SELECT HARVESTS LIMITED — Interim / Quarterly Report 2015

Feb 25, 2015

Select Harvests Limited (“SHV”) Half Year ending 31 December 2014 - Results Presentation

26 February 2015

Disclaimer & Basis of Preparation

This presentation is provided for information purposes only and has been prepared using information provided by the company. The information contained in this presentation is not intended to be relied upon as advice to investors and does not take into account the investment objectives, financial situation or needs of any particular investor. Investors should consider their own individual investment and financial circumstances in relation to any investment decision.

Certain statements contained in this presentation may constitute forward-looking statements or statements about future matters that are based upon information known and assumptions made as of the date of this presentation. These statements are subject to risks and uncertainties. Actual results may differ materially from any future results or performance expressed, predicted or implied by the statements contained in this presentation.

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Agenda

Overview

Results Discussion & Analysis

Outlook

Appendices

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Overview

• 1H15 Reported Net Profit after Tax (“NPAT”) of $18.8m, compared to Reported 1H14 NPAT of $18.4m

• 1H15 Underlying NPAT of $21.5m (excluding the impact of acquisition transaction costs), compared to 1H14 NPAT of $18.4m - up 17%

• 1H15 Underlying Earnings before Interest & Tax (“EBIT”) of $33.3m, compared to 1H14 EBIT of $27.0m - up 23%

• Operating cash flow of $18.4m, compared to 1H14 cash flow of $23.5m - down 22%

• Gearing (Net Debt to Equity) 37.6% - down from 45.3%

• 1H15 Earnings per Share (“EPS”) 30.4 cents per share (“cps”), compared to Reported 1H14 EPS of 32.0 cps - down 5%

• Excluding impact of acquisition transaction costs EPS was 34.6cps - up 8%

• Interim Dividend declared of 15 cps (Record Date: 5 March 2015, Payment Date: 16 April 2015) - up 36%

On track for another strong year of earnings in FY15, based on current crop & price estimate

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Overview

• Strong group performance - capitalising on the benefits of integrated and more diversified business model

• Almond Division EBIT $32.3m (based on 2015 crop estimate) - up 29% on 1H14 EBIT of $25.0m

  • larger productive base & better prices, greater geographic spread, steady improvement

• Food Division EBIT $4.1m - flat

  • Trading & Consumer branded sales are up

  • Increased marketing investment, in a tough environment making good progress

    • Lucky market share gains (41.7% share Aug 2014) – best for 7 years

• Growing future production base

• Acquired 2 properties in 1HFY15 - Amaroo & Mullroo - 2,445 acres of planted almond orchards & 2,865 unplanted acres

• Orchard plantings (Jul/Aug 2014) 700 acres - 300 acres replanted, 400 acres new plantings

• Balance Sheet strength

• Balance Sheet has been steadily improving – positioned with high quality growth assets

• Capital raising Aug 2014 - $46.5M placement, $19.7M Share Purchase Plan

• One Select

• SHV in better shape to grow – people, structures, processes, risk management, performance, funding, outlook

• Environment - Zero major environment incidents

Increased productive scale & diversity through recent orchard acquisitions - 2 in 1HFY15

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Financial Results - Income Statement

Financial Result ($m)	1H14	1H15
	($m)	($m)	EBIT of $33.3m (1H14 $26.9m) - up 23%
			Almond Div. $32.3m (1H14 $25.0m)
Revenue	100.7	100.6	up 29%
EBITDA - Underlying Depreciation	28.7 (1.8)	35.5 (2.2)	Food Div. $4.1m (1H14 $4.0m)
EBIT - Underlying	26.9	33.3	steady
Interest	(2.1)	(2.6)
PBT - Underlying	24.8	30.7	Underlying NPAT $21.5m (1H14 $18.4m) - up 17%
(Tax Expense)	(6.4)	(9.2)	Driven by almond division
NPAT - Underlying	18.4	21.5
Acquisition Costs (post tax)	-	(2.7)	EPS of 30.4cps - down 5%
NPAT - Reported	18.4	18.8
			Underlying EPS 34.6cps – up 8%
EPS (Reported) - cents per share Interim Dividend - cents per share	32.0 11.0	30.4 15.0	Dividend of 15 cps unfranked - up 36%

The result is driven by almonds – controlling the critical mass of almonds is rewarding shareholders

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Financial Results - Balance Sheet

($m) Period ending 31/12/2013 31/12/2014	($m) Period ending 31/12/2013 31/12/2014	($m) Period ending 31/12/2013 31/12/2014	($m) Period ending 31/12/2013 31/12/2014	Net Debt $98.7m Gearing (Net Deb Down fro Funding Facility lim Sufficient growing S acquisitio
Current Assets excl. Cash		114.1	144.0
Cash		3.3	3.3
Non Current Assets		195.4	279.5
Total Assets		312.7	426.8
Current Liabilities (excl. Borrowings)		24.8	23.9
Borrowings		83.0	102.0
Non Current Liabilities (excl. Borrowings)		28.9	38.8
Total Liabilities		136.7	164.7
Total Equity		176.1	262.1
Net Debt		79.7	98.7
Net Debt/Equity		45.3%	37.6%
NTA/Share ($/share)		$2.40	$3.02

 Gearing (Net Debt to Equity) of 37.6%

• Down from 1H14 of 45.3%

 Facility limit of $140m

• Sufficient capacity to fund the growing SHV operations, acquisitions & replants

Balance sheet has absorbed growth and is strong

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Financial Results - Cash Flow

($m) 1H14 1H15	($m) 1H14 1H15	($m) 1H14 1H15
EBITDA	28.7	35.5
Change in Working Capital	(2.6)	(14.8)
Net Interest	(2.6)	(2.3)
Cash flow from operating activities	23.5	18.4
Investing cash flows	(20.3)	(83.3)
Proceeds from equity raising	-	64.0
Increase/(Decrease) in Debt	(4.5)	0.2
Dividends Paid	(3.7)	(3.0)
Net Increase/(Decrease) in Cash and Cash Equivalents	(5.0)	(3.7)

• Operating cash flow down by $5.1m

• Working Capital increase of $14.8m

• Cash required for new farm Hort Programs

• Rising commodity prices has put pressure on working capital – especially Food Business

• Investing cash flows of $83.3m

• Orchard and land acquisitions $66.8m (includes $11.1 m of water)

• Property, Plant & Equipment $13.8m

• Tree development $2.7m

• Positive operating cash flow allowed

• Orchard replanting program

• Orchard acquisitions

• Dividend payments

Select is generating strong operating cash flow while continuing to grow

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Results - Almond Division

	Underlying	Underlying
EBIT ($m)	1H14	1H15	Variance
Almond Division	25.0	32.3	+29%

• FY14 Crop completed

• Fully processed and 80% sold

• Crop has been further downgraded due to insect & moisture damage – negative EBIT impact ($3m) pre-tax in 1H15

• FY15 Crop Update

• Yield estimate - 13,400 tonnes (consistent with previous advice)

  • Recently acquired orchards – slightly sub industry avge. for next couple of years as we introduce SHV Hort program

  • Balance of portfolio – around industry avge.

• Price estimate - A$10.20/kg - well above FY14 avge. (A$8.50/kg)

  • Initial quality looks good

  • 40% of crop sold. Recent transactions closer to A$11.00/kg

• Activities & Outlook

• Harvest commenced last week – on track. Increased harvest equipment & night harvesting will aid quicker harvest

• Presence of insects has been detected – actively managing

• Orchard plantings (Jul/Aug 2015) - 925 acres (375Ha) new plantings at Allinga (SA)

• Bedding down and integrating acquisitions - Improving on farm productivity and execution

• Reviewing Water Policy - All FY15 water requirements have been secured at below current market levels

• Project Management: Dryer – commissioned. Cogen plant – contract signed & works commenced

• Investigating funding models for Greenfield orchards

• Actively seeking mature orchard acquisitions

Almond Division – greater productive scale & geographic diversification – 81% orchards at maturity

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Results - Food Division

	Reported	Reported
EBIT ($m)	1H14	1H15	Variance
Food Division	4.0	4.1	-

• Positive result in tough environment

• Revenue of A$70.6 million was up 9.4% (A$64.5 million 1H14)

• Astute trading and price increases have protected bottom line

• Marketing investment has delivered branded growth share

  • Lucky – highest market share in 7 years

  • New products represent 14% of branded sales

• Industrial customer demand (confectioners, bakers, food manufacturers) remains solid

• Cost saving

• Cost reductions driven by better labour management, increased machine and supply chain efficiency

• Production cost per kg remained flat year-on-year in spite of private label volume loss

• Activities & Outlook

• Increase price to pass on commodity price and FX impact

• Continue to focus on cost and innovation

• Focus on cost & innovation

• Improving the platform – safety, training

• Scoping new markets both local and export

• Improving supply chain efficiency - logistics, systems, service

Food division focus – margin management and return on investment

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Summary – US (California) Status

• US Crop Update (2013/14) – harvested – 300 million pounds smaller than first anticipated

• Market estimate of USA 2013/14 Almond crop - now 1.8 billion pounds (Ref: CAB Position Report – 12 Feb 2015)

• Down 300 million pounds on original NASS Objective Estimate of 2.1 billion pounds

• Californian Drought - situation is worse than Feb 2014 – covers much greater proportion of almond growing counties

• Feb 2014 - 10% of California in Exceptional Drought (covered a small number of almond growing counties), 67% Extreme Drought

• Feb 2015 - 41% of California in Exceptional Drought (covers the vast majority of almond growing counties), 67% Extreme Drought

• Californian Snowpack - situation is worse than Feb 2014 – more pronounced in Central and South

• 2014 - State (23% of April Avge, 26% of Normal as at today) - North Sierra (15%, 17%), Central (29%/33%), Southern (22%/26%)

• 2015 - State (17% of April Avge, 21% of Normal as at today) - North Sierra (16%, 20%), Central (18%/23%), Southern (16%/21%)

• Californian Surface Water - situation is broadly equivalent to Feb 2014 – worse in Central and South

• Just endured the hottest year on record, placing additional stress on trees and limited water supplies

• Californian Ground Water - introduction of Sustainable Groundwater Management Act (“SGMA”) in 2014 will have lasting impact

• 39% of all water used in California comes from groundwater (in some counties up to 60%)

• Regulation enforced in 2014 - catchment plans required by 2017 - implementation from 2017 - long term issue

• Californian Temperature - record temperatures are placing added pressure on tight water supplies

• 2014 was the hottest year on record, placing additional stress on tress and limited water supplies

80% of the world’s almond supply has multiple, significant, long term supply constraints

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Thank you

Please direct any queries to:

Paul Thompson	Paul Chambers	Andrew Angus
Managing Director	Chief Financial Officer	Investor Relations
+61 3 9474 3544	+61 3 9474 3544	+61 402 823 757
Please note that background material/data regarding the global almond industry can be found on the		Select Harvests website - www.selectharvests.com.au

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Appendix

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Strategic Objectives & Activities

					FY13 INITIATIVES	FY14 INITIATIVES	FY14 INITIATIVES	FY15 INITIATIVES
	1. CONTROL CRITICAL MASS OF ALMONDS	Secure the critical mass of nuts needed to maximize profitability and leverage the global almond opportunity.			• Acquired 1,286 acres almond orchard • Ceased WA investment	• Acquired 680 acres planted orchard • Acquired 1,000 acres unplanted • Replanted 512 acres @ higher densities		• Acquired 2,481 acres planted orchard • Acquired 4,465 acres unplanted • Acquired 6,215 ML high security water • Planting 948 acres Allinga
	2. IMPROVE YIELD & CROP VALUE	Improve yield and overall crop value by perfecting on-farm and farm to factory practices.			• Restructured Horticulture Division • Investments in Benchmarking/Tech. • Improve efficiency/protect yield • $500K frost fans	15% ROCE • Total review of Horticultural assets • Further $500K frost fans • Additional harvest equipment		• Additional harvest equipment • Biostimulants trial • Trial catch & shake harvest technology
	3. BE BEST IN CLASS SUPPLY CHAIN	Continuously improve our supply chain, achieving high quality, low cost and optimum capital utilisation.			• Restructured Operations Division	• Evaluate operational improvements & refine proposals • New Optical Sorter at Thomastown		• Biomass Electricity Cogen. Plant • Carina West Dryer
	4. INVEST IN INDUSTRIAL & TRADING DIVISION	. Allocate resources to leverage our trading skills and grow sales in the industrial channel			• Grew Industrial Division 40%	• Grew Industrial Division 24% through local and SE Asia customer base • Innovations assisted growth		• Expanding business with food processors in local and SE Asian markets
			. w nnel			•
	5. TURN AROUND PACKAGED FOOD BUSINESS	Develop a new model for the packaged food category that will deliver sustainable returns above the cost of capital.			• Exited unprofitable Retail Brand business • Product Research/Collect Insights	~~EPS~~ 7-10% pa • Product Development - Innovation/Renovation/Reformulation/ Repackaging • Brand relaunch - Sunsol & Lucky Smart Snax		• Multiple relaunches & new products • Range rationalisation • New distributors - Thailand & Malaysia
	6. FIX OUR SYSTEMS & PROCESSES	Develop the business systems and processes required to be a global industry leader.			• OHS improvement - LTI’s dropped 60%	• OHS improvement - LTI’s dropped 73% • New risk management framework • New OHS policies/procedures		• IT upgrade
	7. ENGAGE WITH OUR PEOPLE & OUR STAKEHOLDERS	Engage with investors and our industry while developing the team required to be a global industry leader.			• Investor engagement – conferences, site tours and road shows	10% EBIT pa • Hort 3 training for Farm Management • Refreshed company website • Introduction of employee newsletters/intranet		• Further development of Performance Review process • Diversity Committee

Significant progress on implementation of company’s 7 strategic platforms & transition to a fully integrated agribusiness

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Global Supply - US Drought

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Orange States = Severe Drought Red States = Extreme Drought Dark Brown States – Exceptional Drought

SHV 1H14 2014 – 10% Exceptional Drought, 67% Extreme Drought, 94% Severe Drought SHV 1H15 2015 – 41% Exceptional Drought, 67% Extreme Drought, 93% Severe Drought

SITUATION IS WORSE THAN FEB 2014 – COVERS A MUCH GREATER PROPORTION OF ALMOND GROWING COUNTIES

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Select Harvests - Financial History

SHV Historical Summary Units 2006 2007 2008 2009 2010 2011 2012 2013 2014	SHV Historical Summary Units 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Sales (A$M) 217.9 229.5 224.7 248.6 238.4 248.3 251.3 191.1 EBIT (A$M) 38.4 40.5 27.1 26.8 26.0 22.6 19.6 37.7 EBIT Margin (EBIT/Sales - %) (%) 17.6% 17.6% 12.1% 10.8% 10.9% 9.1% 7.8% 19.7% PBT (A$M) 37.9 40.0 25.4 23.0 23.6 18.5 13.4 32.7 Underlying NPAT (A$M) 26.5 28.1 18.1 16.7 17.3 17.7 9.5 22.9 Issued Shares No. of Shares 39.7 38.7 39.0 39.5 39.8 56.2 56.8 57.5 Earnings Per Share (AUD Cents per Share) 67.1 71.0 46.7 42.6 43.3 33.7 16.8 40.1 Dividend per Share (AUD Cents per Share) 53.0 57.0 45.0 12.0 21.0 13.0 8.0 12.0 Payout Ratio (%) 80.0% 80.0% 96.7% 28.2% 48.5% 38.6% 47.6% 29.9% Net Tangible Assets per Share (A$/Share) 1.83 1.57 1.41 1.56 1.87 2.17 2.19 2.14 Net Interest Cover (times) 82.3 75.8 15.6 7.1 10.7 6.7 3.2 7.5 Net Debt (A$M) 1.3 1.6 46.8 52.4 45.0 73.1 66.8 79.3 Shareholder Equity (A$M) 101.5 95.5 94.1 100.9 113.6 168.8 160.3 159.5 Net Debt to Equity Ratio (%) 1.3% 1.7% 49.7% 51.9% 39.6% 43.3% 41.7% 49.7% Share Price (A$/Share) 13.02 11.60 6.00 2.16 3.46 1.84 2.40 3.9 Market Capitalisation (A$M) 517.0 449.4 234.1 85.4 137.6 103.5 120.0 224.3 P/E Ratio 19.5 16.0 12.9 5.1 8.0 5.8 12.6 9.8	188.3
	41.8
	22.2%
	37.4
	29.0
	58.0
	50.2
	20.0
	39.8%
	2.47
	9.3
	94.8
	182.8
	51.9%
	5.14
	298.12
	10.2

Source: Company Data

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Acquisitions – Geographic Diversity, Scale & Future.

Allinga – Loxton, SA (A$16.3M)

• 680 acres mature almond

• 1,000 acres suitable for planting to almonds (FY15)

• Gained SA water buyback/efficiently funding (Net $5m) to support new plantings

Amaroo – Paringa, SA (A$52.5M)

• 2,046 acres almond (1,288 acres mature, 758 acres immature)

• 1,500 acres suitable for planting to almond (plant FY16,17)*

• Other acquired assets – 6,215 ML high security water entitlements, 764 acres citrus (leased out),

Mullroo (Grewal) – Lake Cullulleraine, VIC (A$8.5M)

• 435 acres almond (175 acres mature, 260 acres immature)

• 1,365 acres suitable for planting to almond (plant FY16, 17)*

Mendook – Euston, NSW (A$2.0M)

• 1,600 acres suitable for planting to almonds (plant FY16)*

• Subject to business case

Geographically diversified portfolio of 13,311 acres of planted almond orchard

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SHV - Almond Division - Risk Mitigation

	Area	Action
	Farming Practices	• Empowered farm management • Introduced Harvest guidelines to reduce weather exposure
	Management Tools	• Great on-farm KPI’s & reporting • Introduction of Leaf Bomb Pressure Test technology
	Processing Standards	• Re-introduction of LEAN manufacturing processes • Higher quality standards & testing across the business • Pasteuriser commissioned and operational
	Labour Skill & Management	• Improved training of harvest contractors • Quality & productivity based remuneration for labour
	Capex	• Investment in pasteuriser & freefall metal detectors • Investment in frost mitigation technology
	Orchard Development	• Total review of existing orchard potential • Long term development plan inc. plant density & variety
	Water	• Water purchase for NSW orchards • New water policy - exposure over 3 years (1/3 long term lease, 1/3 annual, 1/3 spot)
	Frost mitigation	• Installed frost fans on more highly exposed orchards in NSW and VIC
	Bees	• Long term Bee Supply Agreement - 3 years (Victorian orchards)
	Maximise: Yield, Price and Quality

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Global Demand – Diverse. High Growth

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Almonds have held the No.1 position in global tree nut innovations since 2006 (35% market share 2013). Long term US per capita consumption of almond outpaces all other tree nuts (376% growth since 1980)

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