SCHOOLBLAZER LIMITED — AGM Information 2015

Feb 3, 2015

Level 11
280 George Street
Sydney NSW 2000
GPO Box 4406
Sydney NSW 2001
www.hgl.com.au
P +612 9221 7155
F +612 9233 2713
HGL Limited
abn 25 009 657 961
HGL

Chairman's AGM address (February 2015)

Good morning ladies and gentlemen.

My address this year will cover the strategic direction of the Group and the key points related to the financial performance in the 2013-2014 financial year. At the conclusion of my address our Chief Executive Henrik Thorup will present on the operation of the company and trading performance.

Last year I reported the first objective was to arrest the decline in the underlying profit and to deliver profits that progressively improve.

We did not expect any assistance from an improving economy and this has proven correct with continuing difficult market conditions. However there has been a modest improvement in the underlying profit from a loss of $0.4M to a profit of $0.5M.

The Board supports the strategy detailed in the annual report and is pleased that Phase 1 has now completed. Our businesses have where necessary had their foundations rebuilt and stabilised. Over the last 6 months underlying profit is above the same period last year.

Whilst we accept that the underlying earnings for the year were disappointing, the results for the 3 months to December are encouraging.

It is our view that all of the businesses will be in profit this year.

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We further consolidated our company portfolio in September 2014 by effectively divesting our 50 percent interest in Anitech. The organisational changes required created shareholder disagreement on strategy and future funding based on misaligned interests. The partnership had run its course with only HGL acting as a contributing partner and in light of the printing equipment market experiencing ongoing structural decline without any change in outlook, the business was sold.

Our staff is our most important resource and we are committed to the development of employee capabilities helping them reach their full potential. We have therefore established a human resource function to implement employee development programs designed to strengthen skills and apply uniform HR practices across the business units.

With several business units having been divested over the past 24 months the scope of work for the head office functions in HGL is changing. We are reviewing the head office structure and will relocate the corporate office to our existing premises in Macquarie Park. These actions will generate operational savings in 2015 and in future periods.

In August 2014 the Board called in the remaining Employee Share Scheme Loans. The shares issued under the ESS were subsequently bought back and cancelled. This reduced the number of shares on issue by approximately 3.6 million.

The Board will consider an alternative long term incentive scheme aligned with the GPS Strategy and based on best practice input from external remuneration consultants. The board plans to present the new scheme for shareholder approval at an extraordinary general meeting.

I now turn to the 2014 statutory financial results:

• The statutory loss of $21.4 million was heavily impacted by non-cash impairments and other provisions totaling $14.5 million and the deferred tax asset balance of $7.4 million being derecognised.

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In accordance with accounting standards, HGL has written down goodwill and fixed assets in SPOS, BLC Cosmetics and Leutenegger to $nil. However, the directors do not believe the written down value reflect the prospects of these businesses. Other recorded adjustments covered inventory and surplus lease provisions in Leutenegger and SPOS as well as an equity accounted loss in Anitech due to the sale of its business and assets.

In addition, the company is still able to benefit from the tax losses, although it has derecognised them for accounting purposes.

• The underlying profit of $0.5 million was up from a loss of $0.4 million last year.
• The operating cash flow of $2.9 million increased from $1.5 million last year.

After the restructure of the underperforming businesses, we can now progress towards our near term Group financial benchmarks of EBIT to Sales margin of 10% and Return on Capital Employed margin of 20%.

At present HGL has business units achieving different performance ratios. JSB Lighting, Biante and Mountcastle are all achieving financial results at or above the benchmarks. SPOS, BLC Cosmetics and Leutenegger are improving their financial performance, but not achieving the expected financial benchmarks.

JSB Lighting, which sells commercial lighting, delivered outstanding performance in 2014 achieving revenue growth of 9%, while maintaining its EBIT to Sales margin of 16%. The company has been appointed distributor for Hubbell outdoor lighting products targeting commercial and industrial clients. The premium brand offering of Hubbell is expected to contribute to the expansion of JSB Lighting in 2015.

Biante delivered solid revenue growth of 19% building upon development of new moulds and products in recent years. Biante will continue to invest in new product lines and will launch a new V8 Supercar range as well as resin models in 2015.

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Mountcastle continues to increase its market share in school uniforms and controls the Trutex trademark rights in Australia. The company is launching an online ordering portal for clients to enhance customer satisfaction and opening a new factory in Vietnam to secure future supply lines of quality garments.

SPOS is discontinuing unprofitable project work to refocus on selling point-of-purchase accessories and shelving solutions. Total sales fell by $7 million in 2014, but total gross margins improved by 3%. SPOS performed well in the New Zealand market demonstrating its potential to compete profitably in its core market with a refocused strategy and streamlined operations.

BLC Cosmetics returned to underlying profit in 2014 after launching multiple new brands, improved customer service and lower operational costs. The BLC leadership team has renewed the brand portfolio and has recently been appointed exclusive distributor for Alpha-H, an Australian cosmeceutical skin care range with strong brand recognition and an existing customer base that BLC Cosmetics will service going forward.

Leutenegger is expanding its One-Duck-Two Homewares range with the addition of a new product line developed in collaboration with respected interior designer Greg Natale. The One-Duck-Two range and the contemporary craft brand Make-it have been introduced in several new channels and new stores in 2014. Leutenegger is executing its turnaround plan in a capable manner, achieving positive underlying EBIT results over last two quarters of the 2014 financial year.

Strategic objectives in 2015

The key strategic objective in 2015 is ensuring each business increases its underlying profit leading to improved Group earnings enabling the company to return to being a dividend paying share.

A comprehensive program of initiatives underpins our objectives in 2015 covering securing organic sales growth, building employee capabilities and maintaining operational efficiency. The key initiatives are launching new brands, expand online sales promotions, introduce staff training programs, maintain working capital levels and pursue strategic acquisitions.

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The board is presently evaluating the Group's capital requirements to fund these initiatives.

Outlook

The company is in a stronger position than one year ago with a clear plan driving improved operational and financial performance.

Following the raising of extensive provisions assets are held at conservative values.

As an import and distribution business, our profitability development is impacted by foreign currency exchange rates. Our exchange rate situation is currently exposed to two opposite trends. The Australian dollar is depreciating against the US dollar and appreciating against the EURO.

Our business units mainly distribute a combination of US and European brands and operate on variable pricing agreements with suppliers negotiating cost prices on an order by order basis. In addition, we adjust sale prices to clients, where possible, based on purchase price movements.

Our exchange rate management activities are also aided by holding appropriate stock levels and applying short term hedging policies.

The company is now progressing from the rebuilding foundation stage into a growth and development phase of the strategy plan.

The board and management are fully committed to increase Group earnings and shareholder returns with a strategy plan tightly focused on realising the potential of our business units.

It is pleasing to confirm that HGL has performed above last year in the first quarter of financial year 2015 on our key financial indicators. Our bank facility remains at $2.8m with all covenants being met.

We forecast the underlying profit in financial year 2015 to be ahead of last year.

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Finally, I want to thank Henrik Thorup, his management team and all employees for their hard work and resilience. I also thank my fellow directors for their contribution throughout the year.

Henrik will now update you on the corporate strategy and operational performance.

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