EBOS GROUP LIMITED — Investor Presentation 2018

Feb 20, 2018

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Investor Presentation

Interim Financial Results Half Year ended 31 December 2017

21 February 2018

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1

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Disclaimer

The information in this presentation was prepared by EBOS Group Ltd with due care and attention. However, the information is supplied in summary form and is therefore not necessarily complete, and no representation is made as to the accuracy, completeness or reliability of the information. In addition, neither the EBOS Group nor any of its subsidiaries, directors, employees, shareholders nor any other person shall have liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or any information supplied in connection with it.

This presentation may contain forward-looking statements and projections. These reflect EBOS’ current expectations, based on what it thinks are reasonable assumptions. EBOS gives no warranty or representation as to its future financial performance or any future matter. Except as required by law or NZX or ASX listing rules, EBOS is not obliged to update this presentation after its release, even if things change materially. This presentation does not constitute financial advice. Further, this presentation is not and should not be construed as an offer to sell or a solicitation of an offer to buy EBOS Group securities and may not be relied upon in connection with any purchase of EBOS Group securities.

This presentation contains a number of non-GAAP financial measures, including Gross Profit, Gross Operating Revenue, EBIT, EBITA, EBITDA, Underlying EBITDA, NPAT, Underlying NPAT, Adjusted Earnings per Share, Free Cash Flow, Interest cover, Net Debt and Return on Capital Employed. Because they are not defined by GAAP or IFRS, EBOS’ calculation of these measures may differ from similarly titled measures presented by other companies and they should not be considered in isolation from, or construed as an alternative to, other financial measures determined in accordance with GAAP. Although EBOS believes they provide useful information in measuring the financial performance and condition of EBOS' business, readers are cautioned not to place undue reliance on these non-GAAP financial measures.

The information contained in this presentation should be considered in conjunction with the consolidated financial statements for the period ended 31 December 2017.

All currency amounts are in New Zealand dollars unless stated otherwise.

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2

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1 Group Financial Results

Symbion Keysborough facility, Melbourne, Australia 3

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H1 FY18 Strategic Highlights

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HPS acquired June 2017
and transition program M&A ACTIVITY INFRASTRUCTURE
completed
Black Hawk is the fastest
growing premium pet
BRAND CASH
food brand in Australia
and was successfully DEVELOPMENT MANAGEMENT
launched into NZ market
14% shareholding in
MedAdvisor Ltd – STRATEGIC LEADERSHIP
Australia’s leading digital
INVESTMENT TRANSITION
medication management
company
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Significant progress made
on two major capex
projects (Brisbane and
Sydney)
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Record H1 cash flow
before capex of +$100m
achieved
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CEO change announced
with John Cullity (current
CFO) to take over from
Patrick Davies effective
31 March 2018
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Group Financial Results

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H1 FY18 Summary Results

Revenue EBITDA NPAT $3.9b $138.5m $76.7m -0.4% (-3.8% Constant FX) 15.6% (+11.7% Constant FX) 11.5% (+7.8% Constant FX)[1 ]

ROCE 16.1% -0.1%

EPS 50.4c 11.0% (+7.4% Constant FX)

Total Dividends per share 33.0c 10.0%

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Group Financial Results

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Strong first half financial performance

NZ$m H1 FY18 H1 FY17 Var Statutory Results Revenue 3,942.7 3,960.2 (0.4%) Gross Operating Revenue 434.8 364.1 19.4% EBITDA 138.5 119.9 15.6% EBIT 121.2 107.5 12.7% Net Finance Costs 10.7 8.9 (20.2%) Profit Before Tax 110.5 98.6 12.1% Net Profit After Tax1 76.7 68.8 11.5% Statutory EPS - cps 50.4 45.4 11.0%	Constant FX Var
	(3.8%) 15.5% 11.7% 9.0% (16.3%) 8.4%
	7.8%
	7.4% 9.5% 5.5% 7.1%
Underlying EBITDA2 138.5 122.3 13.3% Underlying NPAT2 76.7 70.2 9.1% Adjusted EPS - cps3 51.4 46.4 10.8%	9.5% 5.5% 7.1%
Net Debt 447.5 288.1 Net Debt : EBITDA 1.76x 1.25x

• Revenue decrease is driven by lower hepatitis C medicine sales (which were $250m lower than H1 FY17, constant FX).

  • Revenue excluding hepatitis C medicine sales grew by $76m or 2.7% (constant FX).

• Underlying EBITDA increase of $16.3m or 9.5% (constant FX):

• Healthcare up 8.7%.

• Animal Care up 11.7%.

• Underlying NPAT increase of $6.5m or 5.5% (constant FX).

• Adjusted EPS growth of 7.1% (constant FX).

• by $2.3m in H1 FY18.

Note 1: Net profit after tax and non-controlling interests.

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Note 2: Calculated on an underlying basis that excludes transaction costs incurred on prior year acquisitions.

Note 3: Adjusted EPS reflects the Underlying EPS adjusted for amortisation charges incurred on the TerryWhite Chemmart and HPS acquisitions undertaken in FY17.

Group Financial Results

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[Update picture]

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Healthcare Results 2

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Healthcare segment

Strong trading performances across Australia and New Zealand

NZ$m H1 FY18 H1 FY17 Var Healthcare segment Revenue 3,734.7 3,744.1 (0.2%) EBITDA 120.0 106.7 12.5% EBIT 104.8 96.1 9.0% EBITDA% 3.21% 2.85% 36pts Australia Revenue 2,967.2 3,013.8 (1.5%) EBITDA 96.9 85.2 13.8% EBIT 82.8 75.7 9.4% EBITDA% 3.27% 2.83% 44pts New Zealand Revenue 767.5 730.2 5.1% EBITDA 23.1 21.5 7.5% EBIT 22.0 20.4 7.7% EBITDA% 3.01% 2.94% 7pts	Constant FX Var
	(3.5%) 8.7% 5.4% 36pts
	(5.6%) 9.0% 4.8% 44pts

• EBITDA increase of $13.3m or 8.7% (constant FX): – Australia up 9.0% assisted by the 6 month contribution of HPS which was acquired in June 2017.

• New Zealand up 7.5%.

• Revenue decrease of $9.3m or 3.5% (constant FX): – Australia down 5.6% (although up $76m or 2.9% excluding hepatitis C medicine sales, constant FX).

• First half hepatitis C revenue was $250m lower than last year (constant currency) and monthly sales are in line with the trend seen in H2 FY17.

• New Zealand revenue up 5.1%, with growth from all business units.

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Healthcare Results

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Community Pharmacy

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• Total Pharmacy Revenue to last year declined marginally (-0.6%, constant FX), attributable to lower hepatitis C medicine sales (-$82m) and PBS reforms, partially offset by a full six months contribution from TerryWhite Chemmart (TWC) and growth in underlying business.

• Underlying Revenue growth (excluding hepatitis C and TWC) was 2.0%, with growth in Australia of 1.9% and New Zealand of 2.7%.

• Total OTC sales were in line with last year.

• GOR (excluding TWC) increased by 2.7%, primarily due to underlying wholesale pharmacy growth in Australia and New Zealand, partly offset by lower hepatitis C medicine sales.

• TWC store rebranding project is largely complete.

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NZ$m Revenue - Revenue ex. acquisitions GOR - GOR ex. acquisitions GOR% - GOR% ex. acquisitions	Reported	Reported	Constant FX
	H1 FY18	H1 FY17	H1 FY17 Var%
	2,213.0 2,144.2 2,225.8 (0.6%) 2,148.6 2,110.9 2,190.8 (1.9%) 211.7 180.4 187.6 12.8% 166.8 156.3 162.4 2.7% 9.6% 8.4% 8.4% 7.8% 7.4% 7.4%

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Construction progress: new Brisbane wholesale facility

Healthcare Results

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Institutional Healthcare

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• With the acquisition of HPS in June 2017, EBOS continues to expand its position as a specialised and essential partner across a number of areas, primarily in hospitals, aged care and primary care.

• First half revenue was impacted by a significant reduction in hepatitis C sales (-$168m), partially offset by the contribution from HPS.

• Underlying revenue growth (excluding hepatitis C and HPS) was 2.2%.

NZ$m	Reported	Reported	Constant FX
	H1 FY18	H1 FY17	H1 FY17 Var%
Revenue - Revenue ex. acquisitions GOR - GOR ex. acquisitions GOR% - GOR% ex. acquisitions	1,259.4 1,322.8 1,369.9 (8.1%) 1,224.2 1,322.8 1,369.9 (10.6%) 108.0 74.8 77.2 39.9% 77.6 74.8 77.2 0.4% 8.6% 5.7% 5.6% 6.3% 5.7% 5.6%

• HPS is performing well and is achieving EBITDA in-line with expectations.

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Healthcare Results

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Consumer Products

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• Consumer products recorded a solid first half result with revenue growing 7.7% (constant currency).

• Revenue growth was predominantly driven by strong Red Seal domestic sales growth in toothpaste, teas and supplements.

• Red Seal international sales were mixed with lower sales in China that were impacted by a change in distributor in the period. Solid growth was achieved in other Asian countries including South Korea, Taiwan and Japan.

• GOR margins were impacted in part by the decision in Australia to reschedule codeine products to prescription only.

NZ$m	Reported	Reported	Constant FX
	H1 FY18	**H1 FY17 **	H1 FY17 Var%
Revenue GOR	59.6 54.5 55.4 7.7% 22.4 22.0 22.3 0.7%
GOR%	37.6% 40.3% 40.2%

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Healthcare Results

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Contract Logistics

• Healthcare Logistics (NZ) maintained its leading market position and combined with cost management, delivered another period of increased earnings.

• The Group is expanding its Contract Logistics business in Australia with the development of a new 25,000m[2] facility in Sydney (NSW).

• The Australian business has recently been rebranded as Healthcare Logistics to further align the ANZ operations.

NZ$m	Reported	Reported	Constant FX
	H1 FY18	H1 FY17	H1 FY17 Var%
Revenue GOR	238.0 242.1 244.6 (2.7%) 32.4 30.4 31.0 4.4%

Note: GOR % not relevant as sales activity is predominantly done on consignment.

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Construction progress: new Sydney Contract Logistics facility.

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Healthcare Results

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Animal Care Results 3

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Animal Care segment

Improving EBITDA and margins from growth in key brands

NZ$m Animal Care	**H1 FY18 **	H1 FY17	Var	Constant FX Var
Revenue	207.9	216.1	(3.8%)	(7.2%)
EBITDA	24.3	21.1	15.3%	11.7%
EBIT	22.5	19.3	16.3%	12.7%
EBITDA%	11.71%	9.77%	194pts	194pts

• EBITDA increase of $3.2m or 11.7% (constant currency):

• Black Hawk sales growth in Australia (+26%).

• Earnings were negatively impacted by $2.2m due to costs associated with the launch of Black Hawk in New Zealand and exiting the Mars agency business.

Revenue Mix by category

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10%
(H1 FY17: 24%)
35% 55%
(H1 FY17: 27%) (H1 FY17: 49%)
Wholesale (Lyppard)
EBOS brands (Black Hawk and Vitapet)
Other products
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• EBITDA margin% increase reflects our strategic focus on developing our brands.

Animal Care Results

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Animal Care segment H1 Summary of Results Strong sales growth from Black Hawk in Australia of +26%

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• Revenue declined principally due to two factors:

• From March 2017, ceasing low margin wholesale sales to a major Australian retail chain. Revenue in H1 FY18 was impacted by $20m.

• In July 2017, EBOS launched Black Hawk into New Zealand and consequently ceased the sales, marketing and distribution of Mars products in NZ (IAMS and Eukanuba brands).

• Continued revenue growth in the existing business:

• High sales growth of Black Hawk in Australia of +26% (following growth of +48% in FY17 and +55% in FY16). New product development included new packaging and the relaunch of core cat and grain free cat.

• Black Hawk has been very well received into the New Zealand market with strong acceptance from specialty retailers and veterinary clinics.

• Lyppard recorded solid revenue growth of 4.2% in a competitive market.

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Animal Care Results

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Pet Industry Overview

The ANZ Pet sector is worth ~$9.5 billion and is growing at ~2% to 3% per annum¹

ANZ Pet Market by segment

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Pet
Products
$1.0b
Other
Services
$1.4b Pet Food
$4.5b
Veterinary
Services
$2.6b
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• Market growth is being driven by trends towards humanisation of pets, premiumisation of pet food and products, and outsourcing of services like grooming, training & obedience and dog washing.

• Pet Food sales have achieved a 5 year CAGR of 2.7%² with Premium Food growing at faster rates of ~4-5% per annum.

Management estimate the retail Premium food category in Australia is ~A$700-800m. Black Hawk today is Australia's fastest growing premium pet food brand with a leading market position in the pet specialty retail channel. The New Zealand retail premium pet food market is estimated at ~$200-250m.

Our pet treats brand, Vitapet, continues to perform well. In New Zealand, Vitapet has ~60% market share and H1 FY18 sales grew 3.5% to LY. In Australia, Vitapet is the number two brand with ~23% market share, with Mars being the market leader.

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Source: 1. Management estimate based on industry reports. 2. Euromonitor International, Pet Care in Australia, August 2015

Animal Care Results

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4 Group Financial Information

EBOS Healthcare warehouse, 17 Auckland, New Zealand

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Cash Flow

Record first half Operating Cash Flow performance

NZ$m H1 FY18 H1 FY17	Var$
EBITDA 138.5 119.9 18.6 Net interest paid (10.7) (8.9) (1.8) Tax paid (30.6) (37.2) 6.6 Net workingcapital and other movements 4.5 (25.8) 30.3
Cash from Operating activities 101.7 47.9 53.8 Capitalexpenditure (net) (31.5) (16.0) (15.6)
Free Cash Flow 70.2 32.0 38.2
Acquisition of subsidiaries and investments (13.2) (17.4) 4.1 Dividends paid (50.3) (49.4) (1.0)
Net Cash Flow 6.6 (34.8) 41.3 Net debt attributable to acquisitions - (9.4) 9.4 FX impact on net debt (19.3) 3.6 (22.9)
Reduction/(Increase) in Net Debt (12.8) (40.5) 27.8

• Record first half operating cash flow ($101.7m) demonstrating the Group’s disciplined focus on cash flow management.

• H1 FY18 Capex spend primarily comprises the new distribution centre in Brisbane ($17.0m) and the new contract logistics facility in Sydney ($4.5m).

• Additional Capex will be incurred in H2 FY18 on the new warehouses in Brisbane and Sydney, with total spend on these projects alone in FY18 of approximately $43m.

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Group Financial Information

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Working Capital and ROCE

Working Capital

NZ$m	**Dec 2017 **	June 2017	Dec 2016
Net Working Capital
Trade receivables	1,027.6	1,015.1	1,112.5
Inventory	621.3	572.0	596.2
Tradepayables/other	(1,408.0)	(1,353.7)	(1,446.2)
Total	240.9	233.4	262.5
Cash conversion days1
Debtor days	41	41	41
Inventory days	33	30	31
Creditor days	59	57	55
Cash conversion days	15	14	17

Return on Capital Employed

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16.4% 16.4% 16.2% 16.1%
14.3%
13.7%
12.8% 12.9%
FY14 FY15 FY16 FY17 H1 FY15 H1 FY16 H1 FY17 H1 FY18
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• Working capital management discipline is a key focus of the Group.

• Industry leading cash conversion cycle of 15 days.

• Return on Capital Employed of 16.1% at December 2017, lower than June 2017 (-0.3%) and December 2016 (-0.1%) primarily due to a lower NZD/AUD exchange rate which increased the Group’s capital base.

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Group Financial Information

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Note 1: Cash conversion days are adjusted for the Group’s 3PL debtors and creditors arising from its hepatitis C business.

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Net Debt, Gearing and Debt Maturity Profile

Net Debt and Gearing

Debt Maturity Profile – current facility limits

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500 27.4% 27.3% 30% 600
450
25% 500
400
20.3%
350 18.5% 20% 400 -
300
250 15% 300
435 447 440
200
10% 200
150 288
248 267
100 5% 100 33
50 104
55
0 0% -
Jun-16 Dec-16 Jun-17 Dec-17 FY18 FY19 FY20 FY21 FY22
Net Debt Gearing ratio (Net debt) Term debt facilities Securitisation
NZ$m
Gearing ratio
Net debt (NZ$m)
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• Net Debt of $447m at December 2017, an increase of $12m from June 2017.

• Net Debt : EBITDA of 1.76x at December 2017

• Post 31 December, EBOS entered into a new three year securitisation facility (A$400m) which expires in January 2021.

• (1.79x at June 2017).

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Group Financial Information

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Earnings and Dividends per share

Earnings per share Dividends per share

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H1 H2
H1 H2
33.0
42.4 32.5
41.5
34.6 25.0
33.0
30.0
36.2 42.5 45.4 50.4 22.0 26.0
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
Cents per share Cents per share
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• Statutory 1H EPS growth of 11.0% (7.4% constant currency).

• Adjusted EPS¹ of 51.4c represents a 10.8% increase on last year (7.1% constant currency).

• Interim dividend of 33.0 cents, an increase of 10.0% on last year. Imputed to 25% and franked to 100% for Australian resident shareholders.

• Dividend payout ratio of 66%.

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Note 1: Adjusted EPS calculated as NPAT excluding transaction costs and amortisation charges incurred on recent acquisitions, divided by the weighted average number of shares on issue during the period.

Group Financial Information

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Outlook 5

Top: EBOS, Auckland. Symbion, Melbourne Bottom: ProPharma warehouse, Auckland. Black Hawk 22 display at Rangiora veterinary clinic (Christchurch).

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Outlook

• EBOS Group has recorded a strong start for the first half of the financial year across both our Healthcare and Animal Care segments.

• We expect constant currency, underlying EBITDA for the 2018 financial year to grow by approximately 10% on the prior year.

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Outlook

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Supporting Information 6

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EBOS Group locations in 24 Australia and New Zealand

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Foreign exchange

Depreciation of the average NZD:AUD cross-rate by 4.0c to 0.912 positively impacted EBITDA by $4.1m in H1 FY18

Revenue and EBITDA by currency

	AUD	Average	AUD	NZ	Group
	**Operations **	**NZD: AUD **	Operations	Operations	Consolidated
$m	AUD	translation	NZD	NZD	NZD
H1 FY18
Revenue	2,873.8	0.91	3,150.8	791.9	3,942.7
EBITDA EBITDA%	104.9 3.65%	0.91	114.8 3.64%	23.7 3.00%	138.5 3.51%

NZD:AUD exchange rate – July 2016 to December 2017

• 83% of the Group’s earnings (EBITDA) are generated in AUD.

• The average NZD:AUD FX rate for H1 FY18 decreased by 4.0 cents from H1 FY17, positively impacting the Group’s H1 FY18 EBITDA by approximately $4.1m.

• EBITDA sensitivity to a 1 cent movement in NZD:AUD exchange rate is approximately $2.1m per annum.

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Segment earnings and GOR mix

EBITDA by segment

Gross Operating Revenue (GOR) H1 FY18

	H1	H1			Constant FX
NZ$m	FY18	FY17	Var		Var
Healthcare	120.0	106.7	12.5%		8.7%
Animal Care	24.3	21.1	15.3%		11.7%
Corporate	(5.8)	(7.9)	26.3%		28.6%
Group	138.5	119.9	15.6%		11.7%
Transaction costs	-	2.4
Group - underlying	138.5	122.3	13.3%		9.5%

• H1 FY17 Corporate segment result includes $2.4m of transaction costs incurred on the Terry White Chemmart merger.

H1 FY18 GOR Mix

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Reconciliation of statutory and underlying results

	H1 FY18			H1 FY17
NZ$m	EBITDA	NPAT		EBITDA	NPAT
Statutory result	138.5	76.7		119.9	68.8
Add back
Transaction costs incurred on acquisitions undertaken during the period	-	-		2.4	1.4
Underlying result1	138.5	76.7		122.3	70.2

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Note 1: Underlying EBITDA and Underlying Net Profit After Tax (attributable to the owners of the company) are both Non-GAAP measures which adjust for the effects of non-recurring items.

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Glossary of terms and measures

Except where noted, common terms and measures used in this document are based upon the following definitions:

Term	Definition
Actual results	Results translated into NZ dollars at the applicable actual monthly exchange rates ruling in each period.
Debtor days	Trade debtors at the end of period divided by Revenue for the period, multiplied by number of days in the period.
Inventory days	Inventory at the end of period divided by Cost of Sales for the period, multiplied by number of days in the period.
Creditor days	Trade creditors at the end of period divided by Cost of Sales for the period, multiplied by number of days in the period.
Constant FX/currency	Calculated by translating the prior period results into NZ dollars at the actual monthly exchange rates applicable in the current period.
Revenue	Revenue from the sale of goods and the rendering of services.
Gross Operating Revenue (GOR)	Revenue less cost of sales and the write-down of inventory.
EBIT	Earnings before interest and tax.
EBITDA	Earnings before interest, tax, depreciation and amortisation.
UnderlyingEBITDA	Earnings before interest,tax,depreciation,amortisation and transaction costs relatingto acquisitions.
NPAT	Net Profit After Tax attributable to the owners of the company.
UnderlyingNPAT	Net Profit After Tax attributable to the owners of the companyand before transaction costs relatingto acquisitions.
Free Cash Flow	Cash from operations less capital expenditure net ofproceeds from disposals.
Earnings per share	Net Profit after tax divided by the weighted average number of shares on issue during the period.
(EPS)
Adjusted EPS	NPAT excluding transaction costs and amortisation charges incurred on recent acquisitions, divided by the weighted average number of shares on
	issue during the period.
Net Debt : EBITDA	Ratio of net debt atperiod end to the last 12 months EBITDA.
Return on Capital	Measured as underlying earnings before interest, tax and amortisation of finite life intangibles for 12 months divided by closing capital employed
Employed (ROCE)	(including a pro-rata adjustment for entities acquired and excluding amounts for significant capital projects yet to complete and strategic
	investments).

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www.ebosgroup.com