SCHOOLBLAZER LIMITED — AGM Information 2016

Feb 2, 2016

Level 2
68-72 Waterloo Road
Macquarie Park
NSW 2113 Australia
www.hgl.com.au
P +612 8667 4660
F +612 8667 4669
HGL Limited
abn 25 009 657 961

HGL Ltd

Annual General Meeting

3 February 2016

Chairman’s address

This morning I will cover the strategic direction of the Group and the key points related to the financial performance in 2014-2015. Our Chief Executive Henrik Thorup will provide an update on the strategy implementation, operational highlights and our priorities for financial year 2016.

HGL has delivered a solid improvement in its operational performance for 2014-2015.

Despite the broader economy not providing any great benefit, particularly with the ongoing weakness of the Australian Dollar, our primary goal to increase sales revenue was achieved.

We are generating strong revenue growth in our expanding markets in architectural lighting, school wear and cosmetics. Combined JSB Lighting, Mountcastle and BLC Cosmetics achieved a 17.9% sales uplift in 2014-2015.

Including Mountcastle, the businesses recorded revenue of $65.1 million and achieved an overall sales growth of 3.8% over the prior year.

The business units undergoing transformational change, being SPOS, Leutenegger and Biante, had a combined revenue decline of 12.8% in 2014-2015. With managed expenses these businesses improved their EBIT contribution over the previous year.

Other financial results for 2015 are summarised as

• Underlying profit of $2.6 million was up from $0.5 million in the previous year.
• Statutory profit increased to $3.7 million after the inclusion of $1.1 million of non-underlying items, a significant improvement on 2014’s $21.4 million statutory loss.
• Net cash at balance date was $4.7 million, up $2.5 million from 30 September 2014 after the repayment of bank borrowings. The current ANZ facility remains with a limit of $2.8 million.
• These results enabled the board to consider and declare a fully franked final dividend of 1.5 cents per share, which was paid on 18 December.

SUPPLYING
MARKET
LEADING
BRANDED
PRODUCTS

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HGL

Each of the HGL business units increased its underlying earnings before interest and tax compared to the previous year, with the exception of Biante.

GPS Strategy Plan and Future Growth Aspirations

The uplift in operating performance was underpinned by the Growth, Profit and Sustainability (GPS) Strategy Plan over the past 12 months. The Board remains confident in both the strategic direction and management's capacity to execute it.

Phase One was to rebuild foundations. Phase Two is to reposition the industry platform and Phase Three is to leverage the rebuilt company portfolio and industry platform.

Phase one is now complete and we progress to Phase Two, directing priorities from rebuilding foundations towards profitable revenue growth.

With the ongoing execution of the GPS strategy, our core businesses are capable of doubling revenue within 5 years.

Overall growth will be further assisted by acquisitions in targeted businesses. These will be considered by the board as opportunities arise.

We continue to develop high performing teams across the businesses with our HGL Leadership Development Program by investing in talent development and staff training programs. We acknowledge that our employees are our most important resource and I take this opportunity on behalf of the board to formally thank them all for their effort and contribution throughout the year.

In May 2015 the HGL head office team was restructured and relocated to our facility in Macquarie Park in Sydney. The restructure and relocation is delivering continued cost savings.

The Board will consider and implement a new long term executive incentive plan for HGL management, aligned with the strategic objectives and designed to reward shareholder value creation.

Business Unit Review

JSB Lighting improved revenue by 29.4% to $19.8 million. The addition of the premium Hubbell and Meyer outdoor lighting brands contributed positively. With record sales growth, solid gross margins and managed expenditure JSB delivered 127% growth in Underlying EBIT.

SUPPLYING MARKET LEADING BRANDED PRODUCTS

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SUPPLYING MARKET LEADING BRANDED PRODUCTS 3

Leutenegger returned to profit despite a revenue decline of 10.3%. The traditional arts and craft market is in structural decline with independent stores continually closing. Leutenegger continues its transformation from its traditional products to concentrate on new revenue opportunities in contemporary craft, fabric, and kids craft toys in new channels with its Leutenegger and Make-it brands.

BLC Cosmetics delivered revenue growth of 6%, aided by the launch of the Lightstim and M-Ceutic brands. With the positive sales result and cost effective operations, BLC returned to profit, improving from a break-even prior year. The leadership team is targeting further revenue growth in 2016, having secured the exclusive distribution rights to additional new brands.

SPOS Group demonstrated its potential to compete profitably selling standard shelving solutions to brand owners and national retailers. Whilst full year sales declined, encouragingly second half sales were stronger than the first half. The business improved gross margin and reduced operating expenses, securing improved profit performance for the year.

Biante sales were in line with the previous year, despite manufacturing delays from overseas suppliers on several planned models. Adverse USD foreign exchange movements impacted gross margin, which affected the overall profitability of the business.

Mountcastle, in which we have 50% ownership, had another solid year and increased revenue by 9.8% and EBIT by 6.6% in 2015. The company increased its market share in the school uniform and corporate wear markets and entered into a new partnership to manufacture public school wear for the School Locker Retail Chain owned by Harvey Norman.

In October we expanded the company portfolio with the establishment of a new joint venture company, Nido Interiors. Over the next four years, our JV partners can earn up to a maximum of 30% equity in Nido based on ongoing performance. The company is a new entrant in the homewares market, operating a new innovative and cost effective business model, selling home décor and soft furnishing product ranges under the One-Duck-Two and private label brands. Previously, One-Duck-Two had been sold through the Leutenegger business.

Outlook

The key strategic priority in 2016 is to ensure our business units increase revenues in a profitable and sustainable manner. The board recognises that local economic conditions remain difficult and global markets are in a state of turmoil, with recent additional deterioration of the Australian dollar.

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Under the leadership of Henrik Thorup and his management team, the company has made solid progress on the continued transformation of HGL, delivering increased earnings and improved cash flows.

Our performance over the first quarter of financial year 2016 is consistent with our expectation for revenue growth, supporting future earnings.

JSB Lighting, SPOS, Mountcastle, BLC Cosmetics and Biante achieved combined revenue growth of around 9% in the first quarter of 2016.

Sales in Leutenegger declined as a result of its active exit from unprofitable product lines. With plans to discontinue further stock items throughout 2016, revenue and gross margin is expected to be below last year, however company expenditure will be reduced accordingly, minimising the impact on profitability.

As HGL embarks on a higher growth path, management will appropriately manage risk and speed of change, ensuring the Group delivers sustainable results.

With our positive operating cash flows, we are in a position to invest in organic growth and suitable acquisitions.

For shareholders, the board's aim is to have future dividend payments at around 75% of underlying profit, subject to cash flow generation and ongoing capital requirements for growth or acquisitions. Our strengthened banking relationship will also assist going forward.

With the completion of Phase one of the GPS plan the Board believes that it is appropriate to now appoint an additional independent Director with marketing experience. We have resolved to appoint an independent advisor to assist with the selection and review of potential candidates shortly.

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

SUPPLYING MARKET LEADING BRANDED PRODUCTS

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Agenda for Presentation

HGL

• Corporate Highlights
• FY15 Operational Review
• GPS Strategy Update
• Growth and development actions
• FY16 Priorities and Outlook

HGL

www.hgl.org.uk

Corporate Highlights

HGL

• HGL is a product marketing and supply chain business of market leading brands in diversified specialist markets.
• We deploy an active management philosophy driving our portfolio development activities.
• Experienced board and management team aligned to the Growth, Profit and Sustainability Strategy Plan (GPS).
• Improved performance underpinned by the implementation of the GPS Strategy.
• Balance sheet position to pursue growth opportunities and strategic acquisition.
• Shareholder returns will be driven by future earnings growth.

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Operational Review 2015

FY15 highlights

• A key strategic priority in 2015 was to achieve organic sales growth and reverse the declining sales trend.
• Gross margin remained strong at 44.7% despite cost inflation from foreign currency movements.
• Operating expenses reduced by $1.5 million from continuous improvement programs.
• Underlying EBIT of $4.2 million, increased by $1.8 million in the prior corresponding period.
• Improved earnings in all business units, except Biante in FY15

FY15 Group financials

(Including 100% Mountcastle)

Change since FY14

Revenue	$65.1m	↑ 3.8%
Gross Margin	$29.1m	↑ 0.9%
Expenses	$24.9m	↓ 5.8%
Underlying EBIT	$4.2m	↑ 72.8%

Note: Group financial figures include 100% of Mountcastle results

Progress on GPS Strategy Implementation

Growth from existing and new product sales in core markets and expansion into new markets;

Profitability through continuous improvement of processes and working capital management;

Sustainability through investment in leadership, talent management programs and staff engagement.

Portfolio Development Strategy

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Growth and Development Phase (Operational Priorities)

HGL

HGL has defined core focus areas and related objectives:

1. Expand Product Portfolio
2. Secure organic growth
3. Develop Intellectual Property
4. Balance brand mix
5. Reduce Operational Complexity
6. Lower expense ratio
7. Integrate Technology / Build Online Presence
8. Automate transactions
9. Increase Employee Engagement

10. High staff retention

11. Expand Product Portfolio

HGL

JSB Lighting

Outdoor Architectural Lighting

PLANET LIGHTING

4

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1. Expand Product Portfolio

HGL

BLC Cosmetics

FUSION
MESO THERAPY

Professional Tanning

Mesotherapy serums and devices

LED Light Therapy Devices

LightStim®

1. Expand Product Portfolio

HGL

SPOS Group

Traffic Management System

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1. Expand Product Portfolio

HGL

SPOS Group

HGL

HGL

HGL

LEUTENBERG

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1. Expand Product Portfolio

HGL

Mountcastle

TRUTEX uniforms for public and private schools

TALK
www.talksandc.com

*ILC
EPSTTE
Lindensgyl
SPOSUGAR

1. Expand Product Portfolio

HGL

Blante

Star Wars Model
(Scale 1:18)

TALK
www.talksandc.com

*ILC
EPSTTE
Lindensgyl
SPOSUGAR

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2. Develop Intellectual Property

HGL

• Product design and development capabilities in SPOS, Leutenegger, Nido, Biante, Mountcastle & JSB
• Own Design Manufacturing (ODM) and sourcing experience (controlled IP)

Redsquare by JSB Lighting

Make It by Leutenegger

Trutex shirts by Mountcastle

Biante by Biante

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SPOS0024B

3. Reduce Operational Complexity

HGL

• Shared service warehouse in Macquarie Park for JSB Lighting, Leutenegger and SPOS.
• Consolidated finance and accounts department for Nido Interiors, Leutenegger and Biante

HGL

HGL

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SPOS0024B

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4. Integrate Technology and Build Online Presence

5. Increase Employee Engagement

• Personal development and training programs
• Annual Engagement Survey
• Employee induction, recognition and rewards programs

HGLevel5 Leadership

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FY16 Outlook and Priorities

• Trading conditions expected to remain uncertain and challenging
• JSB Lighting, Mountcastle, SPOS, BLC Cosmetics and Biante expected to achieve revenue growth in FY16
• Leutenegger will continue to reduce revenue discontinuing sales of unprofitable product ranges.
• Nido Interiors expected to contribute revenue growth in 2H-FY16
• Gross margin levels under pressure from adverse foreign currency movements
• Stringent management control of expenditure and working capital levels
• Maintain stable operating cash flow in spite of growth initiative investments
• Increased focus on pursuing strategic acquisitions

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