Ruralco : Half Yearly Report and Accounts

RURALCO HOLDINGS LIMITED

ABN 40 009 660 879 HALF YEAR REPORT APPENDIX 4D

Half year ended 31 March 2017

Previous corresponding period - Half year ended 31 March 2016

Results for announcement to the market

$A'000

Revenue from ordinary activities Up 4.4% to $841,430

Profit from ordinary activities after tax attributable to equity holders of the company

Up 14.7% to $12,421

Net profit for the period attributable to equity holders of the company

Up 14.7% to $12,421

Amount per security

Franked amount per security

Interim dividend 9 cents 9 cents

Previous corresponding period

Interim dividend 8 cents 8 cents

Record date for determining entitlements to the dividend 2 June 2017

Date interim dividend is payable 20 June 2017

It is recommended that this Half Year Report is read in conjunction with the Consolidated Interim Financial Report of Ruralco Holdings Limited as at and for the period ending 31 March 2017.

Net tangible assets	2017	2016
Net tangible asset backing per ordinary security	$0.78	$1.06

Details of entities over which control has been gained or lost during the period

During the period the reporting entity gained control of or established the following entities:

Entity	Date	Percentage acquired
Parkquest Pty Ltd	3 October 2016	60%
Riverland Irrigation Services Pty Ltd	1 November 2016	100%
Tritab Pty Ltd	1 November 2016	100%
Water Trading Australia Pty Ltd	1 December 2016	100%
Newham Rural Supplies Pty Ltd	1 February 2017	51%
Mildura Irrigation Centre Pty Ltd	1 February 2017	100%
W. John Pearson & Co Pty Ltd	1 February 2017	100%

TP Jones Pty Ltd	1 March 2017	100%
Irrigation Tasmania Pty Ltd	1 March 2017	100%
Agriexchange Pty Ltd	1 March 2017	100%
Waters & Atkin Rural Pty Ltd	1 March 2017	100%

During the period the reporting entity established the following entities:

Entity	Date	Percentage acquired
TP Jones & Co Pty Ltd	1 March 2017	100%

Details of transactions impacting entities in which control has not been lost during the period

During the period the reporting entity entered into the following transactions without losing control:

Entity	Date	Percentage acquired / (divested)
Territory Rural Pty Ltd	18 November 2016	22.9%
Roberts Hawkins Pty Ltd	18 November 2016	15.0%
Saffin Kerr Bowen Pty Ltd	12 December 2016	37.0%
Platinum Operations Pty Ltd	22 December 2016	(2.6%)
Frontier International Agri Pty Ltd	5 January 2017	5.0%
Southern Australian Livestock Pty Ltd	1 February 2017	0.9%

Details of associates and joint venture entities

At the end of the period, the reporting entity had interests in the following associates and joint venture entities:

Associate / Joint venture	Percentage held by the group
Agfarm Unit Trust	50%
Ausure Consolidated Brokers Pty Ltd*	50%
Western Riverina Fertilisers Pty Ltd	50%

*50% interest in Ausure Consolidated Brokers Pty Ltd acquired 1 December 2016

The contribution of such entities to the Company's profit from ordinary activities is not material to an understanding of the report.

Dividend reinvestment plan

The dividend reinvestment plan will apply to this dividend.

Review

The accounts are not subject to any review dispute or qualification.

Ilona Alsters Company Secretary 16 May 2017

Ruralco Holdings Limited

ABN 40 009 660 879

Interim Financial Report

For the half year ended 31 March 2017

Ruralco Holdings Limited - Interim Financial Report

For the half year ended 31 March 2017

Directors' Report

Your Directors submit their report together with the consolidated interim financial report for the half year ended 31 March 2017 and the independent auditor's review report thereon.

DIRECTORS

The Directors of the Company at any time during or since the end of the interim period are:

Richard (Rick) Lee AM FAICD

Chairman (Non-Executive) since 5 September 2016.

Travis Dillon

RBM (Adv Dip), MAICD

Managing Director and CEO since 16 November 2015.

Michael J Millner MAICD

Director (Non-Executive) since 5 February 2007.

Elizabeth Johnstone

LLB, MA (Hons), BA (Hons), FAICD

Director (Non-Executive) since 1 September 2014.

Trudy Vonhoff

MBA, BBUS (Hons), GAICD, SF Fin

Director (Non-Executive) since 1 September 2014.

John H Tuskin MAICD

Director (Non-Executive) since 1 October 2013 (resigned 15 November 2016).

REVIEW AND RESULTS OF OPERATIONS

Ruralco's purpose is to champion Australian agriculture locally and globally, be known for innovation, flexibility and service, and to deliver profitable outcomes for its stakeholders, including customers, suppliers and shareholders.

The focus of the Group's Future Farming Strategy is to grow the business through:

• Continuing investment in its chosen agribusiness sectors;

• Generating value from integration across rural inputs and outputs through the Group's national points of presence; and through

• Being an industry leader in connecting our customers to the latest in 'AgTech' through investment in innovation.

  Management recognise that to also grow earnings per share and total shareholder returns, execution of this strategy must be balanced by:

• Financial discipline

• Portfolio management

• Cash flow generation; and

• Balance sheet strength

This financial review should be read in conjunction with the interim financial statements, which are presented on pages 7 to 25 of this interim financial report.

Earnings

The Group's reported net profit after tax (NPAT) attributable to shareholders grew 15% above the pcp to

$12.4 million and reported EBITDA grew 20% to $31.5 million with strong seasonal conditions across most of the country driving growth in the Group's core traditional businesses.

Underlying EBITDA1 and underlying NPAT grew 23% and 20% respectively above the pcp (to $33.3 million and $13.8 million respectively). Underlying NPAT and EBITDA excludes the impact of costs not considered to form part of the Group's recurring results, which in this period includes acquisition and divestment costs and redundancies from cost out initiatives and divestments. A reconciliation of underlying to reported earnings is set out below:

Half year ended 31 March	Underlying 2017 $000	Significant items 2017 $000	Reported 2017 $000	Reported 2016 $000	Change Change $000 %
Revenue2	841,430	-	841,430	805,407	36,023	4%
Gross profit2	166,681	-	166,681	153,763	12,918	8%
Earnings before interest, tax,	33,353	(1,837)	31,516	26,326	5,190	20%
depreciation and amortisation
(EBITDA)3
Depreciation and amortisation expense	(4,609)	-	(4,609)	(4,816)	207	(4%)
Net finance costs	(2,977)	-	(2,977)	(2,773)	(204)	7%
Profit before tax	25,767	(1,837)	23,930	18,737	5,193	28%
Tax	(7,726)	275	(7,451)	(6,026)	(1,425)	24%
Non-controlling interest	(4,213)	155	(4,058)	(1,884)	(2,174)	115%
Net profit after tax attributable to shareholders (NPAT)	13,828	(1,407)	12,421	10,827	1,594	15%
OPEX as % of gross profit	80.0%	81.0%	82.9%	-	(1.9) ppts
Earnings per share (EPS) (cents)	16.0	14.4	13.7	0.7	5%

Cash flow generation

The Group ended the period with cash on hand of $21.3 million reflecting the timing of cash receipts prior to month end. Net operating cash outflow of $37.5 million is in line with the seasonal trend (i.e. the seasonal trend in working capital cash flows) with the 27% increase compared to the pcp due to growth in the size of the business.

Net investing cash outflows were $56.4 million higher than the pcp at $67.4million reflecting the proceeds received from disposal of non-core assets such as property ($2.4 million) offset by spend on the portfolio of acquisitions in the half ($60 million) and Program Elevate IT development cost spend to date ($3.9 million).

Net financing cash inflows were $66.3 million higher than the pcp at $120.8 million reflecting

$65 million of proceeds from the issue of ordinary shares in the half to fund the purchase of the portfolio of acquisitions, net of transactions costs paid to date of $1.7 million.

1 "Underlying" measures of profitability provide more useful information. Underlying EBITDA means reported earnings before interest, tax, depreciation and amortisation including share of profits from equity accounted for investments adjusted to remove the impact of significant items (pre-tax). Underlying NPAT means reported net profit attributable to equity holders of the Company adjusted to remove the impact of significant items (post-tax and related NCI)

2 PCP revenue and cost of sales (and therefore gross profit and EBITDA) adjusted to include reclass of certain items, such as sales commissions paid to employee agents and merchant fees previously in finance cost, to align with current period presentation

3 EBITDA includes share of equity accounted for investee's profit

Abridged cash flow for the half year ended 31 March	2017	2016	Change	Change
	$000	$000	$000 %
Reported EBITDA	31,516	26,326	5,190	20%
Net change in working capital	(61,250)	(45,749)	(15,501)	34%
Net finance income	100	107	(7)	(7%)
Tax paid	(7,866)	(10,157)	2,291	(23%)
Net operating cash flow	(37,500)	(29,473)	(8,027)	27%
Capital expenditure	(9,441)	(5,998)	(3,443)	57%
Acquisitions & subsidiary investments	(59,984)	(6,213)	(53,771)	865%
Divestments and other	2,394	1,101	1,293	117%
Change in non-controlling interests	(379)	41	(420)	(1024%)
Investing cash flow	(67,410)	(11,069)	(56,341)	509%
Dividends paid	(7,121)	(8,900)	1,779	(20%)
Treasury share purchases4	(650)	(2,015)	1,365	(68%)
Issue of share capital	63,312	-	63,312	100%
Net drawdown of borrowings	65,220	65,344	(124)	(1%)
Financing cash flow	120,761	54,429	66,332	122%
Change in cash held	15,851	13,887	1,964	14%

Balance sheet strength

A strong balance sheet and a disciplined focus on working capital management continues to underpin the execution of the Group's strategy.

Working capital at 31 March 2017 was 2% higher than the pcp at $162.1 million, a strong result given the positive seasonal conditions and impact of acquisitions. Excluding acquisition related working capital, underlying working capital has reduced reflecting the ongoing focus on working capital management with improvements also noted in the Group's working capital efficiency measure (average working capital as a

% of sales reduced from 8.2% at March 2016 to 8.1% at March 2017).

Total capital employed5 has increased by 19% on the pcp to $395.6 million reflecting the increase in intangible assets from the impact of acquisitions and investment in information technology and system enhancements.

The Group's underlying ROCE (r6) has increased to 8.9% (31 March 2016: 8.4%) despite the impact of acquisitions on capital employed without the commensurate full 6 months of earnings.

4 Purchase of treasury shares reclassified as a financing cash flow in the current and prior period to align with interim financial statement presentation

5 Net assets less net debt

Abridged balance sheet6	Mar 2017 $000	Mar 2016 $000	Sep 2016 $000	PCP Change $000	YE Change $000
Trade and other receivables (incl. prepayments)	438,501	388,969	364,210	49,532	74,291
Inventories (incl. biological assets)	162,728	165,490	129,666	(2,762)	33,062
Trade and other payables (incl. derivative financial instruments)	(439,127)	(394,858)	(403,415)	(44,269)	(35,712)
Working capital7	162,102	159,601	90,461	2,501	71,641
Property, plant and equipment	43,208	41,938	40,875	1,270	2,333
Intangibles	202,561	139,825	147,305	62,736	55,256
Investments in equity accounted investees	17,219	9,005	8,805	8,214	8,414
Net tax items	12,928	4,965	11,839	7,963	1,089
Other items	(42,382)	(21,773)	(25,781)	(20,609)	(16,601)
Total capital employed7	395,636	333,561	273,504	62,075	122,132
Average working capital % of sales r128	8.1%	8.2%	7.9%	(0.1) ppts	0.2 ppts
Underlying return on capital employed (ROCE) r69	8.9%	8.4%	n/a	0.5 ppts	n/a

Debt management and financing

Net debt has grown 2% from the pcp to $112.2 million despite the growth in the size of the business as management continues to focus on strong working capital management to provide balance sheet support to bolt-on acquisitions and control of gearing metrics. The Group's 31 March 2017 gearing ratio has improved to 28.3% (31 March 2016: 33.0%), which is well within the Board approved range of 25-45% and is higher than year-end consistent with the seasonal trend of the business for this point in the trading cycle.

The Group continues to ensure the flexibility of its funding facilities with the establishment of a $20 million Seasonal Cattle Facility ($2.4 million drawn at 31 March 2017) available to the live export business to fund the purchase of cattle. At 31 March 2017, the Group had drawn down $130 million of the $150 million debtor securitisation facility with the increase from the pcp reflecting the increased working capital requirement of the Group given growth in the size of the business. The $40 million Multi Option Facility was undrawn at 31 March 2017.

Net debt	Mar 2017 $000	Mar 2016 $000	Sep 2016 $000	PCP Change $000	YE Change $000
Cash and cash equivalents	21,268	12,695	5,417	8,573	(15,851)
Current debt	(2,354)	(120,005)	-	117,651	(2,354)
Non-current debt	(130,000)	-	(65,000)	(130,000)	(65,000)
Gross drawn debt	(132,354)	(120,005)	(65,000)	(12,349)	(67,354)
Other loans receivable/(payable)	263	(1,228)	(1,137)	1,491	1,400
Finance lease liabilities	(1,335)	(1,601)	(1,664)	266	329
Total Net debt	(112,158)	(110,139)	(62,384)	(2,019)	(49,774)
Total shareholders' equity	(283,479)	(223,424)	(211,121)	(60,055)	(72,358)
Gearing ratio10	28.3%	33.0%	22.8%	(4.7) ppts	5.5 ppts

6 Balances reflect the management balance sheet presentation, which is based on different classifications and groupings than the Statement of Financial Position in the financial statements. March 2016 balance sheet also presented to better compare the current period balance sheet position given the seasonality differences between half year (March) and year end (September) balance sheets.

7 Excludes certain related party receivables/payables that are classified in management's calculation of net debt

8 Average working capital % of sales = Average working capital for 12 months/r12 revenue

9 Return on capital employed (underlying) = Underlying EBITDA for the period / 6 month average total capital employed

10 Net debt/(Net debt + shareholders equity)

Long term shareholder returns

The Group endeavours to optimise shareholder returns by focusing on generating positive operating leverage, disciplined portfolio management, tight working capital control and a balanced approach to determining dividend payout ratios.

The Group's dividend policy seeks to balance the needs of shareholders and the business with dividends declared reflective of the Group's current and projected cash position, profit generation and available franking credits.

The Board recognises the following demands on the Group's cash flows:

• To provide an adequate return to the shareholders of Ruralco (being a diversified agribusiness);

• To fund the Group's working capital and maintenance capex requirements;

• To fund the Group's growth acquisitions in line with stated strategic objectives; and

• To maintain an optimal capital structure and repay debt as required to meet applicable banking covenants.

  In acknowledging these competing demands, the Board established the following guiding principles in the prior financial year:

• The Board has a preference for gearing to remain within 25-45% on a normalised business cycle basis; and

• The Board has a preference to maintain a dividend payout ratio of between 40% and 60% of underlying earnings per share.

  The Board declared a fully franked interim ordinary dividend of 9 cents per share. The interim dividend will be paid on 20 June 2017 to shareholders on the Company's register on 2 June 2017, the record date for the interim dividend. The Dividend Reinvestment Plan continues to operate in respect of the final dividend at a discount of 2.5%.

  Auditor's Independence Declaration

  The lead auditor's independence declaration is set out on page 6 and forms part of the Directors' Report for the half year ended 31 March 2017.

  Rounding

  The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ''rounding off'' of amounts in the financial statements. Amounts in these consolidated interim financial statements have been rounded off in accordance with the Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar unless otherwise stated.

  Signed in accordance with a resolution of the directors.

  Richard (Rick) Lee AM Travis Dillon

  Chairman Managing Director and CEO

  Sydney

  16 May 2017

  Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001

  To the Directors of Ruralco Holdings Limited

  I declare that, to the best of my knowledge and belief, in relation to the review of Ruralco Holdings Limited for the half-year ended 31 March 2017 there have been:

• no contraventions of the auditor independence requirements as set out in the

  Corporations Act 2001 in relation to the review; and

• no contraventions of any applicable code of professional conduct in relation to the review.

KPMG Anthony Travers

Partner

Sydney

16 May 2017

6

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income For the Half Year ended 31 March 2017

Notes	Half Year to Half Year to 31-Mar-17 31-Mar-16 $'000 $'000
Revenue	4	841,430 805,407
Cost of sales	(674,749) (651,644)
Personnel expenses	(94,687) (90,120)
Property and equipment expenses	(14,527) (14,092)
Motor vehicle expenses	(9,986) (9,064)
Administrative expenses	(6,856) (5,343)
Marketing and advertising expenses	(3,305) (3,930)
Data and telephony expenses	(2,069) (2,155)
Depreciation expense	(2,720) (2,652)
Amortisation expense	(1,889) (2,164)
Bad debt expense	(1,082) (1,287)
Other expenses	(2,506) (1,536)
Results from operating activities	27,054 21,420
Share of net profits of equity accounted investees	(146) 90
Bank charges	(520) (589)
Interest expense	(2,458) (2,184)
Total finance costs	(2,978) (2,773)
Profit before income tax	23,930 18,737
Income tax expense	5	(7,451) (6,026)
Profit for the period	16,479 12,711
Total profit attributable to:
Equity holders of the company	12,421 10,827
Non-controlling interests	4,058 1,884
Total profit for the period	16,479 12,711
Other comprehensive income
Items that will not be reclassified to profit and loss
Revaluations of property, plant and equipment	(81) -
Early adoption of AASB 9 Financial instruments	- (3,420)
Total items that will not be reclassified to profit and loss	(81) (3,420)

Items that may be reclassified to profit and loss
Changes in the fair value of cash flow hedges	37 2,207
Foreign currency translation differences	1 (72)
Total items that may be reclassified to profit and loss	38 2,135
Total comprehensive income for the period	16,436 11,426

Total comprehensive income attributable to:

Equity holders of the company	12,378 8,737
Non-controlling interests	4,058 2,689
Total comprehensive income for the period	16,436 11,426
Earnings per share (cents per share)
- Basic	14.36	13.72
- Diluted	14.36	13.72
The accompanying notes form part of these consolidated interim financial statements.

Consolidated Interim Statement of Financial Position As at 31 March 2017

Current assets Cash and cash equivalents	Notes	As at As at 31-Mar-17 30-Sep-16 $'000 $'000 21,268 5,417
Trade and other receivables	428,476 357,797
Prepayments	13,228 6,898
Inventories	159,954 114,000
Biological assets	2,774 15,666
Derivative financial assets	340 283
Assets held for sale	- 1,350
Total current assets	626,040 501,411
Non-current assets Trade and other receivables	898 1,646
Investments in equity accounted investees	17,219 8,806
Other financial assets	154 229
Property, plant and equipment	43,208 40,875
Intangible assets	202,561 147,305
Deferred tax assets	20,674 20,000
Total non-current assets	284,714 218,861
Total assets	910,754 720,272
Current liabilities Trade and other payables	438,094 401,320
Derivative financial instruments	147 168
Loans and borrowings	4,053 4,300
Current tax liabilities	175 457
Employee benefits	20,268 18,629
Make good provision	267 273
Restructuring and onerous contract provisions	3,902 5,733
Deferred consideration	6,707 325
Total current liabilities	473,613 431,205
Non-current liabilities Loans and borrowings	130,473 65,633
Deferred tax liabilities	7,571 7,703
Employee benefits	3,073 3,112
Make good provision	692 671
Contingent consideration	11,853 827
Total non-current liabilities	153,662 77,946
Total liabilities	627,275 509,151
Net assets	283,479 211,121
Equity Share capital	8	236,727 173,248
Retained earnings	33,986 23,878
Reserves	4,539 5,259
Total equity attributable to equity holders of the Company	275,252 202,385
Non-controlling interests	8,227 8,736
Total equity	283,479 211,121

The accompanying notes form part of these consolidated interim financial statements.

Ruralco Holdings Limited ABN 40 009 660 879

Consolidated Interim Statement of Changes in Equity for the Half Year ended 31 March 2017

Total $'000 212,124	Non- controlling interests $'000 10,349	Total equity $'000 222,473
-	(3,420)	-	-	-	-	-	-	-	(3,420)	-	(3,420)
-	10,827	-	-	-	-	-	-	-	10,827	1,884	12,711
-	-	-	-	1,402	-	(72)	-	-	1,330	805	2,135
-	7,407	-	-	1,402	-	(72)	-	-	8,737	2,689	11,426
-	(5,466)	-	-	-	-	-	-	-	(5,466)	(5,271)	(10,737)
1,837	-	-	-	-	-	-	-	-	1,837	-	1,837
-	-	-	-	-	-	-	525	-	525	-	525
-	-	-	-	-	-	-	-	(2,015)	(2,015)	-	(2,015)
-	113	-	-	-	-	-	-	-	113	(198)	(85)
1,837	(5,353)	-	-	-	-	-	525	(2,015)	(5,006)	(5,469)	(10,475)
172,568	32,989	2,179	4,383	497	2,800	3	4,518	(4,082)	215,855	7,569	223,424
173,248	23,878	-	4,228	(123)	-	(1)	5,566	(4,411)	202,385	8,736	211,121
-	-	-	-	-	-	-	-	-	-	-	-
-	12,421	-	-	-	-	-	-	-	12,421	4,058	16,479
-	-	-	(81)	37	-	1	-	-	(43)	-	(43)
-	12,421	-	(81)	37	-	1	-	-	12,378	4,058	16,436
-	(1,585)	-	-	-	-	-	-	-	(1,585)	(5,633)	(7,218)
63,479	-	-	-	-	-	-	-	-	63,479	-	63,479
-	-	-	-	-	-	-	660	-	660	-	660
-	-	-	-	-	-	-	-	(650)	(650)	-	(650)
-	(1,415)	-	-	-	-	-	-	-	(1,415)	1,066	(349)
-	687	-	(687)	-	-	-	-	-	-	-	-
63,479	(2,313)	-	(687)	-	-	-	660	(650)	60,489	(4,567)	55,922
236,727	33,986	-	3,460	(86)	-	-	6,226	(5,061)	275,252	8,227	283,479

Attributable to equity holders of the Company

Issued capital

Retained earnings

Capital profits reserve

Asset revaluation reserve

Cash flow hedge reserve

General reserve

Foreign currency translation reserve

Share based payment reserve

Reserve for own shares

$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000

1 October 2015 170,731 30,935 2,179 4,383 (905) 2,800 75 3,993 (2,067)

Total comprehensive income for the period Early adoption of AASB 9 Financial instruments Profit for the period

Other comprehensive income

Total comprehensive income for the period

Transactions with owners recorded directly in equity

• Dividends to owners of the Company

• Issue of ordinary shares

• Performance rights

• Shares purchased and held in trust

• Changes in non-controlling interest

Total transactions with owners of the Company

31 March 2016

1 October 2016

Total comprehensive income for the period Early adoption of AASB 9 Financial instruments Profit for the period

Other comprehensive income

Total comprehensive income for the period

Transactions with owners recorded directly in equity

• Dividends to owners of the Company

• Issue of ordinary shares, net of issue costs

• Performance rights

• Shares purchased and held in trust

• Changes in non-controlling interest

• Transfer of revaluation to retained earnings on disposal Total transactions with owners of the Company

31 March 2017

The accompanying notes form part of these consolidated interim financial statements.

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