SIMONDS GROUP LIMITED — Investor Presentation 2020

Nov 23, 2020

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Important Notice and Disclaimer

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This presentation is authorised by the Board of Simonds Group Limited (Company) and is current as at the date of the cover page. It is solely based on, and should be read in connection with, information contained on other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange (ASX) by the Company by which are available at www.asx.com.au. In particular, it should be read in conjunction with the Notice of Meeting dated 8 October 2020 (NoM) that has been dispatched to shareholders in respect of the Annual General Meeting of the Company scheduled for 24 November 2020 (AGM).

This presentation is intended to provide a summary of certain information contained in the NoM and in the [Company’s 2020 Annual Report]. As a summary, the information about these matters contained in this presentation is not complete and does not purport to be complete. The NoM should be read in its entirety and considered carefully by each shareholder before making a decision on how to vote on the Resolutions to be put to the AGM. The Company is under no obligation to update the presentation and the information in this presentation remains subject to change by the Company in its absolute discretion and without notice. To the maximum extent permitted by law, the Company and its advisers make no representation and give no assurance, guarantee or warranty, express or implied, as to, and take no responsibility and assume no liability for, the authenticity, validity, accuracy, suitability or completeness of, or any errors in or omissions, from any information, statement or opinion contained in the presentation.

This document has been prepared without regard to the specific investment objectives, financial situation or needs of any recipient of this presentation. Each recipient should consult with, and rely solely upon, their own legal, tax, business and/or financial advisors in connection with any decision made in relation to the information contained in this presentation.

This presentation contains certain forward-looking statements. Forward-looking statements include those containing words such as “anticipate”, “believe”, “expect”, “project”, “forecast”, “estimate”, “likely”, “intend”, “should”, “could”, “may”, “target”, “plan”, “consider”, “foresee”, “aim”, “will” and other similar expressions. Other forward-looking statements can be identified in the context in which the statements are made. Any forward-looking statements, opinions and estimates provided in this presentation are based on assumptions and contingencies which are subject to change without notice and involve known and unknown risks and uncertainties and other factors which are beyond the control of the Company. To the maximum extent permitted by law, the directors of the Company, the Company and any of its related bodies corporate and affiliates, and their officers, partners, employees, agents, associates and advisers disclaim any obligations or undertaking to release any updates or revisions to the information in this presentation to reflect any change in expectations or assumptions, do not make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of such information, or likelihood of fulfillment of any forward-looking statement or any event or results expressed or implied in any forward-looking statement, and disclaim all responsibility and liability for these forward-looking statements (including, without limitation, liability for negligence).

Nothing contained in this presentation constitutes investment, legal, tax or other advice.

None of the information contained in this presentation constitutes an offer of, or a proposal or an invitation to make an offer of, any security.

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FY20: A year of two distinct halves

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FY20 a challenging year:

• FY20 Revenue and earnings were impacted by subdued market conditions and restricted lending environment in the first half of 2019

• Solid performance with a strong focus on cost controls and investing in developing new business channels

• Signs of the recovery in the market in early 2020

• COVID-19 pandemic impacted traffic through display homes and required changes to onsite work requirements from March 2020

• Due to our balance sheet position and lead times associated with building homes , the impact was not immediately felt by the business

• Our staff have shown resilience , adapting to the new norm of working from home and continuing to focus on customer service

• Safety onsite has remained of paramount importance through this period

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FY20 Full Year Financial Results

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Continued focus on safety and building a high performance culture

Revenue decreased 3.3% primarily due to lower site starts and changes in product mix

EBITDA increased by $8.3m, with lower site starts offset by the impact of the new leasing standard

Positive cashflows generated from operations enabling debt reduction

1. “EBITDA” is net profit before tax from continuing operations before financing items, depreciation and amortisation (D&A).

2. FY20 EBITDA excludes the impact of leases capitalised in accordance with the requirements of AASB 16, resulting in $14.1m previously presented within EBITDA now reported within Depreciation & Amortisation (D&A) and Interest expense. Refer to appendix for further information on this change in accounting treatment.

3. 3.NPAT from continuing operations excludes the results of discontinued operations, which relate to Madisson Projects, which became a discontinued operation in FY17.

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Group Earnings Update

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----- Start of picture text -----

EBITDA
35
31.5
30
25 23.2
14.1
20
15 13.7
10.1
10
17.4
4.4
5
0
$m
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
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1. EBITDA represents earnings before interest, tax, depreciation and amortisation (D&A) from continuing operations and excluding Madisson Projects, which became a discontinued operation in FY17.

2. FY20 EBITDA excludes the impact of leases capitalised in accordance with the requirements of AASB 16, resulting in $14.1m previously presented within EBITDA reported within D&A and Interest expense. Refer to appendix for further information on this change in accounting treatment.

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Simonds Homes Results FY20

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Key Metrics

Revenue EBITDA[1] $652.6m $28.8m down $24.3m (-3.6%) up $7.0m (+32.1%) from $676.9.m from $21.8m

Site starts impacted by subdued market conditions in 2019 and challenges presented by the COVID-19 pandemic

Revenue and EBITDA impacted by lower site starts and investment in marketing existing & new sales channels

EBITDA benefited from supply chain support and efficiencies as well as implementation of the new leasing standard

Site Starts[2] 2,395 down 185 (-7.2%) from 2,580

Displays 115 down 2 from 117

Future growth underpinned by streamlining the product range and development of innovative new products

Significant investment made in FY20 to market and develop existing and new channels

1. EBITDA excludes the impact of leases capitalised in accordance with the requirements of AASB 16, resulting in $14.0m previously presented within EBITDA reported within D&A and Interest expense. Refer to appendix for further information on this change in accounting treatment.

2. Excludes any display or speculative home starts.

Note: All comparisons are to the prior corresponding period (pcp) unless otherwise stated.

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Education Results for FY20

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Key Metrics

Revenue EBITDA[1] $11.9m $2.4m up $1.7m (+16.7%) up $1.2m (+100.0%) from $10.2m from $1.2m

BAA obtained approval to deliver 3 qualifications to international students under CRICOS with initial delivery occurring in 2HFY20

The number of students studying via an Apprenticeship or Traineeship model has doubled during the period

A new video content-based, Self-Paced Online model was launched in Q1FY20 increased turnover in 2HFY20

Course Enrolments 2,479 up 649 ( +35.5%) from 1,830

Graduates 734 down 154 (+26.6%) from 580

BAA’s registration approval for delivery under the Australian Skills Quality Authority ( ASQA ) was extended for the maximum period available of 7 years

BAA approved to deliver a broadened range of qualifications including Project Management, Sales & Marketing, Leadership & Management, Painting & Decorating and Bricklaying expected to generate additional revenue in FY21

1. EBITDA excludes the impact of leases capitalised in accordance with the requirements of AASB 16, resulting in $0.1m previously presented within EBITDA reported within D&A and Interest expense. Refer to appendix for further information on this change in accounting treatment.

Note: All comparisons are to the prior corresponding period (pcp) unless otherwise stated.

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Balance Sheet

	30-Jun-20	30-Jun-19
	$m	$m
Cash / Equivalents	28.3	9.7
Receivables	29.3	27.4
Tax receivable	-	1.1
Accrued revenue	34.4	53.7
Inventories	34.2	35.5
PP&E	6.2	8.0
Intangible assets	8.8	6.4
Other	1.8	2.8
Right-of-use assets	22.7	-
Deferred tax assets	0.6	-
Total Assets	166.3	144.6
Liabilities
Trade / other payables	80.6	78.1
Deferred revenue	1.6	0.8
Customer deposits	12.0	15.3
Lease liabilities	22.6	-
Borrowings	0.3	10.9
Provisions	25.2	22.0
Taxes	6.7	6.1
Total Liabilities	149.0	133.2
Net Assets	17.3	11.4

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Balance sheet strengthened by earnings, and the continued focus on working capital management and debt reduction

Inventories , comprising land and display homes under construction / available for sale, decreased by $1.3m

Investment in intangible assets reflect the investment in software & systems , product development and training course materials

Net assets increased by $5.9m as a result of positive operating results and working capital management

Headroom under the CBA facilities of $54.7m at 30 June 2020

The new leasing standard with effect from 1 July 2019, resulting in the recognition of a “right to use” asset of $22.7m and a liability of $22.6m

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Cash Flows for the Full Year

	30-Jun-20	30-Jun-19
	$m	$m
Cash flows from operating activities
Receipts from customers	726.6	745.4
Payments to suppliers / employees	(674.2)	(733.7)
Interest paid	(1.5)	(1.3)
Income taxes(paid)/refunded	(1.9)	(4.4)
Net cash generated from operating
activities	49.0	6.0
Net cash used in investing activities	(8.6)	(3.5)
Net cash (used in)/from financing activities	(21.8)	0.2
Net increase / (decrease) in cash	18.6	2.7
Cash / Equivalents at beginning of the
period	9.7	7.0
Cash / Equivalents at end of the period	28.3	9.7

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Cash from operating activities reflect continued focus on strong cash management controls Payment to Suppliers are lower in FY20 as a result $14.1m lease payments reclassified as financing activities under the new lease accounting standard Increase in cash used in investing activities mainly relates to computer systems & software , product development and course development costs Cash used in financing activities reflect reclassification of $14.1m lease payments from operating activities under the new lease standard and the repayment of $5.0m to the Simonds Display Fund

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Key Levers for Delivering Shareholder Value

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Innovation

Alternative Sales Channels

Finance First Solutions

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Wellness

Corporate Social Responsibility

High Performing Culture

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Current Trading Conditions

FY21 economic and operating conditions:

• COVID-19 pandemic continues to create uncertainty

• COVID-19 has presented challenges in predicting the speed and timing of a recovery

• Federal and State Government stimulus packages are expected to mitigate the impacts on customer finances

• New sales channels have commenced and are expected to deliver revenue and cashflows in FY21 and beyond

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Appendix: Impact of AASB 16 Leases Accounting

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Continuing operations: $m Revenue Expenses1 EBITDA Depreciation and amortisation charges2 Net Profit Before Interest & Tax Interest expense3 Profit before Tax Tax expense Net Profit After Tax (NPAT) Earnings per share (Basic cents) Net tangible assets4 Net tangible assets per share (cents) Cash flows from operating activities5 Cash flows from financing activities Net cash flows	Post AASB 16 AASB 16 Pre AASB 16 30 Jun 30 Jun 2020 Impact 30 Jun 2020 2019 664.8 - 664.8 687.7 (122.5) (14.1) (136.6) (130.8) 31.5 (14.1) 17.4 23.2 (19.1) 13.2 (5.9) (4.7) 12.4 (0.9) 11.5 18.5 (1.5) 0.8 (0.7) (1.3) 10.9 (0.1) 10.8 17.2 (3.8) 0.0 (3.8) (5.5) 7.1 (0.1) 7.0 11.7 4.95 (0.10) 4.89 8.16 8.4 (0.1) 8.4 5.0 5.84 0.00 5.84 3.48 49.0 (14.1) 34.9 6.0 (21.8) 14.1 (7.7) 0.2 18.6 - 18.6 2.7	Movement % change (22.9) (3%) (5.8) 4% (5.8) (25%) (1.2) 26% (7.0) (38%) 0.6 (46%) (6.4) (37%) 1.7 (31%) (4.7) (40%) (3.27) (40%) 3.4 68% 2.36 68% 28.9 482% (7.9) (3950%) 15.9 589%

1. Expenses impacted by AASB 16 as payments for leasing of commercial offices, display homes, display home furniture and motor vehicles are no longer reflected in EBITDA.

2. Straight-line depreciation of the right-of-use assets over life of leases mentioned above, commencing from 1 July 2019.

3. Lease payments are discounted using incremental borrowing rate at AASB 16 transition date (1 July 2019) and rate implicit in the lease for leases commenced or renewed after 1 July 2019.

4. Net tangible assets (NTA) have been impacted by the recognition of $22.7m right-of-use assets and $22.6m lease liability, which has also impacted the calculation of NTA per share.

5. Cash flows from operating activities have been impacted by lease payments previously reported in cash flows from operating activities now reported in cash flows from financing activities.

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For more information contact us at:

Telephone: +61 3 9682 0700

Mailing address: Locked Bag 4002 South Melbourne VIC 3205

Physical address: Level 1, 570 St Kilda Road Melbourne VIC 3004

www.simondsgroup.com.au

Authorised for lodgement by the SIO Board

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