H1 FY2014 Presentation Results for 6 months to 31 December 2013

28 February 2014

Key Messages - Financial

Result H1 FY2014 driven by soft market conditions
Since the announcement in January the directors and management have become aware that an invoice requested by a supplier in December is for work to be carried subsequent to half year end and have deferred the booking of that invoice to the second half
Balance Sheet strengthened through Equity Raising
Credit approval, subject to legal contract, has been received for new debt facility from a major Australian investment bank
New management team in place with new CFO (Robert Lojszczyk) & COO (David Hales) appointed
Business focussed on operational efficiencies and cash flow
The board continues to review options regarding the acquisition of facilities occupied by SZG but owned by Scott Farrell

Key Messages - Operational

Hunter Valley coal production continues to operate at high levels
Key customer production results indicate high levels of equipment utilisation despite reduction in capex and opex spend
"Up tick" in maintenance spend yet to be realised
Production support services most impacted by down turn with Mechanical and Structural continuing to win new business
Order book remains strong at $130 million in FY15

Performance Driven by Difficult Market Conditions

Statutory Loss of $2.233m
Sales Revenue of $33.8m
EBITDA $0.946m
Underlying EBITDA $0.946m
Gross Debt $14.1m
Work In Progress $3.1m
Net Cash Flow $0.920m
Net Equity Raising $8.110m

Profit & Loss

$'000	H1 FY14	H2 FY13	H1 FY13
Sales Revenue	33,841	38,364	46,539

Cost of Sales	23,354	22,334	33,129

Gross Profit	10,487	16,029	13,410

EBITDA	946	-3,203	4,050

Underlying EBITDA	946	1,215	5,000

Depreciation/Amort.	1,779	2,225	2,005
Interest & finance costs	1,020	1,057	1,196
NPAT	-2,233	-6,658	594

Underlying NPAT	-1,967	-1,933	1,799

Net Cash Flow	920	-973	778

H1 FY13 reflected high level of new capital equipment being delivered and assembled. Mining companies had unconstrained maintenance spending.
First half FY14 sales continued to be soft in line with the previous 6 months (H2 FY13) reflecting a general downturn in the sector.
Deferral in start dates of planned contract works by customers has led to lower utilisation of SZG people and equipment.
However, cost reductions undertaken in H2 FY13 assisted cost management. Staff numbers were reduced from 550 in December 2012 to current levels of 450 employees
Additional costs ($800k)of being an ASX listed company were not incurred in FY13

Key Balance Sheet Items

Progressive Strengthening of the Balance Sheet

Major movements since June 2013:

Net asset improvement of $5.4 million following equity raising
Total liabilities $8.5 million lower
Debt reduced by $2.7 million
Debtors $0.8 million lower reflecting lower invoicing
Inventory and Work in Progress increased by $2.7 million
Trade Creditors reduced by $0.3 million

Initiatives

• Acquisition of existing SZG property facilities.

Net Debt ($'000)

Continuing Reduction in Debt

Net Debt	Dec-13	Jun-13	Jun-12
Debt Factoring	3,304	3,277	6,054
Bank Loans	743	756	912
Related Party Loan	150	300	-
Hire Purchase	9,919	12,476	16,763
Liabilities	14,116	16,809	23,729

On-going initiatives:

HP facility being re-negotiated to conserve cash
Credit approval received for new debt facility with major Australian investment bank

Cash Flow

A$ Million6 months	Dec-13	Dec-13

Cash flow from operations	-1.626	10.373
Interest & Borrowing Costs	-1.020	-1.196
Income tax payments	0	0
Borrowings repayment	-3.552	-6.166
Net Capex	-0.992	-1.998
Net Equity Raising	8.110	0
Free Cash Flow	0.920	0.778

Capital expenditure maintained at minimal levels until working capital facility finalised
Working capital movements stemming from increased inventory and WIP
Net proceeds from Equity Raising totalled $8.176m. Placement $2.420 m; Rights Issue $6.282m ; expenses of $0.591m .

Market Conditions

Tough Six Months but Positive Outlook

Coal production continues to increase in the Hunter Valley, exports through the Port of Newcastle up by 9.6% in FY13 on previous year
Long term view on coal price & A$ provides positive market settings
Capital expenditure for "yellow iron" is dramatically down over the previous 5 years
Shift in focus from capex to opex, but cash preservation by customers is paramount
Maintenance backlog will translate into R&M "up tick", supported by customer forecasts
Strong order book with SZG continuing to win new contracts and re-sign existing contracts
OEM and third party competitors have dramatically reduced capability in the Hunter Valley

Coal price $AUD

Newcastle Coal Exports Mtpa (CY)

Source : Newcastle Coal Infrastructure Group Source : Index Mundi

Pricing ex Newcastle AUD/Tonne

SubZero Mechanical Support Results

$'000	H1 FY14	H2 FY13	H2FY13

Revenue $	6,463	7,345	6,470

New 10,000m2 facility operational and nearing completion in Muswellbrook
Major contract for mobile fleet refurbishment awarded
Related product lines starting to gain market acceptance & sales traction
Automotive continues to win contracts and demonstrates sustainable growth

SubZero Production Support Results

$'000	H1 FY14	H2 FY13	H1FY13
Revenue $	13,324	16,462	18,281

Re-signed labour hire contract for a 3 year period
Continuing depressed market conditions for production contracts, wet hire and dry hire
Substantial reluctance to award contracts for other than essential work
Pent up demand for civil mine site works likely to positively impact future revenues
Industry fleet utilisation extremely low

SubZero Structural Support Results

$'000	H1 FY14	H2 FY13	H1FY13
Revenue $	14,013	15,485	20,825

Awarded major contracts for truck body and bucket refurbishment
Implemented new workshop facilities
Awarded and completed drag line shutdowns on customer sites
Improved labour utilisation in Field Services operations

Outlook

Hunter Valley coal production will continue to increase on back of historical capex spend
Miners remain focussed on efficiency cost improvements and cash preservation
Deferred maintenance is starting to impact on production equipment reliability and operational efficiencies
Inevitable increase in maintenance spend will positively impact SZG forecasts..."it is only a matter of time"
SZG has managed its capability and capacity, whilst competitors have retreated
Decision on new business & IT platform
Expanding operations into Queensland and WA in H2 FY14
Maintaining FY14 guidance with bias to lower end of range, will provide at update after Quarter 3
Revenues subject to workflows normalising as maintenance "up tick" occurs
No change to FY15 guidance

Summary

Disappointing but understandable result
Medium and long term outlooks still positive
Capability and capacity to take advantage of future opportunities
Balance Sheet strengthened
Refinance due to be completed in March
Property acquisition proposal to be taken to Shareholder vote
Focus on costs and cash flow
Management team capable and ready to take up the challenge

UBZERCGROUP LIMITED	· Mackay• Moranbah
Perth .	· Muswellbrook• Singleton• NewcastleSydney

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