INGHAMS GROUP LIMITED — Investor Presentation 2017

Apr 5, 2017

Inghams Group Limited Food & Beverage Focus Day

6 APRIL 2017

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Important notice and disclaimer

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Disclaimer

The material in this presentation is general background information about the activities of Inghams Group Limited (Ingham’s) and its subsidiaries (Ingham’s Group), current at the date of this presentation, unless otherwise noted.

It is information given in summary form and does not purport to be complete. It should be read in conjunction with the Ingham’s Group other periodic and continuous disclosure announcements lodged with the Australian Stock Exchange, which are available at www.asx.com.au. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.

This presentation includes non-IFRS information including EBITDA and Pro-forma, which Ingham’s considers useful for users of this presentation to reflect the underlying performance of the business. Non-IFRS measures, have not been subject to audit. This presentation may contain certain “forward-looking statements” and comments about future events, including Ingham’s expectations about the performance of its businesses. Such forward–looking statements may include forecast financial information about Ingham’s, statements about industry and market trends, statements about future regulatory developments and the progress of current developments and statements about Ingham’s strategies and the likely outcomes of those strategies. Forward-looking statements can be identified by the use of forward-looking terminology, including, without limitation, the terms “believes”, “estimates”, “anticipates” “expects”, “predicts”, “outlook”, “guidance”, “plans”, “intends”, “should”, “could”, “may”, “will”, “would” and other similar expressions. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Such forward-looking statements are not guarantees of future performance and are provided as a general guide only, should not be relied on as an indication or guarantee of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Ingham’s. Actual results, performance or achievements could be significantly different from those expressed in or implied by any forward-looking statements. There can be no assurance that actual outcomes will not differ materially from forward-looking statements.

Nothing contained in this presentation is, or should be relied upon as, a promise, representation, warranty or guarantee as to the past, present or the future performance of Ingham’s. Ingham’s does not undertake any obligation to update or review any forward-looking statements or any other information contained in this presentation. This presentation does not constitute, or form part of, an offer to sell or the solicitation of an offer to subscribe for or buy any securities and nor is it intended to be used for the purpose of or in connection with offers or invitations to sell or subscribe for or buy or otherwise deal in securities.

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Recap: Who we are

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The largest vertically integrated poultry producer across Australia and New Zealand, with a long-standing reputation for quality and service

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FY16 revenue: A$2,309m

Poultry FY16 revenue: A$2,014m (87% of Group revenue)

Stockfeed FY16 revenue: A$293m (13% of Group revenue)[1]

Overview

• Stringent biosecurity regulations restrict imports to ANZ

• There are two large producers in each of the Australian and New Zealand markets – Ingham’s is the only producer that operates in both

• Vertically integrated business model with ~345 facilities[2]

• Holds #1 and #2 positions among chicken producers in Australia and New Zealand

• Australia: 40%[3] / New Zealand: 34%[3]

• The Australian stockfeed industry is highly fragmented

• Ingham’s preference is to control its own feed supply where possible. Approximately 85% of FY16 demand is currently produced internally

• External sales also improve utilisation of milling operations

• Produces a range of poultry, pig, horse and dairy stockfeed

• 9 pig / poultry feed mills, 1 horse feed mill, and 1 dairy feed mill

• Second largest feed producer in Australia

• Founded in 1918

Key products Production

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• Over 440kt of poultry sold in FY16

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Bulk
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• Over 1.4Mt stockfeed produced in FY16

  • Approximately 870kt for internal use

  • Approximately 560kt sold externally

• Australia: 83% of FY16 Group Revenue

Geography

• New Zealand: 15% of FY16 Group Revenue

• Exports: 2% of FY16 Group Revenue

• Reflects external sales of stockfeed only. Excludes feed used by Ingham’s for the production of poultry.

• As at 1 September 2016, 225 of these are broiler farms, approximately 97% of whom are owned and operated by contracted third parties. Includes Turkey and four contracted New Zealand breeder farms. Does not account for breeder and hatchery expansion projects approved or underway. Excludes Leppington research and development facility, non-operational sites and offices.

• Australia based on chicken sales by value. Source: Management estimates based on information from Rabobank; ACMF; OECD; and Aztec. New Zealand based on chicken sales by value. Source: Management estimates based on information from Rabobank; Poultry Industry Association New Zealand; and Statistics NZ.

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Recap: Attractive industry structure

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Domestic demand for chicken is met by domestic producers, with stringent biosecurity regulations restricting imports to Australia and New Zealand

Import restrictions

Biosecurity controls

		Australia	New Zealand
Governing regulation	body /	Department of Agriculture and Water Resources1	NZ Customs and Ministry for Primary Industries2
Legislated	import restrictions
		
Fresh		Only from New Zealand	
		subject to strict
		licensingconditions
		
Frozen		Only from New Zealand	
		under strict conditions
			
Cooked		Only from New Zealand	Only from Australia
		given its low disease	given strict biosecurity
		status	controls
Retorted3			

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Exports Import restrictions
Under strict
conditions
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1. http://www.agriculture.gov.au/

2. https://www.mpi.govt.nz/

3. Retorted products are packaged in sealed pouches or containers, then sterilised using heat and pressure, e.g. canned chicken soup.

Recap: Strong underlying demand for poultry

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Strong consumption growth, supported by a shift in consumer preferences towards healthier and more affordable forms of protein

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Total chicken consumption - Australia [1]
1,250
1990 – 2015 CAGR: 4.1%
1,000
750
500
250
-
1990 1995 2000 2005 2010 2015
Total chicken consumption – New Zealand [1]
1,250
1990 – 2015 CAGR: 5.1%
1,000
750
500
250
-
1990 1995 2000 2005 2010 2015
Australia Tonnes (millions)
Tonnes (millions)
New Zealand
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Australian animal protein consumption[2]

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14% 16%
19% 14
26%
percentage
18% point 5%
increase in
18%
chicken
28%
share
35%
21%
1990 2015
Chicken Beef and veal Lamb Fish Pork
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New Zealand animal protein consumption[2]

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11%
18%
22% 23
percentage 26%
point
27% increase in 4%
chicken 15%
share
26%
37%
14%
1990 2015
Chicken Beef and veal Lamb Fish Pork
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1. Source: OECD-FAO, Agricultural Outlook Dataset (2016-2025).

2. OECD-FAO Agricultural Outlook 2016-2025 Dataset, © OECD, 2016, http://stats.oecd.org/Index.aspx?datasetcode=HIGH_AGLINK_2016. Percentages calculated by dividing a product’s human consumption per capita by the sum of chicken, beef and veal, lamb, fish and pork human consumption per capita.

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Recap: Favourable production economics

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Driven by genetic improvements, feed and nutrition and ‘industrialisation’ of the supply chain

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Indicative FCR [1,2]
(kg of feed to produce 1kg liveweight)
9.2 - 13.8
16
14
12 5.3 - 9.5
10
8
6
4 2.3 - 2.8
1.6 - 1.8
2
-
Chicken (broilers) Pork Beef Lamb
Feed conversion ratio
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Indicative Australian industry historical chicken FCR trends[2,3]

(kg of feed to produce 1kg liveweight)

Approximately 28% reduction between 1975 and 2015

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3.00
2.51
2.38
2.50 2.25 2.22
2.05 2.02 1.98
1.88
2.00 1.80
1.50
1.00
1975 1980 1985 1990 1995 2000 2005 2010 2015
Feed conversion ratio
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Improvement drivers

• Genetic  Selective breeding techniques have improved improvement the performance of breeders and broilers  Improved growth rates, feed conversion and liveability

• Long term research and development cycle provides multi-year visibility of future improvements

• Feed and nutrition  Producers invested heavily in research and development

• Identifying the optimal mix of nutrients to support chicken growth

• ‘Industrialisation’  Increased use of technology by producers of the supply chain – Climate and lighting control

• – Automated feed and watering systems

• Source: Scientific Advisory Council for the UK Department of Energy, Food, and Rural Affairs, Review of nutrient efficiency in different breeds of farm livestock (30 April 2010). Comparative efficiency based on mid-point of FCR range. 2. Feed conversion ratio is an industry-wide efficiency metric that measures the number of kilograms of feed required to create one kilogram of live weight.

• Source: ACMF, http://chicken.org.au/files/_system/Image/Graphs/Efficiency%20of%20Chicken%20Meat%20Production.jpg?Production=Production+Efficiency.

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Recap: Product overview

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Ingham’s supplies a range of high quality products through both its Poultry and Stockfeed operations. Sales are diversified across channels, with a significant portion of value enhanced and further processed products

Product overview

Primary Free Range Value Enhanced Further Processed Turkey Stockfeed Ingredients  Chilled chicken  Primary, value Chilled products  Products that are  Primary, value Chicken feed  Edible poultry products sold as enhanced or with additional partially or fully enhanced and (broiler and layer) products (e.g. whole birds or further processed flavour added cooked further processed  Turkey feed feet and necks) primary cuts products made through  Includes chicken turkey products  Duck and quail  Palatants, wet pet  Sold in meat with free range marinating and smallgoods  Includes turkey feed food, ingredients chiller and deli chicken coatings  Sold in meat smallgoods and protein  Pig, horse and  Sold in the meat conversion chiller and freezer  Sold in meat dairy feed chiller and deli chiller and freezer products  Other poultry products

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Customers include major retailers, QSR operators, food service distributors

Customers include other poultry Customers include processors and retail, food growers, pig processors and pet industry, leaders in food manufacturers NZ dairy industry, equestrian industry

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Recap: Vertically integrated operations

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Complex supply chain supported by integrated planning and optimisation

Integrated Planning and Optimisation

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Feed milling
Further
processing
Breeder farms
Genetics Quarantine GGPs [1] GPs [2] Parents Hatcheries Broiler farms [3] Primary
facility processing
Ingredients
Parent Breeder farms
Rearing Production Hatcheries Broiler growing
Owned or ~22 weeks ~40 - 48 weeks ~3 weeks 5 - 7 weeks
controlled
Warehousing and distribution
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Total: approximately 70 – 78 weeks[2]

Note: Tim ~~e f~~ rames are indicative and relate to chicken.

1. Great Grand Parents.

2. Grand Parents.

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1. The majority of broiler farms are operated by contracted third party growers.

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Recap: Large scale network, with high quality asset base

Ingham’s national scale and vertically integrated operations provide a number of benefits, including production flexibility, cost efficiencies and reducing operating or agricultural risks

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• Ability to shift production between Australian states to meet changes in customer demands

• Ability to reduce operating or agricultural risks through geographic diversification

• Includes turkey and contracted New Zealand breeder farms. Does not account for breeder and hatchery expansion projects approved or underway. Excludes Leppington research and development facility, non-operational sites and offices. Farming areas shown for illustrative purposes only.

• Includes contracted growers and company owned farms.

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Facilities / farms [1]
Type Australia NZ Total
Quarantine 1 - 1
Feedmill [2] 8 2 10
Breeding farms [3] 60 14 74
Hatchery 10 1 11
Broiler farms [2,3] 188 37 225
Primary processing [3] 6 1 7
Further processing 5 2 7
Distribution centre 7 2 9
Rendering 1 - 1
Total 286 59 345
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1. Excludes the Cardiff primary processing plants and associated contracted growers.

Source: Management (as at June 2016). Map is illustrative only

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Ingham’s – A World Class Food Company

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Recap: Project Accelerate

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Implementation of the multi year transformation project is well underway

$

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 Innovation and Differentiation
 Focused exports strategy
Accelerate  FP network utilisation
 Farming efficiency
 Feed business strategy
 Labour productivity
 Automation
 Procurement
Accelerate
 Network rationalisation (Cardiff)
 Turkey turnaround
 Supply Chain efficiencies
 Capital investment in capacity & productivity
 10 year network plan
 Integrated Planning
Foundations  IT capability & infrastructure
 Capital efficiency
 Build key skills & experience
 Management refresh
Increasing premiumisation
Underlying market growth
Year 1 Year 5
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The growth benefits from Project Accelerate are designed to allow Ingham’s to remain competitive, mitigate inflation in costs and contribute to profit growth

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Recap: 1H FY17 Financial highlights

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Poultry Volume Revenue Gross Profit EBITDA NPAT Net debt Stub
dividend
248.2kt $1,227.2m $229.0m $95.2m $51.3m
↑ 12.9% ↑ 4.3% ↑ 9.0% ↑ 9.1% ↑ 13.8% $403.4m 2.6 cps
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• Total Poultry volume growth of 12.9% (growth in core chicken and turkey products of 9.0%)

 Pro forma Revenue growth of 4.3% (reflecting volume increase, feed deflation & mix change)

Financial performance

 Pro forma EBITDA growth of 9.1% to $95.2m

 Pro forma NPAT growth of 13.8% to $51.3m (and statutory NPAT of $9.0M)

 Pro forma Net Debt of $403.4m (a decrease from net debt level at listing)

• Stub dividend of 2.6 cents per share (65% of NPAT for the stub period)

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Note: Pro forma numbers. A reconciliation between pro forma and statutory results is included in the Appendix Note: Total Poultry volumes includes core chicken and turkey products in addition to ingredients

Brand and Customer update

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Branding refresh

• Brand refresh underway

• Ongoing supply to key QSR customer finalised for FY2018+

• continue as lead supplier and innovation champion

• some reduction in base volume from current share

• ongoing volume driven by growth and innovation

• consistent with prospectus forecasts

• Continue to extend contractual coverage including feed pass through mechanisms and cost adjustments

• Some improvement in Australian wholesale channel

• New Zealand market dynamic unchanged

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Long-term customer relationships

Customer	Years of uninterrupted supply
Australia
55 years 48 years 37 years ~30 years 15 years 44 years Since market entry Since market entry Since market entry Major QSR customer 2 Major retailer 1 Major QSR customer 1 Major retailer 2 Major retailer 3 Major retailer 4
New Zealand
26 years Since Ingham’s entered NZ 26 years Since Ingham’s entered NZ 26 years Since Ingham’s entered NZ Major QSR customer 2 Major retailer 1 Major retailer 2

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Investing for growth

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Capacity

Capability

• Key South Australian projects well underway

• SA hatchery: expansion completed / commissioned

• SA breeder network: expansion on schedule

• SA feed mill: civil works underway

• New Zealand hatchery and breeder network projects progressing

• Further automation initiatives focused on Primary and Further Processing

• IT Data Centre upgrade and shift to cloud services architecture now complete

• Continued investment in enhancing skills and capability across the business

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SA hatchery
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Other
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• ‘Customer requirement’ capex of ~$5m in FY17

• Sale and leaseback process for key capital projects underway (e.g. SA feed mill)

• Some property sales underway

• (e.g. Cardiff plant post-closure)

• Positive Procurement cash flow benefits

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SA breeder farm
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Simplified organisation structure

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The organisation structure has evolved in line with strategy implementation

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Mick McMahon
Chief Executive Officer
 Joined Ingham’s: 2015
 Years experience: 30+ years
Ian Brannan
Chief Financial Officer
 Joined Ingham’s: 2015
 Years experience: 25+ years
Quinton Jonathan Gray Janelle Cashin Adrian Revell Brad Moore
Hildebrand Sales and Chief Operating New Zealand People and
Chief Marketing Officer Performance
Commercial
Officer
 Joined Ingham’s: 2015  Joined Ingham’s: 2008  Joined Ingham’s: 2004  Joined Ingham’s: 1997  Joined Ingham’s: 2015
 Years experience: 20+ years  Years experience: 20+ years  Years experience: 20+ years  Years experience: 20+ years  Years experience: 20+ years
Primary
Farming
processing
Further
Supply Chain
processing
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International expertise brought in within Farming (Alan Parnham, ex-UK), Technical Services (Beth Krushinskie, ex-US) and Senior Advisor (Philip Wilkinson OBE)

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Outlook

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Reconfirm FY17 prospectus forecast of $98.8M pro forma NPAT based on current trading outlook

• No material impact of QLD / NSW floods

• Australian volume growth is expected to be broadly in line with the prospectus forecast for the full year

• will start to cycle a number of EDLP launches in the 2H and volume increases are expected to moderate

• Strong volume increases through the supply chain and consequent rebalancing of operations remains a challenge in Australia

• Progress continues on extending key customer contractual coverage

• Challenging New Zealand trading conditions continuing into 2H FY2017

• Project Accelerate implementation and investment is continuing and expected to contribute to earnings growth over future years

• Reconfirm intention to pay fully franked dividends of 65 – 70% of pro forma NPAT

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Appendix

Prospectus Pro forma profit and loss summary

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Pro Forma
Pro Forma Historical Prospectus
FY14 FY15 FY16 FY17
$ millions 52 weeks 52 weeks 52 weeks 52 weeks
Revenue 2,230.5 2,271.9 2,308.7 2,375.0
Gross profit 379.3 351.1 422.4 458.4
EBITDA 142.1 114.5 167.5 190.1
EBIT 101.9 81.2 133.1 147.9
Profit before tax 82.0 62.0 115.1 132.5
NPAT 57.0 51.7 83.1 98.8
Financial metrics
Revenue growth na 1.9% 1.6% 2.9%
EBITDA growth na (19.4%) 46.3% 13.5%
NPAT growth na (9.3%) 60.7% 18.9%
Gross profit margin 17.0% 15.5% 18.3% 19.3%
EBITDA margin 6.4% 5.0% 7.3% 8.0%
Adjusted operating cash flow conversion [1] 98.2% 121.7% 93.3% 101.0%
Key operating metrics
Poultry products volume (kt) 432.7 425.2 444.2 478.3
Stockfeed volume (kt) [1] 545.6 580.4 561.9 577.6
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







Strong volume growth underpinned by contracted business

Gross profit expansion driven by economies of scale and Project Accelerate offsetting inflation, EBA’s and customer support

Strong EBITDA growth including investment in IT and capability

1. Calculated as Pro Forma Adjusted Operating Cash Flow divided by Pro Forma EBITDA.

2. Reflects external sales of stockfeed only. Excludes stockfeed used by Ingham’s and its contract growers for the production of poultry.

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1H FY2017 Pro forma Profit & Loss

	Pro forma	Pro forma
$ millions	1H FY2017	1H FY2016	Variance	%
Poultry volumes (kt)	248.2	219.8	28.4	12.9%
Feed volumes (kt)	297.1	288.2	8.9	3.1%
Total Revenue	1,227.2	1,177.0	50.2	4.3%
Gross Profit	229.0	210.1	18.9	9.0%
EBITDA	95.2	87.3	7.9	9.1%
Depreciation & amortisation	(18.3)	(16.5)	(1.8)	10.9%
EBIT	76.9	70.8	6.1	8.6%
Net financing costs	(7.9)	(9.5)	1.6	16.8%
Tax expense	(17.7)	(16.2)	(1.5)	(9.3%)
Net profit after tax	51.3	45.1	6.2	13.8%
Gross profit %	18.7%	17.8%	0.9%
EBITDA %	7.8%	7.4%	0.4%
Pro forma earnings per share (cents)1	15.83	14.63	1.20	8.2%

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Volume & Revenue Growth

• Strong growth in Australian poultry volume

• NZ volumes flat in response to oversupply

• Revenue growth primarily reflects volume growth and deflationary effect of reduced feed prices

• Growth in Australian third party feed volumes

EBITDA +9.1%

• Strong volume increase provides an operational challenge

• Australian operations stretched due to volume increase and corresponding need to rebalance production and mix

• Project Accelerate initiatives delivering as expected, with higher volume, increased automation and reduced network footprint

NPAT +13.8%

A reconciliation to Statutory EBITDA of $61.5m and Statutory NPAT of $9.0m is set out in the Appendix

• Net financing costs lower due to lower interest rate on new facilities, and reducing net debt

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1. Pro forma net profit after tax / weighted average shares outstanding.

1H FY2017 Pro forma Cash flow and Balance Sheet

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	Pro forma	Pro forma
$ millions	1H FY2017	1H FY2016	Variance
EBITDA	95.2	87.3	7.9
Non-cash items	(0.3)	(3.5)	3.2
Changes in working capital	(15.9)	(12.4)	(3.5)
Changes in provisions	0.2	0.1	0.1
Cash flow from operations	79.2	71.5	7.7
Cash conversion ratio	83.2%	81.9%	1.3%
Capital expenditure - Inghams	(60.4)	(31.3)	(29.1)
3rd party capital (for recovery)1	(7.9)	-	(7.9)
Insurance & third party capital2	(7.8)	-	(7.8)
Proceeds from sale of assets	1.1	6.5	(5.4)
Net cash flow before financing & tax	4.2	46.7	(42.5)
	December	June
$ millions	2016	2016	Variance
Total Assets	996.1	925.7	70.4
Pro forma Net Debt	403.4	366.9	36.5
Net Debt/LTM EBITDA	2.3

Cashflow

• Improved operating cashflow over 1H FY2016

• Working capital increase due to trade debtors, driven by increased trading with major customers, normal seasonal build, and timing of half year close

• Reduced inventories reflecting strong sales

Working capital	Dec-16	Jun-16	Variance	Jun-15
Receivables	259.9	221.3	38.6	226.7
Biological assets	112.1	115.3	(3.2)	110.9
Inventories	144.5	159.6	(15.1)	138.3
Payables	(241.3)	(236.9)	(4.4)	(224.9)
Total	275.2	259.3	15.9	251.0

Capital program

• Capital investment program at peak in 1H FY17

• Third party capital costs yet to be recovered

1. 3[rd] party funding agreements still to be finalized

PAGE // 19

1. Third party capital agreements in place, funds to be received

1H FY2017 Reconciliation of Statutory results to pro forma

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$ millions		1H FY2017	1H FY2016
Statutory EBITDA		61.5	63.0
IPO transaction costs	❶	28.0	-
Advisory fees	❷	1.2	1.6
Write off previous LTI scheme	❸	2.2	1.7
Transformation & relocation costs	❹	3.3	22.1
Full period public company costs	❺	(1.0)	(1.1)
Pro forma EBITDA		95.2	87.3
Statutory NPAT		9.0	19.6
IPO transaction costs	❶	19.6	-
Advisory fees	❷	0.8	1.1
Write off previous LTI scheme	❸	2.2	1.7
Transformation & relocation costs	❹	2.3	15.5
Full year public company costs	❺	(0.8)	(0.8)
Cost of exit from finance facilities	❻	12.6	-
Capital structure adjustment	❼	4.5	8.0
Tax adjustments	❽	1.1	-
Pro forma NPAT		51.3	45.1

1. Removal of costs of listing on ASX in November 2016

2. Relates to fees for services charged by TPG entities that will not be incurred post listing

3. Relates to the remaining share based payments expense to be recognized in FY17 relating to the previous LTI scheme

4. Consulting and other costs in relation to the transformation program and the costs relating to the relocation of head office incurred in FY16

5. Adjustment to include a full period of public company related costs and replacement LTI scheme

6. Payment for the early termination of interest rate swap contracts and write off of deferred borrowing costs resulting from refinancing as part of the listing

7. Adjustment to reflect the interest and financing costs for the capital structure in place as a result of the listing

8. Adjustments to normalise certain tax related charges half on half

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