Investor

Presentation

Half Year Results December 2019 HRL Holdings (ASX:HRL)

DISCLAIMER

This presentation is not a prospectus nor an offer for securities in any jurisdiction nor a securities recommendation. The information in this presentation is an overview and is based on publicly available information and internally developed data and does not contain all information necessary for investment decisions. In making investment decisions in connection with any acquisition of securities, investors should rely upon their own examination of the assets and consult their own legal, business and/or financial advisors and should not be relied on in connection with a decision to purchase or sell any securities.

The information contained in this presentation has been prepared in good faith by HRL Holdings Limited ("HRL") however, no representation nor warranty expressed or implied is made as to the accuracy, correctness, completeness or adequacy of any statements, estimates, opinions or other information contained in this presentation.

Investment in HRL is subject to investment risk, including possible loss of income and capital invested. The occurrence of events in the future are subject to risks, uncertainties and other factors that may impact HRL's actual results, performance or achievements to differ from those referred to in this presentation. Neither HRL, nor any other member company of the HRL Group, nor any officer or employee guarantees any particular rate of return or performance, nor do they guarantee the repayment of capital. Further, they do not give any assurance or guarantee that the occurrence of the events referred to in this presentation will actually occur as contemplated.

The presentation may contain forward-looking statements regarding the potential of the Company's revenues, projects, interests and the development potential of the Company's business. Any statement describing a goal, expectation, intention or belief of the Company is a forward-looking statement and should be considered an at-risk statement. Given these risks, readers are cautioned not to rely on forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements due to many important factors, risks and uncertainties including, without limitation, risk associated with product sales, development and manufacture, risks inherent in the business, future capital needs, general economic uncertainty and other risks detailed from time to time in the Company's announcements to the ASX.

HRLInvestor Presentation | Half Year Results December 2019

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HRL Overview

HRLInvestor Presentation | Half Year Results December 2019

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WHO WE ARE

WHAT WE DO

BRANCH NETWORK

Data

Sampling

Laboratory

Management

LABORATORY SERVICES

Geotech and

Occupational

Construction

Food

Materials

Environmental

Hygiene

Laboratory locations:

Brisbane - Darra

Brisbane - Yatala

Sunshine Coast

Darwin

Auckland

Wellington

Christchurch

Dunedin

Hamilton

Consulting offices

Palmerston North

HRLInvestor Presentation | Half Year Results December 2019

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OUR MAJOR SHAREHOLDERS

Shareholder composition:

Substantial holder notices >5%

Board and management ~18%

Institutional~58%

Other

~24%

Viburnum Funds

23%

Perennial Value

15%

AustralianSuper

6%

Entities associated

7%

with Terry Cooney

HRLInvestor Presentation | Half Year Results December 2019

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FINANCIAL HIGHLIGHTS

H1 FY20

H1 FY19

INCREASE

$000's

$000's

$000's

(Pre AASB 16)2

(Pre AASB 16)2

Revenues

16,288

14,104

2,184

Underlying EBITDA

2,600

711

1,889

Underlying NPAT

1,056

(139)

1,195

Operating cash flows generated 3

3,528

(58)

3,586

Working capital 4

810

524

286

Statutory loss after tax 1

(2,728)

(4,226)

1,498

H1 FY20

$000's

(Post AASB 16)

16,288

3,080

1,056

3,940

810

(2,728)

  1. Underlying EBITDA, EBIT and NPAT reflects statutory profit as adjusted to reflect the Directors' assessment of the result for the ongoing business activities of the Group, in accordance with AICD/Finsia principles of recording underlying earnings. Underlying profit measures have not been audited. Refer to Appendix A for further details of non-underlying items. Statutory loss includes non-operating items as detailed in Appendix A, with the majority comprising the Analytica earnout ($2.2M) and amortization of acquisition intangibles ($1.6M).
  2. During the period HRL adopted the new leasing standard AASB 16. Comparative figures were not restated. For comparability, the above figures have been calculated before adjustments arising under AASB 16. Refer to Appendix B for further details.
  3. Excludes cash outflows associated with earn-out payments.
  4. Working capital is defined as net current assets, excluding an interest only loan drawn to $2.3M which has no expiry but is subject to annual review by Westpac.

HRLInvestor Presentation | Half Year Results December 2019

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SOCIAL

RESPONSIBILITY

Continued focus on

safety with 28% reduction in total reportable injuries

No uncontrolled

Diverse workforce with

environmental releases

46% female

HRLInvestor Presentation | Half Year Results December 2019

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H1FY2020 Highlights

HRLInvestor Presentation | Half Year Results December 2019

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SEGMENT PERFORMANCE - H1FY20

TRADING DIVISIONS

CORPORATE

CONSOLIDATED

HAZMAT

GEOTECH

FOOD/ENVIRO

SOFTWARE

TOTAL

LABORATORY

$000's

$000's

$000's

$000's

$000's

$000'S

$000's

Revenues

4,723

3,526

7,557

438

16,280

-

16,280

Underlying EBITDA before AASB 16 ($)

1,272

90

1,865

240

3,467

(867)

2,600

Underlying EBITDA (%)

27%

3%

25%

55%

21%

-

16%

Operating depreciation and amortisation

(219)

(113)

(701)

(37)

(1,070)

(5)

(1,075)

Net interest expense

(31)

(7)

7

-

(31)

(101)

(132)

Underlying profit before tax

1,022

(29)

1,170

203

2,366

(973)

1,393

Operating income tax

(281)

8

(328)

(57)

(658)

321

(337)

Underlying profit after tax

741

(21)

843

146

1,709

(652)

1,056

Non-operating adjustments

Analytica earn-out expenses

-

-

(2,158)

-

(2,158)

-

(2,158)

Amortisation of intangible assets arising from acquisitions

-

(295)

(912)

(281)

(1,488)

-

(1,488)

Lapsed performance shares

-

-

-

-

-

(21)

(21)

Share of loss - equity accounted investments

-

-

(268)

-

(268)

-

(268)

Non-operating income tax

-

258

254

-

335

(185)

150

Statutory profit after income tax

741

(235)

(2,242)

(135)

(1,870)

(858)

(2,728)

HRLInvestor Presentation | Half Year Results December 2019

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H1FY20: STRONG FINANCIAL PERFORMANCE

+265% $2.6M $3.5M

EBITDA recovery

Underlying EBITDA (pre

Cashflow from operations

continues and up 265% on

AASB 16) upper range of

excluding vendor earnout

PCP

guidance*

payments

*AGM guidance range of $2.4M - $2.7M

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H1FY20: RESULTS ON TRACK

  • Revenue and profitability continues to improve following on from H2FY19
  • Strong revenue growth from both existing and new services lines across HAZMAT, laboratories and software divisions

Half Year Results - Revenue

$17,000,000

$16,500,000

$16,000,000

$15,500,000

$15,000,000

$14,500,000

$14,000,000

$13,500,000

$13,000,000

$12,500,000

1st half

2nd half

1st half

2nd half

1st half

FY2018

FY2018

FY2019

FY2019

FY2020

  • Performance still weak in Geotech division
  • Well placed to continue momentum into the seasonally stronger 2nd half. Historically revenues have been split 35/65 1st half to 2nd half
  • FY20 broker consensus* $6.975m EBITDA

$5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000

$500,000 $-

Half Year Results - EBITDA

1st half FY2018

2nd half

1st half FY2019

2nd half

1st half FY2020

FY2018

FY2019

EBITDA

EBITDA (Adjusted for AASB 16)

*Canaccord Genuity $6.9m 17/10/2019, Morgans $7.1m 17/10/2019, Bell Potter $7.1m 12/12/2019, Taylor Collison $6.8m 29/11/2019

* FY2018 figures are on a pro-forma basis including the full 12-month trading results for Analytica.

HRLInvestor Presentation | Half Year Results December 2019

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MARGIN PERFORMANCE RECOVERED

EBITDA Margins of HRL Peer Group (last 12 months)

25%

20%

15%

10%

5%

0%

HRL

ALS

Applus

Bureau Cardno Eurofins Intertek Mistras

SGS

Veritas

Source: Latest 12-month results from publicly released reports

HRL • Investor Presentation | Half Year Results December 2019

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CASH FLOW

H1 FY20

H1 FY19

H1 FY20

$000's

$000's

$000's

(Pre AASB 16)2

(Pre AASB 16)2

(Post AASB 16)2

EBITDA

2,600

712

3,080

Working capital movements

1,571

106

1,562

Income tax payments

(505)

(884)

(505)

Net interest costs

(138)

(15)

(196)

Operating cash flows generated

3,528

(81)

3,941

CAPEX investments

(501)

(741)

(501)

Investments in Food Lab joint venture

(135)

-

(135)

Analytica earn out payments

(2,584)

-

(2,584)

Bank debt/lease repayments

(88)

(495)

(501)

Net increase/(decrease) in cash

220

(1,317)

220

Opening cash

1,031

5,393

1,031

FX movements

5

135

5

Closing cash

1,256

4,211

1,256

c

Operating cash flow up $3.6M

  • 265% increase in EBITDA
  • Strong debtor recovery
  • Disciplined working capital management
  • Lower tax payments due to weaker FY2019

Analytica earn out complete

  • Final earn out payment made in Nov 2019
  • Total of $11M NZD paid through CY2019
  • Funded through bank facilities and internal cash flow
  • 2nd half cash flows available for capital investment and debt reduction

HRLInvestor Presentation | Half Year Results December 2019

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DEBT METRICS

December

2019

Banking Covenants

Debt service cover (min >1.5 times)

4.2 times

Debt to EBITDA (max 200%)

82%

Debt/Equity Mix

Net Debt

$3.7M

Total Equity

$26.3M

Bank Facilities

Total available facilities

$8.4M

Total undrawn facilities

$3.5M

Bank Facilities Maturity Profile

(total facility amounts)

$9,000,000

$8,000,000

$7,000,000

$6,000,000

$5,000,000

$4,000,000

$3,000,000

$2,000,000

$1,000,000

$0

June 2020

June 2021

June 2022

June 2023

June 2024

Bank overdrafts

Amortising bank loans

Equipment financing

(no expiry, subject to annual review)

HRLInvestor Presentation | Half Year Results December 2019

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CONTACTS AND MORE INFORMATION

Steven Dabelstein | CEO +61 405 770 166 steven.dabelstein@hrlholdings.com

Michael Harvey | CFO +61 409 334 366 michael.harvey@hrlholdings.com

www.hrlholdings.com

HRLInvestor Presentation | Half Year Results December 2019

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APPENDIX A

DETAILS ON NON-OPERATING PROFIT

ADJUSTMENT

DESCRIPTION

Analytica earn-out expense

The Analytica vendors achieved the full earn-out profit target resulting in the full earn-out payment of NZ$11,000,000. Payment of

the earn-out consideration was contingent on ongoing service of certain key staff and was recognized progressively over the service

period. The expense recognized in HY2019 was $2,157,570

Amortisation of intangible assets arising from

The excess purchase price over the value of both the tangible assets and goodwill acquired during the acquisitions of Analytica,

acquisitions

Morrison Geotechnic and OCTFOLIO has been allocated against specific identifiable intangible assets. These intangible assets are

being amortised over a 2 - 5 year period.

Equity accounted share of profits

Both Food Lab Pacific Limited and CAIQTest (Pacific) Limited remain at an early phase of development and accreditation.

Lapsed performance shares

In July 2018 HRL introduced a long term incentive plan for management. The performance conditions of these instruments were

not met and the performance shares have now lapsed in full. The value of these performance shares was recognized as an

expense in the income statement over the vesting period.

HRLInvestor Presentation | Half Year Results December 2019

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APPENDIX B

AASB 16 "LEASES" IMPACTS

INCOME STATEMENT

H1 FY20

$000's

Revenues

16,280

Other expenses (excluding building lease expenses, interest, deprecation and amortization)

(13,200)

Underlying EBITDA (post AASB 16)

Right-of-use asset amortization expense

Interest on leased premises liabilities

Underlying EBITDA (pre AASB 16)

Operating depreciation and amortisation

(1,075)

Net interest expense

(132)

Underlying profit before tax

1,393

Operating income tax

(337)

Underlying profit after tax

1,056

Non-operating adjustments

Analytica earn-out expenses

(2,158)

Amortisation of intangible assets arising from acquisitions

(1,488)

Lapsed performance shares

(21)

Share of loss - equity accounted investments

(268)

Non-operating income tax

150

Statutory profit after income tax

(2,728)

c

Income Statement Changes

  • Lease costs associated with premises are now reclassified as amortization and interest expense
  • Lease costs were previously shown as rent expenses
  • EBITDA calculated under AASB 16 is $480k higher
  • Underlying and statutory profit remain unchanged

HRLInvestor Presentation | Half Year Results December 2019

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APPENDIX B

AASB 16 "LEASES" IMPACTS

Cash Flow Statement

H1 FY20

H1 FY20

$000's

$000's

(Pre AASB 16)

(Post AASB 16)

Receipts from customers

19,217

19,217

Payments to suppliers and employees

Net interest costs

Income tax payments

(505)

(505)

Operating cash flows generated

3,528

3,941

CAPEX investments

(501)

(501)

Investments in Food Lab joint venture

(135)

(135)

Analytica earn out payments

(2,584)

(2,584)

Bank debt/lease repayments

Net increase/(decrease) in cash

220

220

Opening cash

1,031

1,031

FX movements

5

5

Closing cash

1,256

1,256

c

Cash Flow Changes

  • Lease payments associated with premises are now reclassified as principal and interest payments
  • Lease payments were previously shown as payments to suppliers
  • Operating cash flows under AASB 16 are $413k higher
  • Financing cash flows under AASB 16 are $413k lower

HRLInvestor Presentation | Half Year Results December 2019

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APPENDIX B

AASB 16 "LEASES" IMPACTS

Balance Sheet

H1 FY20

H1 FY20

$000's

$000's

(Pre AASB 16)

(Post AASB 16)

Assets

Plant and Equipment

Right of use assets

Other assets

29,848

28,567

TOTAL ASSETS

36,713

36,713

Borrowings

Lease liabilities

-

1,381

TOTAL LIABILITIES

26,299

26,299

c

Balance Sheet Changes

  • Bank financed equipment under finance lease/hire purchase style arrangements are now reclassified as a right-of-use asset.
  • Lease arrangements for building premises are now recognized as a right- of-use asset and a corresponding amortizing lease liability
  • Bank equipment financing is now reclassified as a lease liability

HRLInvestor Presentation | Half Year Results December 2019

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Disclaimer

HRL Holdings Ltd. published this content on 07 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 February 2020 23:12:06 UTC