to increase the proportion of earnings from priority growth services and end markets from here. 4. Investment in business development is demonstrating early signs of success, including improved win and renewal rates of high quality contracts with $330m of revenue signed during March 2017 (3) 5. and a continued strong pipeline of high quality opportunities with annual revenue prospects of over $500m from the top 15 opportunities. 6. Spotless has a proven track record in the social infrastructure PPP market with 18 PPPs with a total life time revenue of $10.8 billion. New PPP mobilisations are progressing well and we continue to win new PPP contracts. 7. The Laundries turnaround is underway and the recent Cabrini laundry acquisition strengthens Spotless market-leading position in Health. 8. Spotless has guided to growth in NPAT for FY18, with an outlook for continued growth in FY19 and the longer term. 9. Downer has acknowledged Spotless strong fundamentals including earnings from stable businesses with resilient earnings and long term contracts that provide high certainty over revenues. 10. Downer has adopted a conservative approach to estimating potential synergies. Your Directors continue to unanimously recommend that shareholders REJECT the Downer Offer and each Director who holds or controls Spotless Shares continues to intend to REJECT the Offer in relation to those Spotless Shares. If you have any questions in relation to the enclosed materials or your shareholding in Spotless, please call the Spotless Shareholder Information Line on (for calls made from within Australia) or (for calls made from outside Australia) Monday to Friday between 8.30am and 5.30pm (AEST). Thank you for being a Spotless Shareholder. Yours sincerely, Garry Hounsell Chairman (1) Based on estimated FY17 revenue. (2) Based on estimated FY17 revenue. Growth end markets include Health, Government, Education, Defence and Leisure and Hospitality. (3) Total value of key strategic contracts awarded (including new wins) during March i

KEY MESSAGES Our strategy is clear We are executing the plan The portfolio is being optimised Win and renewal rates are up The pipeline is growing New PPP mobilisations are progressing well Laundries

4 KEY MESSAGES Our strategy is clear We are executing the plan The portfolio is being optimised Win and renewal rates are up The pipeline is growing New PPP mobilisations are progressing well Laundries turnaround is underway We have guided to growth Spotless strategic value has been made clear by Downer Downer will benefit from material synergies Spotless Directors unanimously recommend shareholders REJECT Downer s offer. ii ii

5 OUR STRATEGY IS CLEAR Spotless has a clear strategy to deliver earnings growth and value to shareholders as an independent company. FOCUS ON GROWTH END MARKETS Health Government Education Defence Leisure and Hospitality FOCUS ON HIGH-MARGIN, HIGH-RETURN SECTORS Large contracts Integrated facility services Long-dated PPPs Scalable defence and laundries DRIVE NEW BUSINESS WINS Enhanced BD capabilities and refreshed branding Sector-leading proposals and higher win rates Innovation and technology partnerships High performance culture and capability build 1

6 WE ARE EXECUTING THE PLAN The Spotless management team has driven a strong agenda of change over the last 18 months. KEY INITIATIVES IMPLEMENTATION PROGRESS (1) LEADERSHIP New management team and performance culture Initiated Completed Majority of senior management roles replaced in last 18 months Improved performance targets and accountability Investment in business development and marketing capabilities Increased business development headcount Refreshed brand and marketing collateral Target ROIC >20% on new business wins and renewals GROWTH Momentum in pipeline growth and win-rates Early signs of success through improved win and renewal rates of higher quality contracts Identification of unprofitable contracts complete and exit underway Exit of unprofitable contracts Process for potential sale of exited contract bundles has commenced Will drive simplification of business, group margin improvement and reduced overhead Laundries identified as potential source of value creation INITIATIVES Improve Laundries Strengthen balance sheet Performance improvement initiatives underway Cabrini laundry acquisition strengthens market-leading position in Health Target reduction in net debt of $50m in 2H17 driven by recently revised dividend payout ratio to 40 60% to align Spotless with peers, improved capex controls and potential asset sales Realisation of $80m of working capital savings in progress (1) Estimated. 2

7 THE PORTFOLIO IS BEING OPTIMISED Spotless contract portfolio is being optimised for growth. It already comprises 47% high margin, multi-service and facilities management contracts and 57% of contracted revenue is in identified growth markets. Spotless is set to increase the proportion of earnings from priority growth services and end markets from here. Portfolio Mix by Service Line By estimated FY17 revenue Cleaning and food 27% Laundry and technology 26% 7% 20% 9% 17% Cleaning Food Laundry Tech Services (1) Commentary Targeting high return long-dated, expandable multi-service contracts that leverage Spotless scale, geographical footprint and breadth of capabilities 9% Facilities Management Integrated and facilities management 47% 38% Multiple Priority growth services Portfolio Mix by End Market By estimated FY17 revenue (2) Restructure and maintain 17% Restructure and invest 26% Invest / optimise and grow 57% 6% 11% 9% 17% 4% 6% 7% 7% 12% Resources Business and Industry Laundry Tech Services (1) Education Health Leisure and Hospitality PPP Defence Commentary Focused on high-growth end markets including Health, Government, Education, Defence and Leisure and Hospitality, most of which are expected to experience robust growth 20% Government Priority growth markets (1) Includes AE Smith, UASG, Nuvo and TGS. (2) Amounts shown do not sum due to rounding. 3

WIN AND RENEWAL RATES ARE UP Investment in business development is demonstrating early signs of success. Spotless has achieved improved win and renewal rates of high quality contracts.

8 WIN AND RENEWAL RATES ARE UP Investment in business development is demonstrating early signs of success. Spotless has achieved improved win and renewal rates of high quality contracts. Win Rates Renewal Rates (1) Total value signed during March 2017 ~$330m (3) 21% 11% 50% 71% 20% 41% 9% 84% 95% 6% 63% 69% 66% 6% (2) 72% 21% 21% 12% By number By lifetime revenue By annual revenue By number By lifetime revenue By annual revenue 1H16 1H17 1H16 1H17 Key wins in FY17: Key renewals in FY17: NZ Schools (1) 1H17 renewal rates have not been adjusted for the contract portfolio rationalisation (which would have a positive impact on rates shown). (2) Excluding Rio Tinto renewal loss in 1H16, renewal rate was 79%. (3) Total value of key strategic contracts awarded (including new wins) during March

9 THE PIPELINE IS GROWING Investment in business development is demonstrating early signs of success. Spotless continues to have a strong pipeline of high quality opportunities, with annual revenue prospects of over $500m from the top 15 opportunities. Top 15 Pipeline Opportunities (1) ACCOUNT NAME PRIORITY SECTOR MULTI-SERVICE LONG-DATED (2) ANNUALISED POTENTIAL REVENUE (A$M) POTENTIAL CONTRACT VALUE (A$M) INDICATIVE TIMING Health services provider H18 Property developer H18 Retailer H18 Accommodation provider H18 Government department H18 Government department H18 Property developer H18 General industry H18 Property developer H18 Resources H18 General industry H18 Government department H18 Health services provider H18 Government department H18 General industry H18 TOTAL 515 2,245 % OF TOTAL PIPELINE 31% 35% (1) Contract revenue and values rounded to nearest $5m. (2) Long-dated contracts are those with potential contract values exceeding 3.0x annualised revenue. 5

10 NEW PPP MOBILISATIONS ARE PROGRESSING WELL Spotless has a proven track record in the social infrastructure PPP market with 18 PPPs with a total life time revenue of $10.8 billion. New PPP mobilisations are progressing well and we continue to win new PPP contracts. NAME MOBILISATION COMPLETED CONTRACT TERM 0% 100% TOTAL LIFE (YRS) ANNUAL REVENUE LIFE OF CONTRACT REVENUE OPERATIONAL NSW Schools 1 28 $ Headquarters Joint Operations Command 30 $$ South Bank TAFE 34 $$ NSW Schools 2 28 $ Orange Hospital 28 $$$ South Australia Schools 30 $ Royal Children's Hospital 25 $$$ Queen Elizabeth II Carpark 25 $ Wiri Prison (NZ) 25 $ Australia National University 30 $ Western Australia Schools 30 $$ Sydney Convention Centre Australia s Best Infrastructure Project for 2016 (1) 25 $$$ Sunshine Coast University Hospital 25 $$$ Victoria Schools 26 $ Bendigo Hospital 25 $$$ MOBILISING New Royal Adelaide Hospital 30 $$$ NZ Schools (new win) 25 $ Tertiary education contract (2) (preferred) 30+ $ Key for annual revenue: = A$0 10m = A$10 30m = A$30m+ Key for life of contract revenue: $ = A$0 250m $$ = A$ m $$$ = A$750m+ (1) Infrastructure Partnerships Australia, 2016 National Infrastructure Awards. (2) Details yet to be announced. 6

LAUNDRIES TURNAROUND IS UNDERWAY The Laundries turnaround is underway and the recent Cabrini laundry acquisition strengthens Spotless market-leading position in Health.

11 LAUNDRIES TURNAROUND IS UNDERWAY The Laundries turnaround is underway and the recent Cabrini laundry acquisition strengthens Spotless market-leading position in Health. Cabrini Laundry Acquisition Acquisition of state-of-the-art health laundry facility in Melbourne Delivers a number of new multi-year healthcare laundry contracts, including an initial 10 year contract with Cabrini Hospital Strengthens market-leading position and capabilities in Spotless priority growth market of Health Triples capacity in Australia s strongest growing market, providing significant opportunities for expansion Will deliver efficiency synergies Other Initiatives New leadership Technology renewal in priority (Health) laundry sector Operating footprint optimisation Wellington rationalisation Investment in new equipment to drive productivity Implementation of tighter controls over laundry stock Energy efficiency initiatives 7

12 WE HAVE GUIDED TO GROWTH Spotless has guided to growth in NPAT for FY18, with an outlook for continued growth in FY19 and the longer term. FY17 and FY18 NPAT guidance Medium to long-term outlook $100m FY17 $90m $80m FY18 Key assumptions for FY18 NPAT guidance $85m New business wins in FY18 of 17 25% of current pipeline Compares with actual win rate of 21% in 1H17 Potential upside if current pipeline opportunities increase Renewals of 60 70% Compares with actual renewal rate of 72% in 1H17 Exit of unprofitable contracts and associated overhead reduction in line with original contract end dates Majority of contracts have terms ending in next months Potential upside if contracts are exited early or sold Working capital improvement of $40m in FY18 and $40m in FY19 Directors are confident that the strength of Spotless core business and contract portfolio, together with the forecast business trends and performance in FY18 will drive continued growth into FY19 and the longer term. This is expected to be driven by increasing benefits associated with the strategy reset including: focus on priority growth sectors and higher margin contracts further implementation of the contract book rationalisation and associated overhead reduction continued improvement in Spotless leverage position Spotless Shareholders should refer to section 5.4 of its Target s Statement which sets out the basis of the preparation of FY17 and FY18 Guidance and medium to long-term outlook statement (including key assumptions and sensitivity analysis). Source: Spotless Target s Statement released on 27 April

SPOTLESS STRATEGIC VALUE HAS BEEN MADE CLEAR BY DOWNER Downer has acknowledged Spotless strong fundamentals including earnings from stable businesses with resilient earnings and long term contracts

[Spotless has a] higher proportion of earnings from stable services businesses with resilient earnings Spotless portfolio includes long term contracts providing high certainty over revenues Spotless

13 SPOTLESS STRATEGIC VALUE HAS BEEN MADE CLEAR BY DOWNER Downer has acknowledged Spotless strong fundamentals including earnings from stable businesses with resilient earnings and long term contracts that provide high certainty over revenues. [Spotless has a] higher proportion of earnings from stable services businesses with resilient earnings Spotless portfolio includes long term contracts providing high certainty over revenues Spotless has a diversified contract portfolio across a high quality customer base Downer (1), 21 March 2017 This is a very solid business (Spotless has) long-term government and private sector contracts and recurring revenue. The Australian (2), 22 March 2017 Source: Financial media, company filings. (1) Downer disclosure, Offer for Spotless and Equity Raising, ASX and NZX release dated 21 March Emphasis added. (2) Media article, Downer launches $1.3bn bid for solid Spotless, The Australian, dated 22 March Emphasis added. 9

14 DOWNER WILL BENEFIT FROM MATERIAL SYNERGIES Downer has adopted a conservative approach to estimating potential synergies. Downer has conducted its synergies analysis on the basis of external information Synergies On this basis, Downer conservatively estimates that approximately $20-40 million per annum of cost synergies will be realised through the combination of Downer and Spotless over time Synergies expected to be realised predominantly through reduction in head office and corporate costs A review will be undertaken on completion of the Transaction to validate Downer s synergy expectations and ensure that Spotless business and assets are operating efficiently and competitively Downer (1), 21 March 2017 Estimate of potential annual synergies to Downer Approximate value per share of estimated annual synergies to Downer (4) $60m $0.33 (5) $40m $0.22 (5) $20m $0.11 (5) Low end of Downer's conservative estimate (2) High end of Downer's conservative estimate (2) June 2016 merger discussions estimate (3) Low end of Downer's conservative estimate (2) High end of Downer's conservative estimate (2) June 2016 merger discussions estimate (3) (1) Downer disclosure, Offer for Spotless and Equity Raising, ASX and NZX release dated 21 March Emphasis added. (2) Downer disclosure, Bidder s Statement section 2.2(b), dated 21 March (3) In early stage merger discussions that took place between Spotless and Downer in June 2016 (and which progressed no further), the companies discussed the potential for the combination of their respective businesses to generate up to $60 million in potential synergies in a preliminary base case analysis. (4) Values presented in this chart are prepared on the basis of, and subject to, the matters set out in the relevant footnotes referenced in the chart. (5) Calculated by Spotless based on Gordon Growth Model, assuming synergies are fully achieved within 12 months, tax rate of 30%, terminal growth rate of zero, illustrative Downer EDI WACC of 10.4% (average based on most recently reported WACC for six available brokers) and 1,106.0m Spotless shares on issue. 10

SPOTLESS DIRECTORS UNANIMOUSLY RECOMMEND SHAREHOLDERS REJECT DOWNER S OFFER Spotless Target s Statement dated 27 April 2017 (as supplemented by the Supplementary Target s Statement dated 23 May 2017)

15 SPOTLESS DIRECTORS UNANIMOUSLY RECOMMEND SHAREHOLDERS REJECT DOWNER S OFFER Spotless Target s Statement dated 27 April 2017 (as supplemented by the Supplementary Target s Statement dated 23 May 2017) outlines the key reasons Spotless Directors unanimously recommend shareholders REJECT Downer s offer. Reasons for Director s recommendation to REJECT: Downer s Offer is opportunistic and timed to take advantage of historical Spotless share price low Management and the Board have a clear plan to deliver earnings growth and long term value to shareholders under the strategy reset Despite Spotless only recently implementing its strategy reset, early signs of success are evident and demonstrate its growth potential The Offer does not reflect Spotless strong core business Spotless has issued earnings guidance for growth in FY18 and provided an outlook for continued growth into FY19 and the longer term The Offer does not recognise the strategic and financial value of Spotless to Downer The Offer is hostile, highly conditional and not certain to proceed Coltrane Asset Management has accumulated a relevant interest in up to 10.64% and a total interest (including economic interests under cash-settled equity swaps) in 10.64% of Spotless Shares on issue (1) and IF it was to request delivery and be delivered the shares that are the subject of those swaps, it currently intends to REJECT the Offer at the current Offer Price (although it has not made any final decision and reserves any right to take any action it considers appropriate in response to the Offer) (1) Comprised of a relevant interest of up to 10.64%, and, as at 11 May 2017, a relevant interest of between 8.07% and 10.64%, with the difference between the actual relevant interest and 10.64% representing an economic interest (pursuant to cash-settled equity swaps). 11

16 SHAREHOLDER INFO LINE available between 8.30 am and 5.30 pm

1H17 RESULTS PRESENTATION & STRATEGY UPDATE

Spotless Group Holdings Limited 1H17 RESULTS PRESENTATION & STRATEGY UPDATE PRESENTERS Martin Sheppard Chief Executive Officer & Managing Director Nigel Chadwick Chief Financial Officer IMPORTANT NOTICES