SELECT HARVESTS LIMITED — Investor Presentation 2016

Apr 17, 2016

Select Harvests Limited (“SHV”)

Paul Thompson - Managing Director

13[th] PAC Partners Agribusiness & Food “Making Your Own Luck” Conference

19[th] April 2016

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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Select Harvests Business Overview

 Almond Division

• 14,303 acres of Australian almond orchards – Victoria, South Australia & New South Wales

• 80% in cash generative mature phase – very low capex required

• Improve orchard productivity through high performance farming program – top quartile yields & quality in next 2 years

• 2016 Greenfield plantings – 2,500 acres – majority to account of First State Super

• Continue to seek acquisition of mature orchards at the right price and land suitable for planting to almonds

• Improve supply chain productivity & keep costs in bottom quartile - Project Parboil & Project H2E

 Food Division

• Number of Brands across categories – cooking/baking, snacking, breakfast, health

• Grow branded base for industrial and packaged divisions

• Export focus

• New Products & Categories

 Corporate

• Leverage core capabilities of business in current & adjacent categories

• Maintain gearing at acceptable level

Growth and cash-flow are both important

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Macro Trends Driving Strategy

Demand Drivers

Supply Drivers

 Health

 Land Availability

• Weight Loss

• Heart Disease

• Lactose Intolerance

  • Infrastructure

  • Capital

• Environment

• Gluten Free

• Coeliacs

• Diabetes

 Wealth

• Asian Middle class

• Millennium population pool

  • Climate

  • Water availability

  • Sustainability

• Capability

  • Knowledge

  • Execution skills

  • Market access

• Affordability

Making your “OWN LUCK” is about better insight

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Strategy - Planning for excellence and growth

1. CONTROL CRITICAL MASS OF ALMONDS

Secure the critical mass of nuts needed to maximize profitability and leverage the global almond opportunity.

2. IMPROVE YIELD & CROP VALUE

Improve yield and overall crop value by perfecting on-farm and farm to factory practices .

3. BE BEST IN CLASS SUPPLY CHAIN

Continuously improve our supply chain, achieving high quality, low cost and optimum capital utilisation.

4. INVEST IN INDUSTRIAL & TRADING DIVISION

Allocate resources to leverage our trading skills and grow sales in the industrial channel .

5. STRENGTHEN PACKAGED FOOD BUSINESS

Commit funds and develop structure to generate domestic and export growth for the packaged food business delivering sustainable returns above the cost of capital .

6. FIX OUR SYSTEMS & PROCESSES

Develop the business systems and processes required to be a global industry leader .

7. NON ORGANIC GROWTH

Acquire businesses in related categories leveraging existing capabilities that are EPS accretive and deliver sustainable returns above our cost of capital.

8. ENGAGE WITH OUR PEOPLE & OUR STAKEHOLDERS

Engage with investors and our industry while developing the team required to be a global industry leader.

Making your “OWN LUCK” is about a clear strategy

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Strategy Execution

• Business Growth

• Orchard Growth

• Orchard Productivity

• Growing Brands & New Product Portfolio

• New Geographies

• Risk Mitigation

• Almond Crop Dryer

• Water Policy

• Bee Policy

• Strong Balance Sheet

• Cost Out

• Project H2E – Biomass Electricity Cogeneration

• Supply Chain consolidation

Making your “OWN LUCK” is about strategy execution

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Orchard Geographic Diversity

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Select Harvests has a geographically diverse portfolio Australian Almond orchards - with global scale

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Orchard Age Profile

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Significant growth & improvement occurred in SHV orchard portfolio in recent years - acquisition, replants, greenfields

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Almond Volume Growth

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+46%
+39
+22%
+3%
80% of current planted acres are cash generative
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By 2024, almond volumes will increase by 46%

2018: +3%, 2020: +22%, 2022: +39%, 2024: +46%

(Pink & Blue Sections only – basis capital already sunk)

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Project H2E – Hull to Energy

Project Overview: Biomass boiler and steam turbine, fuelled by almond hull and shell converting it to heat and power. Abating 24000 tonnes* of greenhouse gas.

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• Internal estimate

Drops energy cost by 20%, enhancing Carina West’s position as a global low cost processor

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Project Parboil – Almond Value-Add

Project Overview: Low cost Value Added Almond Processing & Packing Facility at Carina West

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Tripling value-added capacity to meet increasing demand from Asia

Producing allergen free (i.e. peanut free) almond products

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Increasing Value-Added & Export Businesses

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Moving from Grower & Commodity Bagger to Value-Adding

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Market Outlook

• Category Overview:

• Demand remains strong, current prices expected to generate growth

• Consumers continue to see the benefits of all super foods with new product development remaining buoyant

• Buying patterns had changed due to instability in pricing, little inventory with customers

• Consumers and industry committed to consuming less sugar, preferring Green & Clean alternatives

• Land and water are a finite resource

• Regulation will increase

• Almond Industry :

• Despite improved conditions year to date, the US drought continues. The impact of the drought remains difficult to predict

• Industry forecast for the 2016 US crop is approx. 2.0 Bn lbs, with a slightly higher year on year carryover stock of approx. 0.5 Bn lbs

• Spanish crop adversely affected by frost and drought

• New product development activity remaining buoyant. Almond Milk and Butters continue to grow

• Recent new planting & lower pricing causing industry to re-think expansion plans in both US & Australia

• Accelerate removal of older trees based on economic viability – est. 35,000 acres in US in 2016 - could be another 70,000 acres 2017

• US to experience greater cost inflation (water, by-products & labour)

• Competitive nuts reset to historical norm, stimulating almond growth

See positive signs with demand increasing

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2016 SHV Crop Update

• Harvest Progress Update – Ahead of previous years

• Complete

• Volume Update – No change to 13,700 tonne estimate

• Not all stock has been delivered to processing centre

• Processing Update – On Plan: 20% of estimated crop has been processed

• Quality is good, but not all regions and varieties have been processed

• Price Update – First Half Estimate A$9.00/kg (0.70 USD)

• Spot price around A$7.00/kg (0.73 USD) – assumes quality remains as is

• Over 43% committed @ average A$9.36/kg

  • Predominantly higher grades

• Weather Outlook – Positive

• BOM outlook April to June rainfall outlook: above average in parts of southern Australia

Too early to accurately predict quality & price impacts with certainty

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2016 Business Update

 Almond Division - Experiencing Pricing pressure

• Good harvest & price appears to be stabilising

• Orchard cost forecast flat year on year

• Food Division - Momentum Continues

• Our value-added strategy is gaining traction

• Export sales up >20% YOY

• Lucky market share: 43.6% vs 39.0% YOY (MAT “Moving Annual Total”) – A NEW RECORD

• Project Parboil - Value-Added Almond Production

• December 2016 commissioning and expenditure on track

• Project H2E - Biomass Electricity Cogeneration Plant

• December 2016 commissioning and expenditure on track

• 2016 Greenfield - Orchard Development

• July 2016 plant out and expenditure on track

• 1Select - Business Systems Upgrade

• September 2016 roll out on track

• OH&S - Performance Improving

• LTIFR and Hazard ID’s have improved on a MAT basis

• LTIFR 30 VS 32

2016 is about executing our Strategy and Making Our Own Luck

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SHV makes its Own Luck everyday!

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Lucky Market Share: 43.6% vs 39.0% YOY (MAT) – A NEW RECORD

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SHV 2016/7 Business Objectives

1. Zero Harm OH&S strategy

2. Improve average mature tree yield

3. Acquire orchards at the right price

4. Grow and strengthen Food Business

5. Implement Greenfield program

6. Implement Biomass/Cogen plant

7. Implement Parboil

8. Implement 1Select ERP platform

Delivering both cash generation & growth, whilst protecting a strong Balance Sheet

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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

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Source: Company Data

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Select Harvests – Orchard Summary

Select Harvests Almond orchard portfolio	Planted	Under development	Total
	Acres Hectares	Acres **Hectares **	Acres Hectares
Central region Company Owned Leased	4,169 1,688 1,481 600	- - 1,400 567	4,169 1,688 2,881 1,166
Total	5,650 **2,287 **	1,400 **567 **	7,050 **2,854 **
Northern Region Company Owned Leased	1,657 671 3,017 1,221	- - - -	1,657 671 3,017 1,221
Total	4,674 **1,892 **	- -	4,674 **1,892 **
Southern Region Company Owned Leased	1,574 637 2,405 974	- - 1,009 409	1,574 637 3,414 1,382
Total	3,979 1,611	1,009 409	4,988 2,019
Total Company Owned Leased	7,400 2,996 6,903 2,795	- - 2,409 975	7,400 2,996 9,312 3,770
Total	14,303 **5,791 **	2,409 975	16,712 6,766

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Almond Pricing over a 10 year crop period (AUD)

Almond Price Nonpareil SUP 23/25 (AUD/kg)

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(AUD/kg) Historical Rolling Average AUD/kg 5 Year Rolling Average AUD/kg Rollng Average USD vs AUD Linear ((AUD/kg))
$14.00 $9.00
$8.00
$12.00
$7.00
$10.00
$6.00
$8.00 $5.00
$6.00 $4.00
$3.00
$4.00
$2.00
$2.00
$1.00
$- $0.00
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
(AUD/kg) $7.95 $5.63 $6.30 $6.46 $4.69 $5.45 $7.45 $10.02 $12.42 $7.20
Historical Rolling Average AUD/kg $7.95 $6.79 $6.63 $6.59 $6.21 $6.08 $6.28 $6.74 $7.37 $7.36
5 Year Rolling Average AUD/kg $6.21 $5.71 $6.07 $6.81 $8.01 $8.51
Rollng Average USD vs AUD $0.7880 $0.8546 $0.7982 $0.8287 $0.8749 $0.9008 $0.9192 $0.9162 $0.9004 $0.8854
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• This is internal company data. Please note this is a reflection of one nut variety & size, not the total pool return

The combination of currency and price has caused the sharpest price correction in recent history

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Almonds competitively priced against other tree nuts

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Tree Nut Spot Pricing March 2010 vs March 2015 vs March 2016
(USD/lb)
Averaged March 2016 Averaged March 2015 Averaged March 2010
$2.50
Almond $4.55
$2.42
$3.65
Hazelnut $6.80
$2.80
$4.75
Roasted & Salted
$5.35
Pistachio
$3.95
$3.80
Brazil Nut $3.60
$2.40
$3.60
Cashew $3.35
$3.37
$2.55
Walnut $4.65
$3.61
$- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00
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Almond pricing relativity has been restored to historic norms

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US (California) Update

 US Crop Update (2015/16) – mixed start to season

• Industry experienced good chill hours and bloom conditions

• Largest US grower removed 10,000 acres (25% of almond portfolio)

• New plantings indicate growers still transitioning towards more secure water

• NASS Subjective estimate due 10 May 2016. Objective Estimate due 7 Jun 2016

• Mar 2016 Almond Board of California Position Report - 3[rd] highest March shipment ever

• 2015 was 2[nd] hottest year on record, 2014 hottest – additional water requirements – early indications that 2016 will be another hot year as El Nino weakens

• Californian Drought - situation largely unchanged

• Apr 2016 - 32% of California in Exceptional Drought (covers the vast majority of almond growing counties), 55% Extreme Drought

• Californian Snowpack – 2016 snowpack is below average

• 2016 - State (64% of April Avge, 68% of Normal as at today) - North Sierra (67%, 74%), Central (69%/72%), Southern (53%/56%)

• Californian Surface Water – slightly improved conditions

• Initial water allocations have increased for urban use – no significant change for agricultural allocations

• Californian Ground Water – no immediate change.

• Introduction of Sustainable Groundwater Management Act (“SGMA”) will have lasting impact

  • 1 April 2016 – Basins begin Annual Reporting to DWR.

  • 31 Dec 2016 – DWR publishes report on water available for groundwater replenishment.

  • 31 Jan 2020 – High & Medium priority basins (critical conditions of overdraft) must be managed under Groundwater Sustainability Plan (GSP).

Complex situation to understand - change will not be immediate, but is inevitable

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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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Orange States = Severe Drought
86% - South Counties % of US Almond Prod’n Red States = Extreme Drought
Dark Brown States – Exceptional Drought
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Drought Situation is consistent with 2015 – Drought still covers all almond growing counties

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Global Supply - US Almond Production & Drought

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Snow Pack is below average – it will impact Surface Water situation

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Useful Links

Derco Foods http://www.dercofoods.com/en/reports RPAC Almonds http://www.rpacalmonds.com/marketnews/ Blue Diamond Ingredients http://www.bdingredients.com/category/almond-market-analysis/ Almond Investors http://www.almondinvestors.com.au/index.php/almond-projects/almond-price/ UC Davis Almond Development Costings http://coststudies.ucdavis.edu/en/current/

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