SIMONDS GROUP LIMITED — Investor Presentation 2016

Aug 29, 2016

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Simonds Group Ltd Annual results presentation For the year ended 30 June 2016

30 August 2016

	01 Insert divider title 3 A Insert divider title 7 FY16 H ghlights 02 Key Financials 8 03 FY17 Outlook 13

01 FY16 Highlights

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Simonds Group Ltd key results

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Simonds Group has significantly re-set the business with key management changes, a shift of strategic focus and the discontinuation of underperforming businesses

Key Financial Overview

Key Items

$662.9m Total revenue Up $34.1m on prior period

$628.5m Pro Forma[1] revenue Up $51.6m on prior period

• Strong revenue growth driven by record house site starts in Simonds Homes Australia

• Statutory EBITDA impacted by a number of one off factors including:

• Impairments of $8.1 million

• Management restructure costs $2.6 million

• Madisson loss $17.9 million

$(13.5)m EBITDA post one-off items Down $14.1m on prior period

$15.1m

Pro Forma[1] EBITDA Down $22.8m on prior period

• Management restructure with a number of key appointments bringing a wealth of senior executive experience to the Group, including

• Matthew Chun, Group Chief Executive Officer & Managing Director

• Mick Myers, Chief Financial Officer

• Joanne Barber, Group Manager - People and Performance

• Andrew Shea, Chief Executive Officer - Builders Academy Australia

$(14.9)m Net profit after tax Down $4.0m on prior period

$5.3m

Pro Forma[1] NPAT Down $17.9m on prior period

• Orderly closure of Madisson business underway - full impact provisioned

• No final dividend will be paid for FY16

1 Pro Forma adjustments, refer Slide 9

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Strategic priorities

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Re-setting the business for profitable growth

• Following a full review of business operations since appointment of the new CEO (including physical and financial due diligence) a number of areas were identified that required immediate action:

— Key focus areas

• Simplification of organisational structure

• Reduce debt / improve cash flow

• Reduce fixed costs

• Change focus to increasing margin and profitability in addition to existing focus on revenue generation

• Simplification of business across both the product range and locations of operations

— Key achievements to date

• Senior management changes reducing annual overhead costs by $5 million (approx)

• Over $10 million debt reduction in the June quarter of FY16

• Implementation of strict cost control measures throughout organisation reducing annual controllable overhead costs by $2.5 million (approx)

• Alignment and engagement of all staff across the organisation to margin and profitability improvements

• Simplification of business underway

• Shift of strategic focus – from site starts/revenue growth focus to operational efficiency and profitable growth

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Simonds Homes Australia key results

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Record sites starts delivered in FY16

Key Financial Metrics[1]

FY16 Pro Forma EBITDA breakdown per house start ($’000s)

$600.7m Pro Forma[2] revenue Up 11% on prior period

2,545 Site starts Up from 2,471 in FY15

$12.5m Pro Forma[2] EBITDA Down 53% on prior period

120

Total display homes Up from 107 at 30 June 2015

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6.3
(9.5)
(2.6)
10.8
5.0
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FY15 EBITDA Revenue increase COGS increase Overhead increase FY16 EBITDA

Increase in EBITDA component per house start (YoY)[3]

• Housing market fundamentals remain strong

• Market growth and expansion states driving growth in site starts

• However, lower site starts overall were delivered than anticipated due to title delays, display home openings and trade shortages

• Reduction in margin due to inefficiencies in NSW/QLD expansion

• Customisation of house designs helped secure sales but did not deliver higher margins

• Higher overhead costs due to business structured for >2,800 site starts

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11.2%
8.8%
6.0%
Revenue COGS Overhead
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1. Excludes Madisson as it is a discontinuing operation

2. Pro Forma adjustments, refer Slide 9

3. Divestment of displays and non-core development land excluded from analysis

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Builders Academy Australia key results

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Building a sustainable platform

Key Financial Metrics

FY16 total course commencements

$19.1m Pro Forma[1] revenue Down 18% on prior period

$3.6m Pro Forma[1] EBITDA Down 66% on prior period

2,232 3,306 Active students Graduated enrolments Down from 4,155 in FYE15[2 ] Up from 2,267 in FY15

Qualification	Physical	Virtual	Total
Certificate IV in Building & Construction (Building)	910	129	1,039
Diploma of Building & Construction (Building)	702	124	826
Certificate IV in Work Health and Safety	486	37	523
Diploma of Building and Construction (Mgt)	554	38	592
Other courses	297	6	303
Total	2,949	334	3,283

• Significant investment in student experience to aid retention

• Diversification of delivery model with roll-out in late FY16 of Virtual Classroom delivery[3]

• Improvement in governance and management systems and processes with continued focus on embedding a quality framework across all operations

• Extension of course durations to ensure students have sufficient time and support to complete their studies

• Pro Forma adjustments, refer Slide 9

FY16 student profile

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( 1,900 )
3,283
( 3,306 )
4,155
2,232
Opening FY16 Plus: New Less: Less: Closing FY16
active students enrolments Withdrawals Graduations active students
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1. In FY15 students were more commonly enrolled into 2 qualifications from their initial enrolment. In FY16 students are commonly enrolling into their second qualification only when near the completion of their first.

2. Under this model students who are unable to attend face-to-face classes can attend via interactive video conferencing software where they can actively participate in class discussions.

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Land development key results

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Developing a growth pipeline

Key Financial Metrics

Project Status Overview

Direct Holdings

$8.7m Pro Forma[1] revenue Down from $11m in FY16

$(1.0)m Pro Forma[1] EBITDA[2] Down from $(0.7)m in FY16

Portland, Vic

30 lots with civil works complete in July 2016 and settlements anticipated throughout 1HFY17

Bendigo, Vic

17.2Ha site with permit approval for 186 lots

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Current Projects

All underway in Victoria

292

Total lots

To be delivered in FY17 & FY18

Indirect Holding

Minority holding in dedicated Simonds Land Fund Syndicate No. 1, consisting of two seed sites:

1. Mernda, Vic

35 lots with planning approval

Civil works due to commence in September 2016 with settlements expected in 2HFY17

2. Officer, Vic

41 lots with planning approval expected in 1HFY17 and settlements expected in FY18

1. Pro Forma adjustments, refer Slide 9

2. includes Chun Property Advisory contribution for 3 months in FY16

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02 Key Financials

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Financial results summary

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Record revenue levels but operating earnings impacted by increased costs across the business

FY16 Operating earnings reconciliation

FY16 earnings by segment

	Pro Forma1	Pro Forma1	Statutory	Statutory
	FY16	FY15	FY16	FY15
Revenue	628.5	576.9	662.9	628.8
COGS	(496.8)	(438.7)	(542.0)	(486.4)
Gross Margin	131.7	138.2	120.9	142.5
Overheads	(116.6)	(100.3)	(123.7)	(107.5)
EBITDA (pre adjustments)	15.1	37.9	(2.8)	35.0
Significant one-off items	-	-	(10.7)	(34.4)
EBITDA (post adjustments)	15.1	37.9	(13.5)	0.6
Depreciation, Amortisation and	(7.8)	(4.7)	(7.8)	(4.7)
Financing items
Tax benefit / (expense)	(2.0)	(9.9)	6.4	(6.8)
Net Profit After Tax	5.3	23.2	(14.9)	(10.9)

	Group	SHA	BAA	SLD	MPA
Pro Forma EBITDA	15.1	12.5	3.6	(1.0)	-
Impairment of IT project costs	(3.7)	(3.7)	-	-	-
Impairment of non-core development	(1.7)	-	-	(1.7)	-
land
Accelerated impairment of display and	(2.7)	(2.7)	-	-	-
speculative homes inventory
Management restructure costs	(2.6)	(2.6)	-	-	-
Madisson operating loss	(17.9)	-	-	-	(17.9)
Significant items	(28.6)	(9.0)	-	(1.7)	(17.9)
Statutory EBITDA	(13.5)	3.5	3.6	(2.7)	(17.9)
Depreciation, Amortisation and	(7.8)	(6.7)	(1.0)	-	(0.1)
Financing costs
Statutory PBT	(21.3)	(3.2)	2.6	(2.7)	(18.0)
Add back tax benefit	6.4	1.0	-	-	5.4
Statutory NPAT	(14.9)	(2.2)	2.6	(2.7)	(12.6)

1. Pro Forma EBITDA is reported to give information to shareholders that provides a greater understanding of the underlying performance of Simonds Group Limited’s operations, particularly in reference to non-recurring impairment and restructure costs impacting continuing operations.

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Summary of one-off losses and impairments

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Simonds Group has incurred $28.6 million of one-off losses, costs and impairments for the full year as the business is re-set for profitable growth

• Statutory EBITDA has been significantly impacted by impairments totalling $8.1 million, restructure costs of $2.6 million and closure costs of discontinuing operations of Madisson $17.9 million

• Madisson has been heavily impacted by project delivery delays and increased costs to complete the remaining projects, since the decision to discontinue and close Madisson was announced in January 2016

• Pre-tax impairments and other adjustments include:

• Cash and non-cash items relating to the senior management changes announced during FY16;

• Capitalised project and IT costs written off relating to discontinued systems projects;

	Operating EBITDA reconciliation ($m)	FY16
	Operating EBITDA	15.1
	Impairment – IT project costs	(3.7)
	Impairment – display and speculative homes	(2.7)
	Impairment – development land	(1.7)
	Management restructure costs	(2.6)
	Madisson losses	(17.9)
	Significant items	(28.6)
	Statutory EBITDA	(13.5)

• Display and speculative homes and land holdings sold during the June quarter of FY16; and

• Revaluation of the land development portfolio.

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Balance sheet

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Strengthening the Balance Sheet a key focus

• Key drivers of the Net Asset deterioration were the impact of Madisson Projects losses and capital management initiatives

• Receivables and payables in line with the prior period

• Lower inventories due to the release of capital previously held in display and non-core speculative land and home inventory of approximately $25 million in the June quarter of FY16

• Debt increase associated with establishment of $5m facility with Simonds Homes Display Fund managed by Aura Funds Management in September 2015 and increase in lease facilities of $1.5m and CBA Margin Rate Loan facility $2.0m at year end

• No final dividend to be paid for FY16

	Balance Sheet ($m)	30 June 2016	30 June 2015
	Assets
	Cash / Equivalents	3.2	5.5
	Receivables	43.6	45.0
	Inventories	49.6	71.7
	PP&E	9.8	7.4
	Other	17.5	14.6
	Total Assets	123.7	144.2
	Liabilities
	Trade / other payables	75.6	75.7
	Debt	11.3	2.8
	Provisions	21.5	18.2
	Other	18.6	20.8
	Total Liabilities	127.0	117.5
	Net Assets	(3.3)	26.7

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Cash flows

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Positive operating cash flow

• Growth in receipts from customers reflects sales growth and proceeds from the disposal of display homes and non-core development land holdings

• Payments to suppliers grew in line with growth in COGS

• Investment activities included the investment in the Simonds Land Fund Syndicate No. 1 of $1.2 million

• Net cash flows from financing activities included the proceeds from borrowings of $7.0 million relating to the Simonds Land Fund Syndicate No. 1 and CBA financing, offset by dividend payment of $7.9 million and share buyback of $8.0 million made during FY16

• Focus remains on debt reduction opportunities

	Summary cash flows ($m)	FY16	FY15
	Cash flows from operating activities
	Receipts from customers	664.0	609.0
	Payments to suppliers / employees	(637.7)	(603.9)
	Interest paid	(2.2)	(1.0)
	Income taxes paid	(9.2)	(10.3)
	Net cash generated from operating activities	14.9	(6.2)
	Net cash from investing activities	(7.3)	(8.4)
	Net cash from financing activities	(9.9)	4.2
	Net decrease in cash	(2.3)	(10.4)
	Cash / Equivalents at end of the period	3.2	5.5

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03 FY17 outlook

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FY17 outlook

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Positive FY17 outlook

• FY17 has commenced strongly:

• Significant visibility into FY17 Simonds Homes Australia pipeline and Builders Academy Australia enrolments

• Increased maturity into NSW and QLD markets

• Further roll-out of virtual classroom and VET Fee Help courses in Builders Academy Australia

• Closure of Madisson business with all anticipated future losses already provisioned in FY16

• Operating cost saving initiatives (commenced in 2HFY16) aimed at removing surplus overheads from the business

• Focusing on reducing debt levels and executing on core activities

• Significant challenges remain including operational environment in NSW and QLD and the regulatory environment relating to the vocational education sector

• Priority is re-setting the foundations and strengthening the business

• Sharp focus on simplification of core product and locations

• Greater collaboration and new ways of working together across the business

• Disciplined cost controls embedded and regular reporting against KPIs by management

• Overheads reset to be more flexible in line with operation levels and key metrics set for each area

• Streamlining of student enrolment and on boarding processes

Simonds Homes Australia sales pipeline

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2,522
282
701
2,545
1,227
312
FY16 Actual Site Starts FY17 Pipeline
Site started Contract signed Sales accepts Deposits
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Builders Academy Australia active enrolments

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3,606
2,784
2,232
822
FYE16 Active Enrolments Enrolled & Registered as at 23 Aug '16
Active Enrolments Enrolled & Registered
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Important notice and disclaimer

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While every effort is made to provide accurate and complete information, Simonds Group Ltd does not warrant or represent that the information in this presentation is free from errors or omissions or is suitable for your intended use. The information provided in this presentation may not be suitable for your specific situation or needs and should not be relied upon by you in substitution of you obtaining independent advice. Subject to any terms implied by law and which cannot be excluded, Simonds Group Ltd accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in information in this presentation. All information in this presentation is subject to change without notice.

The material contained in this presentation is for information purposes only and does not constitute financial product advice. The information contained in this presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Before making any investment decision, you should consider, with or without the assistance of a financial advisor, whether an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Nothing in this presentation is a promise or a representation as to the future. Statements or assumptions in this presentation as to future matters may prove to be incorrect and the differences may be material.

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For more information contact us at: Telephone: +61 3 9682 0700

Mailing address: Locked Bag 4002 ~~South Melbourne VIC 3205~~ 01 Insert divider title A Insert divider titlePhysical address: ~~Level 1, 570 St Kilda Road~~ Melbourne VIC 3004

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www.simondsgroup.com.au

Thank you