Contract Resources Group TBS Group. Global market estimated at over $200 billion pa 1

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1 HELLABY HOLDINGS LIMITED ANNUAL REPORT

2 GROWTH STRATEGY In May, Hellaby unveiled its new strategic direction as a focused, long term and committed owner of businesses in the Automotive and Resource Services markets, both of which offer considerable growth, scale and investment potential. In parallel, Hellaby has introduced a decentralised operating model, with each Group taking responsibility for its own performance outcomes and development. Going forward, we will build our presence in these two core Groups as we enhance shareholder value. Our growth will be through both organic expansion of existing successful operations, as well as value accretive acquisitions to expand the solutions we offer and our geographical footprints in these two Groups. We have high calibre and experienced teams in both Groups to implement our strategy, with clear performance targets and oversight by the Hellaby board. WE ARE FOCUSED ON DELIVERING: A coherent well understood and well communicated business strategy Attractive long term organic and acquisition growth in the Automotive and Resource Services markets Consistent and improving medium and long term profit performance A supportive management and governance culture that rewards initiative and encourages innovation Improving investment value to our shareholders Attractive and rewarding dividend payments CORE SECTORS INVEST AND GROW NON-CORE HOLD AUTOMOTIVE RESOURCE SERVICES FOOTWEAR Mechanical sector Tyre and Wheel sector Auto-Electrical sector Contract Resources Group TBS Group Hannahs Number One Shoes New Zealand and Australian market estimated at over NZ$3 billion pa 1 Global market estimated at over $200 billion pa 1 New Zealand market estimated at $500 million 1 Growth Opportunities: Fold in acquisitions to strengthen segments Organic expansion in New Zealand and Australia Focus on Australian auto-electrical market Growth Opportunities: More stable earnings opportunities Organic geographic expansion in Middle East, Australia and the Americas Acquisition, technology and geography growth To be restructured and divested at an appropriate time 1 Market estimates based on Hellaby management analysis and assumptions

3 WE KEEP BUSINESSES AND VEHICLES SAFE AND WORKING Our specialists in our Automotive and Resource Services businesses are essential partners to essential industries. Whether it s your vehicle or your business, our expert staff work behind the scenes to keep things safe and working smoothly. We provide the crucial parts and expert advice that help your mechanic keep your vehicle running safely. We do the vital maintenance that keeps large industrial plants operating safely. We concentrate on doing the essential and technically difficult things well and we know that our reputation is everything. Day in and day out, we re trusted by our clients to do what s right, at the right time, in the right way. With 3,000 employees stretched across the globe, our frontline people are working behind the scenes to keep people safe and businesses running smoothly. At Hellaby, we re committed for the long term, building value for our customers, our staff and our shareholders. Front cover image: TBS Group undertaking blade repair work on a wind turbine Contents Highlights and Key Events 3 Financial Snapshot 4 The Year in Review 6 Financial Performance 8 Directory of Non-GAAP Measures 11 Business Group Review 13 Board of Directors 18 Management 20 Auditor s Report 22 Consolidated Income Statement 23 Consolidated Statement of Comprehensive Income 24 Consolidated Balance Sheet 25 Consolidated Statement of Changes in Equity 26 Consolidated Statement of Cash Flows 28 Notes to the Financial Statements 29 Statutory Information 61 Corporate Governance 65 Five Year Statistical Summary 68 Corporate Directory, Shareholder Information & Calendar IBC

4 Batteries on route to customers aboard HCB Battery Town delivery vehicle 2 GROUP REVIEW

5 HIGHLIGHTS AND KEY EVENTS for the year ended 30 June NEW LEADERSHIP AND ORGANISATIONAL STRUCTURE November : Appointment of Alan Clarke as CEO and Managing Director to succeed John Williamson who stepped down at the Annual Meeting May : Announced corporate restructure and downsizing. Move towards a decentralised business model with a smaller Hellaby head office June : Appointment of Ivor Ferguson as new CEO for the Resource Services Group REDEFINED STRATEGY AND POSITIONING May : Announced new long term strategic direction with a focus on two core sectors - Automotive and Resource Services STRATEGIC ACQUISITIONS May : A$13m acquisition of Premier Auto Trade in Australia, as part of the Automotive Group. Expected to add A$22m in revenue and A$2.6m at EBIT in FY 2017 June : Announced the $45m acquisition of TBS Group in New Zealand as part of the Resource Services Group. This transaction went unconditional and settled on 1 July, adding $85m in annualised revenue and approximately $8m in annualised EBIT in FY 2017 SALE OF EQUIPMENT GROUP June : Announced the conditional sale of Equipment Group for $81m, realising a gain on sale of approximately $30m, with settlement expected in the first quarter FY 2017 OPERATIONAL PERFORMANCE INITIATIVES January : Cost reduction and restructuring of Resource Services businesses in Australia, the Middle East and the USA Post year end: Expected appointment of specialist retail consultants to address the structure and performance of the Footwear Group COMMUNICATIONS AWARD Winner of the INFINZ Emerging Leaders Best Corporate Communicator Award HELLABY HOLDINGS LIMITED ANNUAL REPORT 3

6 FINANCIAL SNAPSHOTfor the year ended 30 June Sales $M Overall Trend: Hellaby s overall performance was down on last year, mainly due to a soft performance from the Contract Resources business which faced very challenging conditions with continuing volatility in the oil and gas sector. The Automotive Group delivered an improved result, assisted by contributions from two acquisitions, while the Equipment Group delivered year-on-year sales growth but at reduced margins The Footwear Group reported another soft result, down again on last year. The Packaging Group was divested at the end of FY Group Trading EBIT Group Sales were $795.5m, up 2% on the prior year, with increased sales from both the Automotive and Equipment Groups, off-setting declining sales in the Footwear and Resource Services Groups and the loss of earnings following the divestment of the Packaging Group in FY. $M Trading EBIT was $31.4m, down 30% on the previous year, primarily due to the continuing volatility of earnings in Resource Services, a decline in earnings for the Footwear Group and the loss of earnings following the divestment of the Packaging Group in FY. Group NPAT was $19.6m, down 31% Final dividend of 12.5 cents per share will be paid on 30 September, taking full year dividend to 21.5 cents per share, consistent with FY. Results include continuing and discontinued operations Refer to page 11 of the Annual Report for an explanation of non-gaap measures. Group NPAT Dividend per share Earnings per share $M *Normalised Cents per share Cents per share *Normalised FINANCIAL SNAPSHOT

7 Group Trading EBIT (excludes corporate costs) Group Trading EBIT 50 28% 62% % $M % Resource Services Automotive Equipment Group Sales Packaging Footwear Group Sales % 33% $M % Geographical Sales 17% Geographical Sales % % $M % New Zealand Australia Rest of World HELLABY HOLDINGS LIMITED ANNUAL REPORT 5

8 Hellaby Chairman Steve Smith and CEO/Managing Director, Alan Clarke THE YEAR IN REVIEW was a significant year of change for Hellaby. We welcomed our new CEO, Alan Clarke, in November ; announced our new strategic positioning with a refined focus on two of our core business Groups; announced the acquisitions of Premier Auto Trade (PAT) in May and TBS Group in July ; and advised of the conditional sale of our Equipment Group. Our new strategy was agreed by the board and unveiled in May, following a six-month review that saw us identify the Automotive and Resource Services markets as offering the most potential for growth and superior near and long term shareholder returns. Under our new strategy, we are committed to long term ownership and investment into these two Groups. We estimate the opportunity in the trans-tasman Automotive market at over $3 billion per annum and we already have an established and significant presence in this sector. In New Zealand, we are leaders in the specialist mechanical parts sector and also have a growing presence in auto-electrical. In Australia, we have an established and growing presence in the auto-electrical sector, with recent acquisitions including the JAS Oceania business, which we acquired in June, and Premier Auto Trade, which we acquired in May. In FY, our Automotive Group reported increased sales and earnings as we benefited from these acquisitions. Resource Services covers a wide range of technical and specialist industrial services and we estimate the global market potential to be over $200 billion per annum. Our cornerstone business in our Resource Services Group, Contract Resources, undertakes highly specialised industrial maintenance work in several sectors. A large component is in the oil and gas sector where Contract Resources is a respected technical maintenance service provider for a number of refinery owners around the world. This specialist work commands higher margins but it is also dependent on refinery shutdowns which are often dictated by economic conditions. The oil price in FY has been volatile and this has impacted on a number of our international contracts, with Resource Services performing well below expectations. However, in selecting Resource Services as one of our two long term investment areas, we looked beyond the current performance and noted our well-established worldwide reputation, as well as the significant market opportunities in a wide number of industrial sectors outside of oil and gas where we already operate. These include mineral processing, energy generation and petrochemical and fertiliser production, where our technical expertise is already utilised in a variety of specialist maintenance services. The acquisition of the New Zealand-based TBS Group, which settled on 1 July, allows us to further expand the range of services we offer and reduces the earnings volatility of shutdown contracts. TBS Group is also a respected specialist industrial maintenance provider, but with services that complement Contract Resources international oil and gas focus. TBS Group expands the services that can be offered to our clients by all our businesses around the world. Our Footwear Group had another challenging year and although both businesses continue to trade profitably, they reported a fall in revenues and earnings. Hannahs and Number One Shoes, which operate independently of each other, have cut overheads and implemented cost savings to address their performance shortfall. We are now focused on identifying a long term solution, with specialist retail consultants expected to be appointed shortly to address the Group s structure and implement change. The Footwear Group remains non-core. At the end of the financial year, we announced the conditional sale of our Equipment Group for $81m on terms that the board believes crystallises considerable value for our shareholders. The sale proceeds will enable us to realise additional opportunities we are assessing, including funding the recent acquisition of the TBS Group. 6 GROUP REVIEW

9 With a move towards a concentrated long term focus on two core business Groups, the role of the Hellaby corporate office has changed from a centralised management process to a decentralised business model. This has meant ensuring we have a depth of leadership talent and management experience in each Group as they take on responsibility for their own performance outcomes and development. The Automotive Group has a well-established and experienced management team, under the leadership of Colin Daly. In Resource Services, we have recently appointed Ivor Ferguson to the CEO position, with Andy Wells, the incumbent CEO, moving to a business development role as executive director. There will be other senior appointments made in both Groups in coming months to ensure they are resourced appropriately. As said, FY was a very difficult year and not one we expect to be repeated. We have a positive view of the future sustainable earnings from our core operations, and in line with this, we are pleased to declare a final fully imputed dividend of 12.5 cents per share, taking the FY full year dividend to 21.5 cents per share, the same level as FY. Leadership and our people Our people are the specialists who keep businesses and vehicles safe and running. They are the people behind the counter, on the phone, in the cloud and on the ground; the ones working behind the scenes who keep things working safely. Often what we do is technically difficult and challenging, particularly for those in our Resource Services businesses, who work in demanding and often dangerous environments. Hellaby s enduring theme of Zero Harm across our many activities isn t just a slogan, it s a bottom line and a way of life. We keep other people safe through our expertise and we will keep our people safe at all times - safety isn t expensive, its priceless and not negotiable. We trust the expertise and knowledge of our frontline people and support them in their diverse endeavours. As a part of our new strategy, we are empowering the people within our businesses to manage their own Group development and growth, with oversight rather than control from Hellaby s management. This has resulted in a restructure and downsizing of the corporate office and we expect a significant reduction in our corporate overhead cost and a change in culture going forward. For Hellaby, growth in profit is an outcome of how we behave, how we treat people and how we work together. We have 3,000 talented and expert staff across New Zealand, Australia, the Middle East and the Americas, making a real difference every day for our clients. We will continue to invest in our people to develop their talent and enhance their skills, while encouraging competitiveness, initiative and innovation, and finding a better way to do things better. Board Long standing director Gary Mollard has advised that he will retire at the Annual Shareholders Meeting. On behalf of the board, management and shareholders, we would like to thank Gary for his efforts and expertise over the past seven years, as we have refocused and grown our company. The board is well advanced on a search process to appoint two new directors before the end of. Our future We are entering FY 2017 with a clear vision of who we are and what we do. Growth remains a cornerstone of our strategy as we build scale, strengthen our offer, expand our geographical footprint and grow market share. This will be achieved through both targeted acquisition and organic expansion opportunities within each of our targeted business Groups. In Automotive, we have identified growth opportunities in the Australasian auto-electrical sector and we will evaluate other bolt-on acquisitions that complement our existing businesses in the wider automotive sector and which would add to our skill and product mix. The Resource Services team will be focused on integrating the TBS Group in New Zealand and identifying synergies and opportunities for their services into other markets. Continuing volatility in the oil and gas sector is impacting on our clients in this industry and we expect uncertainty and depressed earnings in Contract Resources international businesses to continue in the near term. However, our clients in other industries have a variety of technical maintenance needs, which we can meet with our expanded offer and services, and which should provide more stable earnings streams in the years ahead. We have announced the conditional sale of the Equipment Group and we expect this to settle in the first quarter of FY We have identified our Footwear Group as non-core. We are now moving to restructure this Group and improve the underlying operating performance, with the expected appointment of expert retail consultants. This work will be undertaken in FY 2017 with benefits expected from FY 2018 onwards. We are committed to increasing the long-term value proposition for both our clients and our shareholders. We will do so through the successful execution of our strategic priorities and our committed long term focus on our core Groups. Our reputation is everything and our point of difference is the trust of our customers to do our jobs well and keep things working safely. Our company is in excellent financial shape with a strong balance sheet to support our future growth. The future capital needs of the company are constantly being reviewed by the board, as we seek to grow as well as support the recovery of our Resource Services Group, and a number of investments are currently being considered. We are committed to growth and to delivering an improved performance in FY We are confident we have the right strategy, the right people and the right initiatives in place to achieve this. We look forward to keeping you informed on our progress in the year ahead through clear ongoing investor and shareholder communications. The board wishes to thank all staff for their continued dedication, passion and effort. HELLABY HOLDINGS LIMITED ANNUAL REPORT 7

10 FINANCIAL PERFORMANCE The following commentary includes the combined performance of continuing and discontinued operations. The Packaging Group was divested in FY and in June, the Equipment Group was announced as being conditionally sold. Both Groups are therefore treated in this commentary and the financial statements as discontinued operations. The total results of continuing and discontinued operations are the Group s preferred measure for comparing year-on-year performance. Operationally FY was a challenging 12 months, particularly for our Resource Services Group, and this was reflected in our results. Group sales for the year to 30 June were $795.5m, up 2.0% against last year s sales of $779.5m. The increase was mainly driven by Automotive as it benefited from a full year of sales from JAS Oceania which was acquired in late FY and two months from PAT, which was acquired in May. The Equipment Group also increased sales, although at reduced margins. Combined key trading results (comprising continuing and discontinued operations) Continuing Discontinued (Equipment) Total Sales 570, , ,491 Trading EBITDA 33,958 12,881 46,839 Trading EBIT 20,317 11,130 31,447 Profit After Tax 13,351 6,293 19,644 Continuing Discontinued (Equipment and Packaging) Total Sales 527, , ,548 Trading EBITDA 43,160 15,949 59,109 Trading EBIT 30,857 13,826 44,683 Profit After Tax 20,165 8,238 28,403 Group financial summary for the year to 30 June (comprising continuing and discontinued operations) 2014 Gross trading surplus 55,231 66,100 62,493 Corporate costs 8,392 6,991 6,409 Trading EBITDA 46,839 59,109 56,084 Depreciation 13,113 12,293 11,262 Amortisation 2,279 2,133 2,109 Trading EBIT 31,447 44,683 42,713 Interest (net) 5,122 5,589 4,746 Finance costs on contingent consideration 1, Net trading surplus 25,010 38,194 37,734 Other non-trading Equity accounted investment - - (70) Fair value adjustment on contingent consideration (2,478) - - Goodwill impairment ,940 Profit on divestment of Packaging Group - (477) - Profit before tax 27,488 38,671 10,864 Less tax expense 7,844 10,268 10,993 Net profit / (loss) after tax 19,644 28,403 (129) NPAT / (NLAT) attributable to: Shareholders of the Parent 19,603 27,377 (1,100) Non-controlling interests 41 1, ,644 28,403 (129) Earnings per share Attributable to the Parent 20.4 cents 28.6 cents (1.2) cents Trading EBITDA and Trading EBIT are the Group's preferred measures of profitability and are useful in distinguishing between trading and non-trading items. Refer to Note 3 of the financial statements for a reconciliation to the reported results. 8 FINANCIAL PERFORMANCE

11 The Packaging Group, which provided $43.6m in sales in FY, was sold at the end of that year. All businesses continue to operate profitably, however, operating performance was impacted by the soft performance of the Resource Services Group as well as by a further decline in the Footwear Group as it continued to struggle in a challenging retail environment. The Equipment Group saw a small drop in profitability as it undertook lower margin work. Group Trading EBIT $M Trading EBITDA (net trading surplus before interest, tax, depreciation, amortisation and other non-trading items) was $46.8m (FY : $59.1m). Group EBITDA margin (Trading EBITDA as a percentage of revenue) was 5.9%. Trading EBIT (net trading surplus before interest, tax and other non-trading items) decreased to $31.4m from last year s $44.7m Resource Services Automotive Equipment Footwear The result includes investment into new initiatives including $1.0m associated with the start-up Truck and Trailer Parts business in the Automotive Group. Corporate costs increased by $1.4m during the financial year largely due to the downsizing and restructure of the corporate office. Corporate costs represent 1.8% of total assets. Group NPAT (net profit after tax) of $19.6m was down on last year s record result of $28.4m. Group NPAT attributable to shareholders of the parent company was also $19.6m. The result included a $2.5m gain on recalculation of contingent consideration payable in respect of the Contract Resources put call option on the outstanding 15% minority shareholding that is exercisable 30 June Business Group Performance The Automotive Group delivered increased sales and EBIT results, while the Equipment Group delivered year-onyear sales growth but at reduced margins. The Footwear Group delivered another soft performance, down again on last year. The positive performance of the Automotive Group was assisted by a full year contribution from the acquisition of JAS Oceania and a two-month contribution from Premier Auto Trade, both of which operate in the Australian autoelectrical market. BNT, the Group s largest business, generated increased sales and earnings. The Group's performance was affected by expensed investment into branch expansion in Australia and the launch of Truck and Trailer Parts. In addition there was margin pressure from increased competition in the New Zealand auto-electrical market, and slower trading as a result of the soft agricultural sector, as well as the impact of unfavourable foreign exchange movements. The Resource Services Group was impacted by the challenging and volatile conditions experienced in the international oil and gas sector which affected the timing of a number of shutdown contracts. Overall, while second half earnings were a significant improvement on the first half, full year earnings were well down on the previous year. Cost reduction and diversification strategies to smooth income in the Resource Services Group were implemented in the second half. FY includes a full twelve months from the Equipment Group, which delivered steady year-on-year sales growth. However, this higher revenue was at reduced margin as increasing competition put pressure on prices. This affected full year earnings, which were slightly down on the last financial year. Settlement of the sale of this business is expected to take place in the first quarter of FY The Footwear Group continued to struggle in a very soft and difficult retail environment with same store sales down again on last year. Several cost savings were implemented across both businesses in the course of the year. The Resource Services and the Automotive Groups continued to expand their geographical footprint and in FY, 32% of group sales were generated outside of New Zealand, up from 7% five years ago. Capital management Hellaby maintains a conservative capital structure, which ensures we have the appropriate capacity and flexibility to fund our future growth ambitions. During the year, the company made $15.0m of debt-funded acquisitions and received $2.3m final settlement payment on the sale of the Packaging Group. Total net debt (interestbearing debt including core bank debt) was $83.3m at 30 June, compared to $63.0m at 30 June. Gearing (total net debt to total net debt plus total equity) at 30 June was 28.8% (compared to 22.3% at 30 June ). This demonstrates Hellaby s capacity to fund future growth including further acquisitions. Hellaby reports on Return on Funds Employed (ROFE) and Return on Invested Capital (ROIC). Both measures dropped in FY primarily due to the lower EBIT result. ROFE is Hellaby s internal indicator of capital productivity. It measures trading EBIT as a percentage of average working capital plus fixed assets (excluding intangibles). ROFE for the year to 30 June was 15.2% overall, compared to 23.6% for the prior year. Return on invested capital (ROIC) is Hellaby s return on investment measure, which includes intangibles. ROIC is defined as Trading EBIT as a percentage of average working HELLABY HOLDINGS LIMITED ANNUAL REPORT 9

12 capital plus fixed assets and intangible assets. The ROIC benchmark is to exceed Hellaby s pre-tax weighted average cost of capital (WACC, currently 11.8%). The ROIC measure for the year to 30 June was 10.4% compared to 15.8% for the prior year. During the year in review, Hellaby generated $23.7m in free cash flow, lower than the prior year s $24.1m. The group incurred net financing costs of $6.4m (compared to $6.5m in ) reflecting the timing of acquisitions. ROFE % Target >20% Hellaby s earnings per share reduced by 28.7% to 20.4 cents, against last year s record 28.6 cents per share. Return on average shareholders funds reduced to 9.3% compared to last year s 13.9%. Net asset backing was $2.14 per share ($2.28 per share last year); and net tangible asset backing was $1.09 per share ($1.24 per share last year) ROIC % Target >WACC Dividends Hellaby s directors have declared a final fully imputed dividend of 12.5 cents per share for FY, taking the full year dividend to 21.5 cents per share. This payout per share is consistent with the FY dividend. This is an indication of the board s confidence in the company s new strategy and the future sustainable earnings of the two core Groups. The dividend will be paid on 30 September. For the purposes of determining shareholder entitlements, the dividend will have a record date of 23 September. As previously advised to the market, the company s Dividend Reinvestment Plan remains suspended Free cash flow $M Acquisitions and Divestments We have a strategy of profitable growth and we are constantly assessing opportunities in accordance with our investment guidelines. During FY, we announced the acquisition of two businesses which add value to our core Groups. Acquisition of Premier Auto Trade In May, Hellaby acquired Premier Auto Trade Pty Limited in Australia, an importer and wholesaler of quality electronic fuel injection, engine management and service components to the Australian automotive aftermarket. This is a strong strategic acquisition as the Automotive Group looks to build its market share in the Australian market, particular in the auto-electrical sector. The business was acquired for A$13m and is expected to deliver A$22m in sales and A$2.6m in Trading EBIT in FY Acquisition of TBS Group In June, Hellaby announced the conditional acquisition of TBS Group, a specialist industrial asset maintenance provider. It is an attractive add-on for the Resource Services Group and complements Contract Resources international focus in highly specialised and technical industrial services Total net debt/gearing Debt $M Gearing Ratio (Target <45%) % 25% 20% 15% 10% 5% ROFE or return on funds employed = Trading EBIT as a percentage of average working capital plus fixed assets. Working capital includes inventory, debtors and creditors ROIC or return on invested capital = Trading EBIT as a percentage of average working capital plus fixed assets and intangible assets Free cashflow = cashflow from operations, less net operational capex Gearing Ratio = total net debt / (total net debt + total equity) Total net debt = aggregate of bank liabilities and assets 10 FINANCIAL PERFRMANCE

13 The expanded service offering will assist in dampening the earnings volatility the Resource Services Group has experienced in recent times. An initial consideration of $45m was paid, comprising NZ$40.5m in cash and $4.5m in Hellaby ordinary shares issued at $2.50 per share, on the settlement date of 1 July. An earn-out payment of up to $6m is also payable, dependent on achievement of twelve month earnings targets, and will be paid in a mix of cash and through the issue of new Hellaby shares post 30 June The business is currently generating annualised sales of approximately $85m and is expected to add about $8m in annualised EBIT to the Resource Services Group in FY Conditional Sale of the Equipment Group Hellaby s Equipment Group comprises a number of brands and businesses, and is New Zealand s leading heavy equipment sales, servicing and forklift rental business. In June, Hellaby announced the conditional sale of the Equipment Group to Maui Capital Aqua Fund for $81m. The sale is expected to realise a capital gain on book value of around $30m, after costs and working capital adjustments. Settlement is expected to take place in the first quarter of FY 2017, once all transaction conditions are met. Investor performance Total shareholder return (TSR) measures the increase in share price plus dividends paid per share, and is an indicator of shareholder value creation. In spite of increased profits, Hellaby s share price has remained static over the last three years, leading to the initiation of our new strategic direction. This year, while dividends have been maintained at the same level as FY, our share price declined following financial guidance updates and a lack of clarity in our previous strategy, resulting in a TSR of (3.4%). The board and management are fully focused on our TSR performance. We are very aware that Hellaby s share price is not currently where we or our shareholders wish it to be. We have committed to a new strategic direction and we are focused on providing clarity and communicating progress on our new strategy to the market. We are working towards positioning Hellaby as an exciting and attractive investment proposition with valuation metrics that steadily improve as our story and strategy are communicated and as our underlying performance improves. We are currently assessing a number of investment and acquisition opportunities in our two core business Groups and have significant financial capacity to fund these. Steve Smith Chairman 25 August Alan Clarke CEO and Managing Director DIRECTORY OF NON-GAAP MEASURES Hellaby uses a number of non-gaap financial measures which provide useful information in measuring the financial performance and condition of the business. These measures should not be viewed in isolation, nor considered as a substitute for measures reported under NZIFRS. Reconciliation of free cash flow Reconciliation of total net debt Cash from operations 37,670 39,964 Dividends and other income 662 3,629 Payments for property, plant and equipment and software (20,356) (23,595) Proceeds from disposal of property, plant and equipment and software 6,133 3,243 Effects of exchange rates on cash and cash equivalents (379) 859 Free cash flow before tax 23,730 24,100 Free cash flow is the Group's preferred measure of cash generated from the segments, as it recognises both on-going operating and capital expenditure cash generated and expended and excludes proceeds of company divestments. Core bank debt 96,861 72,401 Bank overdrafts Cash and cash equivalents (14,454) (9,538) Total net debt 83,331 62,970 Total net debt is the aggregate of bank liabilities and assets, and is the Group's preferred measure of total financial indebtedness. Calculation of gearing ratio Total net debt () 83,331 62,970 Total equity () 205, ,074 Gearing ratio 28.8% 22.3% The gearing ratio is the Group s preferred measure of financial leverage. HELLABY HOLDINGS LIMITED ANNUAL REPORT 11

14 BNT distribution 12 Group GROUP REVIEW hub, Auckland, New Zealand

15 BUSINESS GROUP REVIEW Automotive The Automotive Group comprises respected, wellestablished, market-leading wholesale and distribution businesses, which provide technical knowledge, expertise, parts and services essential to keeping vehicles running. Our current businesses operate within three key market segments mechanical, auto-electrical and tyre & wheel. We have operations in both New Zealand and Australia, with over 800 staff working from over 120 locations. The Automotive Group delivered a year of increased results as it benefited from acquisitions, with sales up 29.8% to $259.8m and profitability up 2.5%, with a Trading EBIT of $24.5m. In New Zealand, our largest single business is automotive and truck parts distributor, BNT. This business performed well as did TRS Tyre and Wheel, which has continued to focus across a broader range of tyre applications to dilute the impact of an agricultural market facing sustained headwinds in the dairy sector. Our New Zealand auto-electrical business, comprising HCB Technologies, Diesel Distributors and JAS Oceania New Zealand (previously Dasko), achieved solid sales growth but faced margin pressures due to less favourable exchange rates and competitive pressures. Our presence in Australia has grown significantly with the acquisitions of JAS Oceania and PAT, adding to the existing Federal Batteries and Diesel Distributors businesses. This is boosting our ability to drive scale benefits and intercompany opportunities. The acquisition of PAT fits perfectly into our auto-electrical strategy it is scalable, provides synergistic opportunities and is already delivering benefits on both sides of the Tasman. In the forthcoming year, Australia will account for close to 40% of Automotive Group turnover. Our trans-tasman growth potential, within current market segments, is significant and expansion of our footprint and range of trade expertise, services and parts is core to our future development. As well as assessing a number of organic and acquisition opportunities, we are also closely monitoring industry evolution and disruptors, particularly fuel, electronics and electrical, with a view to developing expertise and expanding into these emerging segments. At a Group level, we will concentrate on optimising our growing presence within the Australasian automotive industry, in particular relative to scalability and synergies. Total sales ($m) Trading EBITDA ($m) Trading EBIT ($m) ROFE 31.0% 37.1% ROIC 20.7% 24.6% Free Cash Flow ($m) Staff HELLABY HOLDINGS LIMITED ANNUAL REPORT 13

16 14 The start GROUP of another REVIEW day for the Contract Resources crew

17 Resource Services Our Resource Services Group is a long term partnership business providing highly specialised, essential maintenance solutions to industrial clients that make their plants and businesses efficient and safe. We estimate the annual global industrial maintenance market to be worth NZ$200 billion per annum, and the international opportunities for our high end technical maintenance solutions are significant. We currently operate out of 30 offices around the world, spanning four geographic regions, with a core team of 900 staff that more than doubles in peak contract periods. In FY, the Resource Services Group consisted of one business, Contract Resources, which is 85% owned by Hellaby Holdings Limited and 15% by three of the founding management members. A second business, TBS Group, was acquired on 1 July and is 100% owned by Hellaby Holdings Limited. This business did not contribute to results for FY. Contract Resources had a challenging year as volatile oil and gas market conditions impacted on international refinery shutdowns which enable Contract Resources to undertake its work. A very soft first half was followed by a stronger second half, but overall the consolidated full year result saw sales down to $176.0m from $189.1m. Trading EBITDA and Trading EBIT were both similarly impacted and were down to $11.0 and $2.9 respectively. Significant cost reduction strategies and diversification strategies were implemented in the second half. The largest impact of the oil and gas downturn was in Australia and a lot of work has been done to reduce the exposure to the oil and gas sector. In line with our focus on less volatile revenue streams, we have negotiated a number of large full service long term contracts in Australia that will add significant value from FY 2017 onwards. Our Zero Harm performance for the year has followed a continuous improvement trend with the Middle East and New Zealand both reaching five years Long Term Injury (LTI) free and our reportable injury frequency rates nearing zero. Going into FY 2017, Contract Resources will be joined by the TBS Group. While the TBS Group operations are based in New Zealand, we are already seeing cross benefits into Australia and possibly the Middle East for some of the resources and expertise in TBS Group which could be applied to Contract Resources client base. The focus for the Group is addressing the industry volatility with market diversification and more long term contracts. We will also be investing in new tank cleaning technology and expanding our services offering in the Middle East and the USA. Total sales ($m) Trading EBITDA ($m) Trading EBIT ($m) ROFE 4.4% 17.2% ROIC 2.4% 9.4% Free Cash Flow ($m) Staff HELLABY HOLDINGS LIMITED ANNUAL REPORT 15

18 Hannahs Spring/Summer /17 campaign featuring Pulp Shoes footwear designed for New Zealanders 16 GROUP REVIEW AB Equipment holds a dominant position providing equipment solutions to the NZ forestry industry

19 Footwear The Footwear Group remains non-core in the Hellaby portfolio. It consists of two retail networks, Hannahs and Number One Shoes, that operate independently of each other in a very soft and difficult fashion retail environment. The Group employs over 1,000 staff and has 117 locations throughout New Zealand. Management estimate that the Footwear Group holds a 25% share of the New Zealand footwear market through its two retail brands. Online shopping continues to provide both opportunities and increasing competitive pressure. Both businesses are driving more sales through their online channels and continuing to develop their click & collect capability. In FY, sales were $137.3m, down from $140.8m, and Trading EBIT was $1.3m, down from $2.8m. Same store sales decreased 3.2% against the prior year. Hannahs is now located solely in New Zealand after closing the remaining Hannahs-run Pulp retail store in Australia and completing its exit from that market. It has a strong share of the comfort shoes segment, through the existing Hush Puppies business as well as exclusive distribution of the iconic Clark s shoe brand, which it secured late in FY. Number One Shoes operates at a lower end of the New Zealand footwear market. While this business has undergone significant change in the last year in a bid to improve performance, progress is limited and its sales have steadily declined over the last five years. While these businesses have been for sale for many years, for a variety of reasons no transaction has been completed. In order to address the deteriorating financial performance, experienced retail consultancy specialists are expected to be appointed to advise and implement structural and other changes which will allow synergies to be realised between these two independent businesses. The Footwear Group has been removed from the sale process that was underway. Total sales ($m) Trading EBITDA ($m) Trading EBIT ($m) ROFE 4.1% 8.4% ROIC 4.0% 8.2% Free Cash Flow ($m) Staff 1,013 1,022 Equipment Hellaby has a conditional sale and purchase agreement to sell the Equipment Group to Maui Capital Aqua Fund, with settlement expected in the first quarter FY The Equipment Group is New Zealand s leading heavy equipment sales, servicing and forklift rental business. In FY, the Equipment Group grew sales to $225.4m, up from $208.7m. Trading EBIT for the year was down to $11.1m from $12.5m, mainly due to the increase in lower margin work. The opportunity to sell the Group arose after Maui approached Hellaby and made an unsolicited offer to buy the business. This approach was made in the middle of a strategic review of Hellaby s businesses and opportunistically allowed us to refine our focus into two core areas. The Equipment Group will have a sound future with Maui, and proceeds from the sale will enable additional opportunities and investment into Hellaby s targeted core Groups. Total sales ($m) Trading EBITDA ($m) Trading EBIT ($m) ROFE 37.6% 59.8% ROIC 34.7% 56.0% Free Cash Flow ($m) Staff HELLABY HOLDINGS LIMITED ANNUAL REPORT 17

20 Board of Directors Steve Smith Non-Executive Independent Director (appointed 2008); Non-Executive Chairman (appointed 2014) BCom, CA, DipBus (Finance), CFInstD Steve Smith is a professional director, and has a wide range of business and advisory experience across a number of sectors. Steve is chairman of Pascaro Investments, and his current directorships include Fulton Hogan, Rimu S.A. (Chile) and NZX-listed Tower. He is also a National Foundation for the Deaf board member. Steve is a qualified Chartered Accountant, and a Chartered Fellow of the Institute of Directors. Steve was previously acting chief executive and director of Pacific Retail Group (2004/5), and prior to 2003 was a partner, Corporate Finance and Investment Banking, with PricewaterhouseCoopers. Alan Clarke Managing Director (appointed ); BSc (Honours), MBA, CFInstD Alan Clarke is an experienced corporate leader, with significant commercial and business acumen. He has held a number of senior management positions and directorships for public and private companies in both New Zealand and overseas. His most recent role was as managing director and CEO of Abano Healthcare Group, an NZX-listed healthcare investor, a position he held since Alan was appointed as managing director and CEO of Hellaby Holdings in November. He is also an independent director of nib New Zealand Ltd and is a Chartered Fellow of the Institute of Directors. Steve is a member of Hellaby s Remuneration & Nominations Committee. Paul Byrnes Non-Executive Independent Director (appointed 2003) BCom, ACA, CMA, ACIS Paul Byrnes is a professional director and investor with 25 years experience in senior and CEO roles in private and listed companies. His career has included the management buyout of previously listed Holeproof Industries, consulting and participation in merger and acquisition opportunities and business turnaround management. Paul is CEO/deputy chairman of NZX listed Turners and is a past chairman of Top Energy. Paul is a qualified Chartered Accountant and he is a member of Hellaby s Audit & Risk Committee and Remuneration & Nominations Committee. Mark Cowsill Non-Executive Independent Director (appointed 2012) BCom, CA Mark Cowsill is a qualified Chartered Accountant and is chairman of The Comfort Group and Wonderest. Mark was managing director of Frucor Beverages from 1992 to 2011, during which time he led Frucor to become a global company under various ownership structures, and is a past director of Hubbard Foods and NZX-listed Sanford. Mark is chairman of Hellaby s Remuneration & Nominations Committee and a member of Hellaby s Audit & Risk Committee. 18 BOARD OF DIRECTORS

21 Gary Mollard Non-Executive Independent Director (appointed 2009) BA (Economics), MBA Gary Mollard is chairman and a former managing director of NDA Group, an international engineering and manufacturing group which is headquartered in Hamilton. He is an investor in a number of private companies. Prior to becoming chief executive of NDA Engineering and subsequently leading a management buy-out of that company, Gary has held general management positions with Television New Zealand, Natural Gas Corporation and Golden Bay Cement. Gary will retire as a director of Hellaby at the October Annual Meeting. James Sclater Non-Executive Director (appointed 2008) BCom, CA James Sclater is a professional director and trustee acting for a number of private companies and investment trusts including ProCare Health and Damar Industries. James is a qualified Chartered Accountant and a member of the Chartered Accountants of Australia and New Zealand and the Institute of Directors. Prior to 2009, James was chairman of Grant Thornton Auckland, where he was a business advisory services director for 18 years, specialising in small-to-medium accounting, taxation and management advice. James was nominated as a Hellaby director by Castle Investments Ltd, which is the owner of a 27.2% shareholding in Hellaby Holdings. James is chairman of Hellaby s Audit & Risk Committee and a member of Hellaby s Remuneration & Nominations Committee. Audit & Risk Committee: James Sclater (chairman), Paul Byrnes and Mark Cowsill. Remuneration & Nominations Committee: Mark Cowsill (chairman), Paul Byrnes, James Sclater and Steve Smith. Directors Meetings Board Audit & Risk Committee Remuneration & Nominations Committee Eligible to Attend Attended Eligible to Attend Attended Eligible to Attend Attended Paul Byrnes Alan Clarke 8 8 Mark Cowsill Gary Mollard 12 8 James Sclater Steve Smith John Williamson 4 4 HELLABY HOLDINGS LIMITED ANNUAL REPORT 19

22 Management Alan Clarke Chief Executive Officer & Managing Director BSc (Honours), MBA, CFinstD Alan Clarke is an experienced corporate leader, with significant commercial and business acumen. He has held a number of senior management positions and directorships for public and private companies in both New Zealand and overseas. His most recent role was as managing director and CEO of Abano Healthcare Group, an NZX-listed healthcare investor, a position he held since Alan was appointed as managing director and CEO of Hellaby Holdings in November. He is also an independent director of nib New Zealand Ltd and is a Chartered Fellow of the Institute of Directors. Richard Jolly Chief Financial Officer & Company Secretary BCom, CA Richard Jolly commenced as chief financial officer and company secretary at Hellaby Holdings in March Richard has previously held senior financial positions with Ernst & Young, Grocorp Pacific and Moana Pacific Fisheries. Richard is a qualified Chartered Accountant and a member of the Institute of Directors. Karen Urwin General Manager Acquisitions & Development CA Karen Urwin joined the Hellaby group in February 2009 as part of the senior management team within the packaging group, before transferring to Hellaby s M&A function in October Karen was previously group financial officer and company secretary for the Gough Group, with earlier history at Monaco and CSR/NZ Sugar. Karen is a qualified Chartered Accountant. Colin Daly Chief Executive Officer - Automotive Group PGDipOpsMan Colin Daly has been chief executive officer of the Automotive Group since joining in April Colin has held senior leadership roles in the UK and NZ supermarket sector, led Repco s businesses throughout Australasia and directly prior to joining Hellaby was CEO of Ideal and Rexel Electrical distribution businesses. Colin has a Post Grad Diploma in Operations Management. Ivor Ferguson Chief Executive Officer Resource Services Group BSc, MSc Ivor Ferguson commenced as chief executive officer of the Resource Services Group in July. Ivor has previously held senior executive positions with Clough Amec, Global Energy AP and Woodside Energy. Ivor is an experienced business leader and is a member of the Australian Institute of Company Directors. 20 MANAGEMENT

23 FINANCIAL STATEMENTS for the year ended 30 June CONTENTS Auditor s Report 22 Consolidated Income Statement 23 Consolidated Statement of Comprehensive Income 24 Consolidated Balance Sheet 25 Consolidated Statement of Changes in Equity 26 Consolidated Statement of Cash Flows 28 Notes to the Financial Statements 29 HELLABY HOLDINGS LIMITED ANNUAL REPORT 21

24 Independent Auditor s Report to the shareholders of Hellaby Holdings Limited Our opinion In our opinion, the consolidated financial statements of Hellaby Holdings Limited ( the Company ), including its subsidiaries ( the Group ) present fairly, in all material respects, the financial position of the Group as at 30 June, its financial performance and its cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). What we have audited Hellaby Holdings Limited s consolidated financial statements as at and for the year ended 30 June comprise: the consolidated income statement; the consolidated statement of comprehensive income; the consolidated balance sheet; the consolidated statement of changes in equity; the consolidated statement of cash flows; and the notes to the consolidated financial statements, which include the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs NZ) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our firm carries out other services for the Group in the areas of other assurance and tax c0mpliance services. The provision of these other services has not impaired our independence as auditors of the Group. Other information The Directors are responsible for the annual report. Our opinion on the consolidated financial statements does not cover the other information included in the annual report and we do not and will not express any form of assurance conclusion on the other information. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the consolidated financial statements The Directors are responsible on behalf of the Company for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS and IFRS and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Directors are responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the financial statements is located at the External Reporting Board s website at: Assurance_Standards/Current_Standards/Page1.aspx Who we report to This report is made solely to the Company s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. The engagement partner on the audit resulting in this independent auditor s report is Julian Prior. For and on behalf of: Chartered Accountants Auckland 25 August PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) , F: +64 (9) , 22 AUDITOR S REPORT

25 Consolidated Income Statement for the year ended 30 June Notes Continuing operations Sales 3,5 570, ,229 Cost of sales (333,702) (307,563) Gross profit 236, ,666 Other income Selling and marketing expenses (116,198) (100,688) Administration expenses (92,200) (81,855) Storage and warehousing expenses (8,002) (6,724) Operating profit 3 20,626 31,383 Finance income Finance costs (3,101) (2,939) Finance costs on contingent consideration 21 (1,315) (900) Fair value adjustment on contingent consideration 21 2,478 - Profit before tax 18,730 27,578 Income tax expense 7 (5,379) (7,413) Profit after tax (NPAT) from continuing operations 13,351 20,165 Discontinued operations Profit for the year from discontinued operations 3, 25 6,293 8,238 Profit after tax (NPAT) 19,644 28,403 Profit after tax (NPAT) attributable to: Shareholders of the Parent Company 19,603 27,377 Non-controlling interests 41 1,026 19,644 28,403 Notes cents cents Basic and diluted earnings per share Earnings per share attributable to the Shareholders of the Parent Company From continuing operations From discontinued operations The above consolidated income statement is to be read in conjunction with the notes on pages 29 to 60. HELLABY HOLDINGS LIMITED ANNUAL REPORT 23

26 Consolidated Statement of Comprehensive Income for the year ended 30 June Profit after tax (NPAT) 19,644 28,403 Other comprehensive (losses)/income Items that will be reclassified subsequently to profit or loss: Net change in fair value of cash flow hedges reclassified to profit or loss (9,747) 10,239 Foreign currency translation reserve (5,822) 10,928 Tax relating to components of other comprehensive (losses)/income 3,047 (2,868) Total other comprehensive (losses)/income (12,522) 18,299 Total comprehensive income for the year 7,122 46,702 Total comprehensive income for the year attributable to: Shareholders of the Parent Company 7,903 44,052 Non-controlling interests (781) 2,650 Total comprehensive income for the year 7,122 46,702 Total comprehensive income attributable to Shareholders of the Parent Company arises from: Continuing operations 3,247 33,885 Discontinued operations 4,656 10,167 7,903 44,052 The above consolidated statement of comprehensive income is to be read in conjunction with the notes on pages 29 to FINANCIAL STATEMENTS

27 Consolidated Balance Sheet as at 30 June Notes ASSETS Current assets Cash and cash equivalents 9 12,755 9,538 Trade and other receivables 10 70,881 86,018 Current tax asset 8 1, Derivative financial instruments ,666 Unbilled revenue 11 5,866 5,609 Inventories , , , ,736 Assets classified as held for sale 4 84,381 - Total current assets 289, ,736 Non-current assets Property, plant and equipment 15 64,180 70,018 Intangible assets 16 98, ,024 Deferred tax asset 8 4,735 3,727 Total non-current assets 167, ,769 Total Assets 456, ,505 LIABILITIES Current liabilities Bank overdrafts Trade and other payables 17 72, ,895 Finance lease liabilities Current tax liability ,171 Derivative financial instruments 13 3, Provisions 18 2,341 6,917 80, ,523 Liabilities directly associated with assets classified as held for sale 4 48,492 - Total current liabilities 128, ,523 Non-current liabilities Core bank debt 19 96,861 72,401 Trade and other payables 17 1,788 1,220 Finance lease liabilities 20 1,543 1,893 Contingent consideration payable 21 19,641 20,804 Provisions Deferred tax liability 8 2,438 3,468 Total non-current liabilities 122,395 99,908 Total Liabilities 251, ,431 Net Assets 205, ,074 EQUITY Contributed equity , ,731 Cash flow hedge reserve (2,930) 4,091 Foreign currency translation reserve (3,168) 1,511 Contingent consideration reserve (19,671) (19,671) Retained earnings 100, , , ,549 Non-controlling interests 15,744 16,525 Total Equity 205, ,074 The Board of Directors of Hellaby Holdings Limited authorised these financial statements for issue on 25 August. On behalf of the Board Director Director The above consolidated balance sheet is to be read in conjunction with the notes on pages 29 to 60. HELLABY HOLDINGS LIMITED ANNUAL REPORT 25