SELECT HARVESTS LIMITED — Investor Presentation 2015

Apr 15, 2015

Select Harvests Limited (“SHV”)

Paul Thompson, Managing Director Morgans AgriFood Investment Seminar 16 April 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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Overview

• Select Harvests has undergone significant transformation in last 5 years

• Undertook a deliberate move to more directly expose shareholders to the compelling fundamentals of almonds & healthy eating

• Select Harvests has transition from predominantly a manager of 3[rd] Party orchards to integrated agribusiness by:

• Prioritising Risk Mitigation & Productivity

• Increasing scale & leverage growth

• Building Brands in Business to Business and Consumer segments

• Exiting lower profit segments

• Growing customer base

Select Harvests is an integrated growing agribusiness

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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 • Bio stimulants 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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Snapshot of Select Harvests Key Drivers Today

• Existing portfolio – 18,000 acres

• Circa 13,000 acres almond trees

• 60% owned, 40% leased

• Average age 11 years old

• Unplanted land bank of 5,000 acres

• Orchard

• Investment in risk mitigation and capex relate productivity is near complete

• 15,600 MT p.a. crop potential from existing portfolio at maturity: (current maturity profile base: 10-12000 tonnes)

• 6,000 MT p.a. crop potential from land bank at maturity

• 25,000 MT processing capacity at Carina West plant: capex largely sunk to support future capacity

• Food

• Brands starting to show growth – 14% sales are from products launched in last 18 months

• Agents appointed – Thailand & Malaysia

• Business 2 Business growth has got to the point where capacity is the bottleneck not demand

With the exception of funding greenfield expansion, the business is set to deliver sustainable cash flows

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Productivity – Controllable Improvements

• People/OHS/Safety – Right people, right training, right systems, right resources

• Intangible impact – difficult to measure entire specific impact – collectively reveals itself in improved productivity & results

• Orchard Productivity – investing incrementally more in crop production & yield initiatives to capture significantly more crop value

• Every 0.1 MT/acre productivity gain delivers additional yield of 1,800 tonnes p.a. - EBIT $13 million p.a. (A$7.50/kg almond price)

• Harvest Productivity – ensure harvest is safe, quick, efficient & value enhancing

• Increase equipment matrix/night harvest operations – reduces time required for harvest

• Installation of Dryer increases proportion of crop available to the lucrative in-shell market

• Cogeneration/Processing Productivity – produce sustainable power from waste stream & permanently lower energy cost base

• Will save circa $2m p.a. in energy costs and deliver lowest quartile costs/kg

• Quality Productivity – produce a greater proportion of higher quality & higher value nuts

• 15-18% price differential between grades (Supreme grade vs manufacturing grade)

• Food Productivity

• Greater proportion of branded product sales.

• Supply Chain Productivity – ensure we have the optimal supply chain to service our customers & efficiently market our products  Supply chain is under review

• Finance Productivity – ensure that we have the optimal funding model to support & grow the business

• Funding model is under review

Investments (ex Cogen) are generally capital light – productivity is now more about execution

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Global Supply - US Almond Production & Drought

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14% - North Counties % of US Almond Prod’n
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86% 86%
Orange States = Severe Drought
South Counties South Counties
Red States = Extreme Drought
% of US % of US
Almond Prod’n Dark Brown States – Exceptional Drought Almond Prod’n
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Too early to understand long term impact

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US Update

• Californian Almond Board – March 2015 Position Report

• http://www.almonds.com/sites/default/files/content/newsletters/attachments/2015.03posrptmarch.pdf

• US Shipments

  • March US shipments - 190 million lbs - a record and 26% higher than March 2014

    • US Export shipments - 133 million lbs - 42% higher than March 2014

    • US Domestic shipments - 56 million lbs - 1% lower than March 2014

• Inventory Impact

  • Carry-in 1 Aug 2014 - 351 million lbs

  • Carry-out est. 30 July 2015 - 350-400 million lbs (Ref: Hilltop Ranch Newsletter, 10 April 2015)

    • Based on shipping 3yr monthly averages (or current YTD crop adjusted shipments (-8%) for next 4 months)

• 2015 US Crop Forecasts

• This crop will be affected by drought

  • NASS Subjective Forecast - 6 May 2015

  • NASS Objective Forecast - 1 July 2015

Early indicators are next year will be similar to last year at best, new plantings impact unknown

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2015 Crop Update

• Harvest Progress Update

• 85% of crop harvested (this time last year 65%)

  • All Non-Pareil (premium value nuts) harvested

• Volume Update

• 13,400 tonnes

• In line with previous guidance from 1H15 Results on 26 Feb 2015

• Processing Update

  • 25% of est. crop has been processed

  • Quality is good as expected

  • Level of insect damage is lower than 2014

  • Higher in-shell yields than 2014, export shipments have commenced

• Price Update

  • A$10.20/kg (in line with previous guidance from 1H15 Results on 26 Feb 2015)

  • More recent trades A$11+

  • 50% of crop committed

  • Price negotiations with local retailers ongoing

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Business Focus

1. Acquire mature cash generating almond orchards

2. Develop green field almond orchards

3. Invest in orchard productivity

4. Invest in energy savings and sustainability: Cogen

5. Invest in new products (Food business)

6. Invest in manufacturing and supply chain footprint

7. Invest in business systems : One Select program

Business has a solid base and several controllable productivity opportunities

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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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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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Geographic Diversity & Scale

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Geographic diversity limits exposure to:

• Weather

• Disease spread

• Insect infestation

Amaroo to Robinvale

Distance: 225 km Drive Time: 2.5 hours

Grewal to Robinvale Distance: 140 km Drive Time: 1.8 hours

Mendook to Robinvale

Distance: 40km Drive Time: 0.5 hours

Australia’s 2[nd] largest and most geographically diverse almond producer

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Orchard Profile – Young Orchards PLUS Longevity

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

Note: Anticipated Plantings Source: Company Data Unplanted… Planting… Planting… Planting… Planting… 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Tree Age (Years) Planted acreage age profile 25% Planted orchards are 67% Planted orchards in economic sweet spot - low capex & high cash generation 8% Planted orchards post economic maturity Replants New Plants Land bank (% of total land holding)*

Select Harvests almond orchards have an average age of 10.9 years. On track to double acreage by 2018.

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Orchard Profile

Almond orchard portfolio	Planted Orchard Area (acres)	Planted Orchard Area (hectares)	Bearing Orchard Area (acres)	Bearing Orchards Area (hectares)
Northern Region Owned Leased Total	1,491 3,017 4,508	604 1,221 1,825	1,423 3,017 4,440	576 1,221 1,798
Central Region Owned Leased Total	4,165 1,481 5,646	1,686 600 2,286	3,554 1,481 5,035	1,439 600 2,039
Southern Region Owned Leased Total	3,156 - 3,156	1,278 - 1,278	2,467 - 2,467	999 - 999
Total All Regions Owned Leased	8,812 4,498	3,568 1,821	7,444 4,498	3,014 1,821
Total	13,311	5,389	11,943	4,835

Land bank(unplanted)	Acres	Hectares
Northern Region Central Region Southern Region	- 1,600 3,865	- 648 1,565
Total all Regions	5,465	2,213

Source: Company Data

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Orchard Profile

		AREA BY TREE AGE	AREA BY TREE AGE	AREA BY TREE AGE	AREA BY TREE AGE	AREA BY TREE AGE	AREA BY TREE AGE
		Years 0-7		Years 8-26		Years 26+		TOTAL PLANTED		AVAILABLE TO PLANT		TOTAL
		(acres)	(ha)	(acres)	(ha)	(acres)	(ha)	(acres)	(ha)	(acres)	(ha)	(acres)	(ha)
Northern Region Company Owned Leased Total		312 1,332	126 539	1,179 1,685	477 682	- -	- -	1,491 3,017	604 1,221	- -	- -	1,491 3,017	604 1,221
	Total	1,644	666	2,864	1,160	-	-	4,508	1,825	-	-	4,508	1,825
Central Region Company Owned Leased Total		638 -	258 -	2,455 1,481	994 600	1,072 -	434 -	4,165 **1,481 **	1,686 600	1,600 -	648 -	5,765 **1,481 **	2,334 600
	Total	638	258	3,936	1,594	1,072	434	5,646	2,286	1,600	648	7,246	2,934
Southern Region Company Owned Leased Total		1,018 -	412 -	2,138 -	866 -	- -	- -	3,156 -	1,278 -	3,865 -	1,565 -	7,021 -	2,843 -
	Total	1,018	412	2,138	866	-	-	3,156	1,278	3,865	1,565	7,021	2,843
TOTAL Company Owned Leased Total		1,968 1,332	797 539	5,772 3,166	2,337 1,282	1,072 -	434 -	8,812 4,498	3,568 1,821	5,465 -	2,213 -	14,277 4,498	5,780 1,821
	Total	3,300	1,336	8,938	3,619	**1,072 **	434	13,311	5,389	5,465	2,213	18,776	**7,601 **

Source: Company Data

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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) For the first time in 2013, Almonds became No.1 Snacking nut in the USA – overtook peanuts

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Commodity Price Trend 2008-2015

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$50.00 (AUD$/KG CFR)
$45.00
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
Chinese Pinenut 600 Count Pistachio Inshell R&S Vietnamese Cashew WW320
California Walnuts LH&P Almond Kernel SSR
Price Per KG CFR
Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Mar-15
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Key 2015 Divisional Activities

Orchards

• Larger investment in orchard programs

• Staff training and up skilling

• Further upgrades of existing orchard infrastructure

• Further increase harvest equipment matrices / Redevelopment/Development / Electronic farm management system

Operations

• Almond Pre-cleaner & Crop Dryer

• Project H2E

• Pasteurising

• Quality Control

• Laser sorter installed at Thomastown

Consumer Brands

• Brands development

• New product development

• New channel and market development

• Improved Margin management

Sustainable & growing returns from existing asset base is about productivity & risk mitigation - key focus

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Key 2015 Divisional Activities

Trading & Industrial

• Strong demand - global almond industry new product development remains buoyant

• Uncertain supply - drought continues in the USA causing uncertainty of crop sizes in coming years

• Continue to invest in innovation growth

Human Resources

• O H & S Strategy

• Environment & Sustainability

• Learning & Development

• Culture

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