Michael Hill International : Bevilles Acquisition

ACQUISITION OF BEVILLES

19 APRIL 2023

MICHAEL HILL ASPIRATIONAL BRAND JOURNEY

ASPIRATIONAL BRAND JOURNEY

STRATEGIC PILLARS

LUXURY

PREMIUM

MID-MARKET

VALUE

2

MICHAEL HILL INVESTMENT DRIVING GROWTH

CAPITAL MANAGEMENT FRAMEWORK

• Refreshed Policy aligned to strong business performance
• Current dividend yield ~8%1
• Circular economy offering re:new:
• • Digitally-enabledgold recycling platform
  • Launching a diamond upgrade program
  • Reimagining of jewellery repair business
• Development of a new digitally-led bespoke diamond jewellery brand
• Introducing third-party jewellery insurance and replacement solutions for customers

Dividend Policy

50% - 75% adjusted NPAT

Continue to deliver at the higher

end of the range

Organic+

Investment

New markets & channels via

digital platforms

Launch of new revenue streams

Organic Growth

~$25m to $30m annual spend

Capital Investment

Opportunities

Share buy-back

Continue to pursue acquisition opportunities across the jewellery sector in our existing countries

• Brand elevation - driving higher ATV
• Increasing retail productivity
• Product evolution through newness and elevation
• Digital-firstand marketplace expansion
• International digital channels
• Data and loyalty driving growth
• Share buy-back successfully executed
• Opportunity to acquire complementary business

1	Based on last two distributions and current share price.	3

EXECUTING THE ACQUISITION STRATEGY

ACQUISITION OF BEVILLES BRAND, DELIVERS INCREMENTAL STORE ROLLOUT GROWTH STRATEGY

LUXURY

PREMIUM

MID-MARKET

VALUE

• 281 physical stores across Australia (148), New Zealand (47) and Canada (86)
• Brand elevation strategy underway, moving further into the premium segment
• Product elevation with diamonds at our core
• Omni-first,digital-led and channel agnostic
• Catering to the 'value' market segment through selling quality products at a more affordable price point
• Strong strategic fit and complements MHJ strategy to elevate own brand and products
• Minimal cannibalisation and ability to capture a broader, full-spectrum, customer base
• Highly profitable including omni-channel distribution capabilities, successful loyalty program and open frontage / accessible stores
• Under-penetratednetwork (26 stores) with a differentiated product mix

Complementary market positioning servicing two distinct segments of the market

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TRANSACTION OVERVIEW

TRANSACTION EXPECTED TO BE IMMEDIATELY EPS ACCRETIVE

		Acquire the business and Selected Assets1 of Bevilles for a Net Enterprise Value (EV) of ~$45m
TRANSACTION		̶ Includes upfront consideration, net of working capital adjustments, and minimum $1m earn-out payment
Earn-out payment, payable over two years, linked to MHJ share price performance
TERMS
	Separate Ambassadorial Fees payable to Michelle Beville over two years for ongoing contribution to the business
		Attractive deal terms and asset acquisition structure carves out potential legacy liabilities
ACQUISITION		Net Enterprise Value of ~$45m, implying an EV/EBITDA multiple of ~5.6x based on expected adjusted FY23E underlying
	EBITDA (pre-AASB16) of ~$8m2
METRICS AND		Acquisition expected to be immediately EPS accretive
FINANCIAL		Expected to complete in Q2 CY2023 subject to satisfaction of certain conditions precedent (regulatory approvals from
IMPACT		ACCC and Fair Work Commission, transfer of leases, people and contracts, and release of guarantee/security
		arrangements)
FUNDING &		Up-front cash consideration and transaction costs will be funded from MHJ's cash reserves and undrawn debt facility
	Any future earn-out payments and Ambassadorial Fees expected to be funded from MHJ's cash reserves/debt facility
CAPITAL
	No change to MHJ's existing dividend policy (50%-75% of adjusted net profit after tax), with share buy-back program
MANAGEMENT
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Notes:

1. Selected Assets includes underlying business, inventory, fixtures and fittings, intellectual property, contracts, brand and other non-current assets and liabilities
2. Based on unaudited, pre-AASB16,pre-IFRICSaaS-related adjustments, and with normalisations, EBITDA mid-point for $7.5m - $8.5m

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