HGL Limited Annual General Meeting 16 February 2017 Computershare Offices 60 Carrington Street, Sydney
CEO Presentation Henrik Thorup 16 February 2017
AGENDA CORPORATE HIGHLIGHTS GPS STRATEGY PLAN FY16 FINANCIAL REVIEW OPERATIONAL PRIORITIES FY17 TRADING UPDATE AND OUTLOOK Page 3
CORPORATE PROFILE Another transformative year for HGL advancing towards our strategic objectives HGL is a product marketing and supply chain business of market leading brands in diversified specialist markets. Deploys an active management philosophy driving our portfolio development activities. Board and management team aligned to the Growth, Profit and Sustainability (GPS) Strategy. Improving financial performance underpinned by the implementation of the GPS Plan. Strong balance sheet to pursue growth opportunities and strategic acquisition. Increasing shareholder returns driven by earnings growth. Page 4
GPS STRATEGY PLAN 2020 Revenue Objective Target Metrics Roadmap For personal use only $105m $90m $75m REBUILD FOUNDATIONS GROW AND DEVELOP EXPAND & SUSTAIN Arrest Sales Decline Create Operational Efficiency Reduce Working Capital Levels Build Employee Capability Organic Revenue Growth 10% CAGR Expand Product Portfolio Superior Sales Execution Reduce Operational Complexity Develop Intellectual Property Integrate Business Technology Increase Employee Engagement Underlying EBIT Ratio 10% p.a. Elevate Organic Growth Invest in Growth Industries Acquire Larger Businesses with IP Sustain Performance Levels ROCE 20% p.a. $60m Phase One Phase Two Phase Three
HGL ACQUISITION STRATEGY GPS 2020 Objective Acquisition Strategy Invest in growth markets & leverage industry position; Building Products ( Lighting + Property control systems ) Personal Care ( Health, Beauty & Wellness ) Healthcare Equipment ( Medical Devices ) Home Improvement ( Soft furnishings & homewares ) Retail Marketing ( Point-of-sale solutions ) Acquisition Criteria Acquire larger strategic companies with protected IP; - Target: $25-50m revenue Funding platform; - Own funds, borrowings and capital injection Return on Investment; - 20% ROI Page 6
FINANCIAL HIGHLIGHTS FY16 Focus on profitable growth underpinned by managed working capital levels Group Revenue* Inventory up 5% $68.1m 2015: $65.2m up 11% $5.8m 2015: $5.2m Gross Margin* Trade Debtors up 3% $29.9m 2015: $29.1m up 15% $9.1m 2015: $7.9m Operating Expenses* Trade Creditors stable $25.2m 2015: $24.9m down 4% $8.3m 2015: $8.8m Underlying EBIT* Net Cash up 10% $4.7m 2015: $4.2m down 23% $3.8m 2015: $4.7m * Group Profit & Loss figures include 100% of Mountcastle result. Page 7
FINANCIALS HIGHLIGHTS FY16 Increased shareholder returns supported by continued improved earnings Underlying profit up 15% to $3.0m in FY16 Underlying EPS up 12% to 5.4 cents in FY16 Well managed working capital and low gearing supporting a healthy balance sheet position Fully franked dividend of 2.5 cents per share in relation to improving underlying profits Underlying Profit ($m) Underlying Earnings per share (c) Fully Franked Dividend (c) 0.5 2.6 3.0 1.0 4.8 5.4 4.0 2.0 1.5 2.5 (0.4) (0.8) FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16 Page 8
OPERATIONAL PRIORITIES Expand Product Portfolio Superior Sales Execution Reduce Operational Complexity Develop Intellectual Property Integrate Business Technology Increase Employee Engagement For personal use only SIX FOCUS AREA: Must Win Battles Group Benchmarks 10% revenue growth p.a. $600k sales per employee 33% expense ratio 50/50 Own vs Agency product mix 50% of business processes are automated +95% staff retention Page 9
EXPAND PRODUCT PORTFOLIO Over the past three years HGL has introduced 14 new exclusive complimentary brands. During FY16 we secured exclusive distribution rights to several new brands in various business units. In addition we have developed several new brands, where HGL owns the IP rights. All business units are actively working on their individual product portfolio s to support their growth strategy. JSB Lighting, Leutenegger, and BLC Cosmetics are introducing new brands in early FY17. Page 10
SUPERIOR SALES EXECUTION Increasing sales per employee highlighting enhanced productivity gains. Number of staff employed in client facing positions increased to 59% compared to 48% in FY15 Sales per employee in business units dependent on business model and geographical reach Avg. sales ($) per employee By Business Unit FY16 1,000,000 900,000 800,000 Avg. sales ($) per employee Total HGL per annum (Like-For-Like 7 Business Units) 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 700,000 600,000 500,000 400,000 410,000 435,000 504,000 Group Benchmark 300,000 300,000 200,000.. Leutenegger Nido BLC SPOS MC* JSB Biante 200,000.. FY14 FY15 FY16 * Mountcastle Page 11
DEVELOP INTELLECTUAL PROPERTY Product portfolio plans incorporate the development of IP, where appropriate. Target benchmark is 50/50 own IP vs agency product sales Currently 30% of HGL sales on own IP products Strategic Orientation: JSB to develop specialty product lines Leuts to develop own designs and ranges Pct of own brand sales vs total sales (FY16) 100% 90% 80% 70% Nido to extend One-Duck-Two product range Biante to develop more Aussie cars MC to continue focus on own Trutex products SPOS to develop shop-in-a-box concepts IP strategy in BLC Cosmetics under review 60% 50% Group Benchmark 40% 30% 20% 10% 0% Total HGL BLC JSB Leuts Nido SPOS Biante MC* * Mountcastle Page 12
REDUCE OPERATIONAL COMPLEXITY AND INTRODUCE TECHNOLOGY Expense reduction projects and technology upgrades are implemented in the business units. Examples of Current Synergy Projects: Group benchmark is 33% expense to sales ratio Currently performing ratio in HGL is 37% in FY16 Move Biante onto Netsuite IT platform Relocate Biante warehouse to Macquarie Park Move Leutenegger to Netsuite Further consolidate accounting functions Move BLC from Adept to Netsuite (TBD) HGL Expense to Sales Ratio (Like-For-Like 7 Business Units) 50% 41.5% 38.5% 40% 37.0% 30% 20% 10% 0% FY14 FY15 FY16 Group Benchmark Page 13
INCREASE EMPLOYEE ENGAGEMENT Dedicated Employee Development Programs are rolled out across the organisation. Employee Net Promotor Score* (Net Average of 2015 & 2016) JSB Lighting 74% Biante 58% BLC Cosmetics 47% SPOS 39% Leutenegger 39% Mountcastle n.a. Nido Interiors n.a. * Employee Net Promotor score (e-nps) measure staff engagement based on a score system on 40 questions surveyed annually Page 14
OPERATIONAL PRIORITIES Expand Product Portfolio Superior Sales Execution Reduce Operational Complexity Develop Intellectual Property Integrate Business Technology Increase Employee Engagement For personal use only FOCUS AREA: Must Win Battles Performance progress against targets 10% revenue growth p.a. $600k sales per employee 33% expense ratio 50/50 Own-Agency mix 50% of business processes are automated +95% staff retention Page 15
FY17 TRADING UPDATE AND OUTLOOK HGL continues to gain momentum delivering increased revenue growth in Q1-FY17. Market conditions expected to remain challenging with ongoing fluctuation of the Australian dollar. JSB Lighting, Mountcastle, SPOS, Leutenegger, Biante and Nido expected to achieve revenue growth in FY17 Strong order book in JSB Lighting significantly above last year Nido has received forward orders delivering solid revenue growth in FY17 Gross margin expected to be slightly down due to volume growth Stringent management control of expenditure and working capital levels Focus on generating positive operating cash flow despite growth investments Increased management focus on pursuing strategic acquisitions Page 16
THANK YOU DISCLAIMER: This presentation is provided for information purposes only. The information contained in this presentation is not intended to be relied upon as advice to investors and does not take into account investment objectives, financial situation or needs of any particular investor. Statements contained in this presentation, particularly those regarding possible or assumed future performance and outcomes, projected growth of the company, industry growth or other trend projections are or may be forward looking statements. Such statements relate to future events and expectations and therefore involve risks and uncertainties. Actual results may differ materially from those expressed or implied by these forward looking statements. Page 17