SCHOOLBLAZER LIMITED — Annual Report 2012

Jan 29, 2013

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

Chairman's address January 2013

HGL

I open my address by acknowledging that the 2012 result was a disappointing full year result for your company.

Clearly these financial outcomes are not acceptable and must be arrested.

As advised on 1 November 2012, due to ill health and with mutual agreement Michael Mahoney resigned as Chief Executive Officer.

In light of the 2012 result and as part of the process to recruit a new Chief Executive the Board further questioned the strengths, weaknesses and strategy of the group and continues with the view that the improved execution of the strategy can produce an improved 2013 result rather than a result that the 2012 financial outcomes may suggest.

In summary the results were:

• A statutory loss of $5.1m for the year
• An underlying loss of $0.5m for the year
• Net cash at the end of September of $5m
• Fully franked dividends of 6c per share

The statutory loss of $5.1 million and underlying loss of $0.5 million were both largely brought about by the performance of SPOS, our point of sale business.

At the beginning of the 2012 financial year SPOS was structured to build upon a very successful 2011 and to deliver further substantial sales and profit growth. However a substantial number of customer projects that were anticipated to be secured during 2012 did not eventuate, consequently sales decreased by 25% or $7 million compared to the previous year and by 50% compared to management's budget. At last year's Annual General Meeting I referred to the delayed SPOS projects but at that time our expectations continued that the projects would be completed and invoiced in the 2012 year.

The overheads of SPOS have subsequently been reduced and the business is now less dependent on projects for its profit. While I am unable to report that SPOS is now firmly on the road to recovering to its previous profitability, I can report that in the first three months of this year SPOS has broken even which is an improvement on last year's sizeable loss.

SUPPLYING
MARKET
LEADING
BRANDED
PRODUCTS

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SPOS also wrote off one off costs of $3.6 million. These costs are detailed in the Annual Report with the largest items being $1.4 million of inventory write offs and $0.6 million of other asset write offs. Both largely arose due to the reassessment of estimated recoverable amounts in the light of sales being lower than budget and lower than last year. SPOS accounted for approximately 70% of the total fall in underlying profit.

In the other businesses of the group the performance was mixed.

Following last year's restructuring Biante, our collector model car business was profitable in 2012 and further improvement in profit is anticipated. This business has refocussed to its traditional Australian market and is again producing high quality model cars that are in demand from its enthusiast customers. Biante's management believe that the company may be able to utilise a number of the moulds that were feared lost and written off as a consequence of the bankruptcy of a major supplier in China, further improving future profits. I congratulate Andrew Whittles and all Biante's employees on this turnaround as we continue to improve returns from this business.

Mountcastle which was primarily a manufacturer of hats now derives more than 30% of its profits from school uniforms while continuing to be a hat manufacturer. Whilst we have a major share of the South Australian private school market we are looking to improve our market penetration in the NSW and Queensland market. It is pleasing to report that the company has again won a contract to supply the Slouch Hats to the Defence Department. The change in emphasis to the school clothing market has enabled Mountcastle to maintain its profit at a time of a generally diminishing hat market. Mountcastle's managing joint venture partner is budgeting for an improved 2013.

The sales of Anitech, our Large Format Printing distributor business, for 2012 were 20% or $7.3 million lower than last year. This is largely due to the loss of a major service contract. This accounted for 13% of the fall in the group's underlying profit.

I referred in the Annual Report to the untimely passing away of Anitech's long serving Chief Executive Officer, Mr Chris Wagstaff and I am pleased to advise you that after an executive search Mr Steven Pratt has been appointed to that position. Under the new CEO Anitech is embarking on a reconstruction program particularly of its service division which on reflection was not adequately focussed and resourced by previous management. The interim CEO Mr Ron Thomas, a representative of our joint venture partner, has contributed to the reconstruction and I thank him for that contribution. We believe that the service division can contribute substantially to the regeneration of the total business in the future.

BLC, our Thalgo beauty business, has following the acquisition of our partner's interest on his retirement, refocussed on its core Spa and Salon supply business and reduced the supply of cosmetics into the commercial retail markets. We will be moving the premises to Artarmon with improved training facilities to attract more therapists to better appreciate and understand the quality of our products which in turn should promote sales.

Leutenegger, one of our fabric businesses, continues to hold its market share however new management recognises the need to address the changing market

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buying patterns of its customers. There is no doubt that the market in retailing is soft and internet sales are having an impact. We are advancing our plans to take advantage of on line promotions and together with improved textile designs and manufacturing techniques together with an export market for our Australian designs believe that the future of the Company is positive. Overheads have been trimmed to meet the current business levels.

Earlier this month JSB, our architectural lighting for the commercial market business, moved into new head office premises in Darlinghurst. We believe this move to a more central location with a better showroom and improved customer access will lead to higher sales. Late in 2012 a Perth sales office was opened and earlier in the year the move to a new central Melbourne showroom was completed.

XLN our other fabric business performed creditability in 2012.

BOC, our eye testing instruments business also continued to perform creditably for the year.

The continuing review of the group's working capital indicates that there are additional improvements to be made enabling stock to be further reduced to release capital and improve returns. Further stock reductions are not anticipated to have a material effect on profit.

Sale of assets

During the year three non core business units were disposed:

In October 2011 Amcla was sold for cash proceeds of $0.5 million.

In November 2011 our interest in Aarque Group in New Zealand was sold to our joint venture partner for cash proceeds of $3.9 million.

In July 2012 Safilo was sold for cash proceeds of $1.6 million as a result of Safilo S.p.A. exercising its option to acquire the HGL interest in the partnership.

In June 2012 the property owned and occupied by BLC Cosmetics at Hornsby was sold for $1.5 million.

First quarter trading

The unaudited underlying profit for the first quarter of 2013 is $0.3 million, lower than the $1.0 million in the corresponding period last year.

Anitech's equipment sales are down on last year, while the sales of SPOS are lower than the comparatively stronger first quarter last year. In addition a portion of defence force headwear sales will occur later this year.

Expenses are well managed and are down 4% whilst our overall margin percentage remains stable.

Whilst we are not satisfied with the overall financial results of the first quarter, we believe the results should not be considered a trend for the full year. There are a number of sales initiatives which should assist with arresting the sales and profitability decline.

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Chief Executive Officer

I was very pleased to announce last week, after an executive search, the appointment of Henrik Thorup as Chief Executive Officer of HGL.

Henrik commenced with us on Monday 21 January.

Henrik has more than 20 years general management experience of local and international companies supplying market leading commercial and consumer brands, including Pandora Jewellery, Nilfisk, Gerni and Hoover, to specialist markets in Australia and overseas.

Henrik brings a wealth of experience, focus on sales and marketing disciplines and a drive to lead HGL with enhanced returns to shareholders.

Dividend

The policy of dividend payments being no less than 75% of underlying profit continues however it was the Board's view that although a loss was incurred for the year, the loss was impacted by a number of abnormal factors and that a dividend should be paid from accumulated retained earnings. A final dividend of 2 cents fully franked per share was paid in December 2012, making a total dividend for the year of 6 cents fully franked per share.

Outlook

My comments in the Annual Report for the year remain the same. The weakness in business confidence is still very evident and soft consumer spending continues to affect our businesses. Although the outlook for the Australian economy appears to be uncertain we continue our belief that the group will return to profitability in 2013 through in the main organic growth.

With a new CEO at HGL and new CEOs at Anitech and Leutenneger together with our very capable joint venture partners and CEOs in the other businesses the group is poised to improve from last year.

All our CEOs believe that there is opportunity to improve sales and are proactively addressing their management issues and strategy.

The group continues to have cash in the bank and remains well positioned to fund organic growth and suitable acquisitions. We remain confident in the future of the Company.

I thank all our employees and joint venture partners for their efforts in what has been a difficult period. I also thank Andrew Whittles for acting as Chief Executive Officer for three months while also being the Chief Financial Officer so enabling the Board to conduct an extensive executive search for a replacement Chief Executive.

In May I will report further to you on our results for the 6 months ending March.

Henrik will now briefly introduce himself.