VERIS LIMITED — Capital/Financing Update 2015

Apr 6, 2015

Acquisition of THG Expanding into Queensland April 2015

Disclaimer

This Document should not be considered as an offer or invitation to subscribe for or purchase any securities in OTOC Limited (“OTOC” or “The Company”) or as an inducement to make an offer or invitation with respect to those securities. No agreement to subscribe for securities in OTOC should be entered into on the basis of this Document.

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1. Executive Summary

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Executive Summary

• OTOC is acquiring the business and assets of THG WSG Pty Ltd ( THG ) , a Queensland surveying and planning consultancy, for up to $4.4m (the Acquisition )

• Strategic expansion into Queensland

TRANSACTION OVERVIEW

• Purchase price comprises $2.2m in cash (funded from existing cash reserves) and $0.4m in OTOC shares, with up to $1.8m in cash payable subject to THG achieving performance hurdles

• Up-front purchase price represents a multiple of approximately 3.25x EBIT and 2.25x EBITDA based on THG’s forecast earnings for the year ended 30 June 2015[1]

• Approximately 50% of the purchase price is in OTOC shares and performance payments, aligning THG management to ongoing earnings performance

• Expected to be earnings per share accretive in FY2016

• Strategy: delivering on strategy of creating a premium national surveying business

• Expansion into Queensland: market leadership in land and cadastral surveying

• Unique market presence: exposure to key growth corridors in Queensland

• Clients: blue-chip property developers and government agencies

STRATEGIC RATIONALE

• Management: experienced management team aligned to future performance

• Outlook: leveraged to projected growth in Queensland property market and exposure to investment in government, infrastructure, tourism, agriculture and resources projects

• Synergies: premium land surveying businesses in Western Australia, Victoria and Queensland, enabling OTOC to offer an integrated service for national property developers

• Diversification: further diversifies OTOC’s geographic and industry exposure, with reduced reliance on resources sector and contracting work

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Note 1: Based on estimated EBIT of $0.8m and EBITDA of $1.15m for the year ended 30 June 2015

Pro-Forma Group Structure

OTOC is an Emerging Diversified Infrastructure Services Group

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Delivering on strategy
of creating a premium
multi-disciplinary
national surveying
business
Surveying, Aerial Surveying & Town Planning
Infrastructure Communications Facilities
Pro-Forma Capital Structure
Shares on issue 264.3m
Survey Survey
Market capitalisation at $0.08/sh $21m Acquisition Acquisition
Targets Targets
Cash (pro-forma 31 Dec) $11m
Net Debt (pro-forma 31 Dec) $7m
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2. Overview of THG

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Background

THG is a leading Queensland surveying and planning consultancy

• Established in Brisbane in the 1970s as Graham Di Heilbronn Associates (later rebranded Heilbronn & Partners)

• Expertise in land and cadastral surveying

• Acquired Whitsunday Surveys (Mackay and Proserpine) in 2012 and Charles O’Neill Surveys (Cairns) in 2014, providing geographic and end-user diversification

• Key THG executives each have over 25 years experience and will remain with the business post Acquisition

• Approximately 49 staff

• Diversified blue-chip customer base including:

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Locations

Offices in key growth corridors, underpinned by a leading position in Brisbane and south-east Queensland

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•
•
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CAIRNS
TOWNSVILLE
PROSERPINE
MACKAY
GLADSTONE
TOOWOOMBA BRISBANE
GOLD COAST
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Far North Queensland

• 12 staff in Cairns office

• Government and Community infrastructure focus

• Significant growth opportunity – Cairns population forecast to double by 2050

• Few competitors

• Positioned to benefit from proposed tourism projects such as the Aquis resort

North Queensland

• 13 staff in Mackay and Proserpine

• Diversified industry exposure – property, infrastructure, mining, agriculture, tourism

• Adani coal project and associated infrastructure investment would be a major stimulus for the region

South-East Queensland

• 24 staff in Brisbane office

• Planning, surveying and urban design

• Recognised experts in property and broad acre land developments in south-east Queensland

• Significant uptick in residential dwelling approvals

Key:  THG Office

[QLD Regional Centre]

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Queensland Property Market

• Early stages of an upswing, following many years of depressed activity following the GFC

• Residential dwelling approvals have improved significantly, with a number of large developments planned

• New dwelling commencements forecast to increase by 15% in 2014/2015 ( Housing Institute of Australia)

• Affordability has improved relative to other cities (i.e. Sydney) and rental vacancies remain tight

• Activity concentrated in Brisbane and south-east growth corridor

Queensland Investment in Housing

Queensland Residential Dwelling Approvals

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20
18
16
14
12
10
8
6
4
2
0
Value of work done ($ millions)
2003/04a 2004/05a 2005/06a 2006/07a 2007/08a 2008/09a 2009/10a 2010/11a 2011/12a 2012/13a 2013/14a 2014/15f 2015/16f 2016/17f 2017/18f
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Sources: Housing Institute of Australia, Australian Bureau of Statistics

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2,500
2,000
1,500
1,000
500
0
Jan-2011 Apr-2011 Jul-2011 Oct-2011 Jan-2012 Apr-2012 Jul-2012 Oct-2012 Jan-2013 Apr-2013 Jul-2013 Oct-2013 Jan-2014 Apr-2014 Jul-2014 Oct-2014 Jan-2015
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3. Strategic Rationale

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Acquisition Highlights

Delivering on OTOC’s National Surveying Strategy



Expansion in targeted geographic market  Premium brand and market leadership  Complementary blue-chip client base

Complementary blue-chip client base

 Synergies - integrated service offering for national property developers  Proven management team that will remain with the business

 



Management aligned with performance consideration and OTOC shares

Balance sheet strength maintained Expected to be earnings per share accretive in FY2016

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National Surve in Strate y g gy

Compelling Strategic Rationale

Fragmented Market

• •Market size c. $3.4bn

Diversification

• •Diversified end-user exposure: land, urban development, civil infrastructure, government, resources

• •Creating a national business that is diversified from any State-specific exposure and can respond to changing market conditions

Enhanced Product Offering

• •Integrated service offering for national clients - key differentiator and value add product

• •Distribution channel to underpin specialist equipment and technology

• •Critical mass to offer specialist surveying services – high margins

• •Many small firms contesting narrow geographic or technical markets

Financial Returns

• •Recurring revenue base and solid growth

• •Acquisitive growth: platform acquisitions (State) and bolt-on targets

• •Attractive earnings margins 15%+

• •No competitors pursuing a roll-up strategy

• •Low capital investment required

• •Strong free cash flow to fund organic growth, acquisitions, and returns to OTOC shareholders

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Synergistic Growth

• •National client service offering

Employees

• •Cross-selling between geographic markets and service capabilities (e.g, land/infrastructure, aerial mapping)

• •Long-term employment contracts with key principals

• •Centralised IT, finance, HR and OH&S

• •Enhanced professional development opportunities

• •Best practice technology and systems

• •Procurement savings

• •Attract, retain and incentivise top talent

• •Industry leaders and technical specialists – greater profitability

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National Surveying Strategy

Creating a Premium Multi-Disciplinary National Surveying Business

	WA VIC NSW	WA VIC NSW	WA VIC NSW	WA VIC NSW	WA VIC NSW	QLD	QLD	QLD
	Land/Urban			Acquisition Targets				Organic Growth/ Acquisitions
	Resources		Not Applicable					Organic Growth/ Acquisitions
	Civil Infrastructure							Organic Growth/ Acquisitions
	Surveying Technology
	Aerial Mapping Laser Scanning

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National Surve in Strate y g gy

Acquisitions Highly Complementary to National Strategy Premium East Coast Business

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New South Wales, Queensland, Location Victoria Queensland Western Australia Industry Focus Land and urban development Civil infrastructure Land and urban, infrastructure Founded 1997 2001 1976 Key Clients

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Purchase Price	$17.0m	$12.0m	$4.4m
Cash Paid	$13.0m	$7.0m	$2.2m
Share Consideration	$1.0m	$2.5m	$0.4m
Performance Payments	$3.0m over 2 years	$2.5m over 2 years	$1.8m over 2 years
Performance Hurdle	$3.5m EBITDA	$3.0m EBIT	$0.8m EBIT

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National Surveying Strategy

Pursuing an Integrated Service Offering for National Property Developers

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	✓	✓
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National Surve in Strate y g gy

Substantial Growth Opportunity

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Long-Term Target
Annual Revenue $150m
Bolt-on
Acquisitions
Platform
Acquisitions
Current Surveying Revenue
Businesses Synergies
Organic Growth
Annual Revenue $50m-$60m
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4. Acquisition Terms & Funding

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Acquisition Terms

Management aligned to ongoing performance with 50% of the purchase price in OTOC shares and performance payments

Key Term	Detail
Structure	• Acquisition of the business and assets of THG for up to $4.4m
Purchase price (cash)	• $2.2m payable at completion • Reduced by the after-tax value of employee entitlements (circa $400k)
Purchase price (OTOC shares)	• $0.4m in new fully paid ordinary OTOC shares to be issued at completion • 4.2m shares to be issued at 20-day pre-announcement VWAP of $0.096 • Shares subject to a voluntary escrow period of 12 months
Purchase price (performance)	• Performance payments of up to $1.8m in cash payable over 2 years • If EBIT is at least $0.8m in a performance period, the performance payment would be $0.5m plus $1.0 of performance payment per $1.0 of EBIT over $0.8m, up to a maximum EBIT of $1.2m (i.e. max. payment of $0.9m in any period) • Eg.: if EBIT is $1.0m in a performance period, the performance payment would be $0.5m + ($1.0m-$0.8m) = $0.7m • The first performance period is expected to commence in May 2015
Employment contracts	• The principals of THG will enter into employment contracts with customary restraint clauses
Conditions Precedent	• Execution of principal employment contracts • At least 90% of THG’s employees (other than principal employees) accept offers of employment • Other customary conditions precedent (i.e. transfer of assets, consents, assignment of contracts)
Completion	• Completion is expected prior to 15 May 2015 following satisfaction of conditions precedent

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Valuation and Funding

• Up-front purchase price of $2.6m represents a multiple of approximately 3.25x EBIT and 2.25x EBITDA based on THG’s forecast earnings for the year ended 30 June 2015

• FY15 estimated revenue: ~$8.0m, EBITDA ~$1.15m , EBIT ~$0.8m (based on unaudited management accounts and projections)

• With THG, the annual revenue of OTOC’s combined surveying business is expected to be circa $50m-$60m:

Estimated annual revenue	$m	$m
Whelans 21.0 24.0
Bosco Jonson 12.0 14.0
Geo-Metric 11.0 13.0
THG 8.0 10.0
Total ~52.0 ~61.0

• Pro-forma balance sheet:

$m	OTOC 31 Dec	Acquisition	OTOC Pro-Forma
Cash 13.0 (1.8) 11.2
Facilities (Drawn)
Hire Purchase 8.5 0.5 9.0
CBA Commercial Bills 9.0 9.0
Net Debt 4.5 6.8

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Note 1: Up-front cash consideration ($2.2m) less after-tax value of employee entitlement (circa $0.4m) Note 2: OTOC will assume THG’s hire purchase obligations (circa $0.5m)

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4. Conclusion

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Conclusion

Acquisition of THG is expected to provide strategic and financial benefits

• The Acquisition of THG provides OTOC with a leading position in the Queensland surveying market

• Compelling strategic rationale:

• ✓ Highly complementary to OTOC’s existing surveying business and national strategy

• ✓ Market leading position in Queensland

• ✓ Presence in key growth corridors

• ✓ Leveraged to improving property market

• ✓ Experienced management team aligned to future performance

• ✓ Further diversification of group revenue and earnings

• ✓ Expected to be EPS accretive in FY16

• OTOC has established a strong position in the East Coast with high quality surveying businesses in Victoria, New South Wales and Queensland

• OTOC’s immediate focus is on integrating its surveying businesses and targeting growth opportunities, such as a joint service offering for national property developers

• OTOC is well positioned to continue to advance its national surveying strategy and will continue to search for acquisition targets that align with the objectives of enhancing the Group’s geographic reach, product capability, and earnings profile, while retaining balance sheet strength

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