Select Harvests Limited (“SHV”) · • Distribution: Health aisle of major supermarkets and...

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Select Harvests Limited (“SHV”)

15th PAC Partners AgFood & Life Science ConferenceControlling your Destiny

17 April 2018

Paul Thompson - Managing Director

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This presentation is provided for information purposes only and has been prepared using information provided by the company. The information contained in this presentation is not intended to be relied upon as advice to investors and does not take into account the investment objectives, financial situation or needs of any particular investor. Investors should consider their own individual investment and financial circumstances in relation to any investment decision.

Certain statements contained in this presentation may constitute forward-looking statements or statements about future matters that are based upon information known and assumptions made as of the date of this presentation. These statements are subject to risks and uncertainties. Actual results may differ materially from any future results or performance expressed, predicted or implied by the statements contained in this presentation.

Disclaimer & Basis of Preparation

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Select Harvests Overview

Demand for Plant Based Foods

Almond Market Update & Outlook

Business Update & Outlook

Controlling your Destiny

Appendices

Agenda

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Select Harvests Business Overview

Almond Division

▪ 18,500 planted acres of Australian almond orchards – Victoria, South Australia & New South Wales

▪ 80% in cash generative mature phase – very low capex required

▪ Improve orchard productivity through high performance farming program – top quartile yields & quality in

next 2 years

▪ Greenfield plantings – 4,870 acres (2,500 acres in July 2016, 1,870 acres in July 2017, 500 acres in July 2018)

▪ Continue to seek acquisition of mature orchards at the right price and land suitable for planting to almonds

▪ Improve supply chain productivity & keep costs in bottom quartile - Project Parboil & Project H2E

Food Division

▪ Number of Brands across categories – cooking/baking, snacking, breakfast, health

▪ Growing branded base for industrial and packaged divisions

Export focus

New products & categories

Wemen Farm – October 2015

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Controlling Your Destiny

Appendices

Agenda

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Why are People Eating more Plant Based Foods

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HORIZON 2 - TRANSITION INTO INTEGRATED MODEL

Employer of choice Culture of innovation Market aware Proactive communicatorENABLERS

HORIZON 1 - PERFECT THE CURRENT MODEL

HORIZON 3 - EXPAND MODEL GLOBALLY

Build our systems & grow our people

Maximize commodity value through

innovation

Optimise & grow almond agri assets

Improve supply chain efficiency

Grow in Select Harvests Food Products Asian market via partnerships

Pursue value accretive acquisitions in the agrifood sector

Explore opportunities in the global industry

VISION

Select Harvests to be recognised as one of Australia’s most respected agrifood

businesses

MISSION

To deliver sustainable stakeholder returns by being a leader in the supply of better for

you plant based foods

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Strategy & Priorities

Zero harm to people & environment

EPS Growth minimum 5% CAGR

Gender, age and ethnicity balance

ASPIRATIONS

Grow the value of Brands

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Business Drivers

1. Select Harvests is highly skilled at growing almonds and sourcing, processing &

marketing plant based foods

2. Invested in almond orchards, brands & processing assets to meet growing global

demand, in particular Asia: our growth platform is secure

3. Investments are based on a long term return on capital, we invest through the

commodity cycle

4. The business is focused on being globally competitive: low cost, high quality almond

producer complimented by value adding brands

5. Brands in both the Industrial and Consumer positioned to increase value-adding

profitability and smooth the impact of the commodity cycle

6. Geographically diverse almond orchards & customer portfolio: risk mitigation strategy

7. Sustainability is a competitive advantage: we are here for the long term

8. Investment in our people, culture & values is creating success Wemen Farm – October 2015

Select Harvests has established a platform for increasing shareholder returns

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Controlling your Desting

Appendices

Agenda

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Health Benefits of Almonds

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Source: Almond Board of CaliforniaResearch now supports that almonds increase consumer’s cognitive skills

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Versatility of Almonds

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Source: Innova Market Insights

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Global SupplyUS 2017 Crop

▪ Domestic Shipments - Up 7% this season (since August) and 7% in last 3 months

▪ Export Shipments - Up 14% this season and 21% in last 3 months

▪ Total Shipments - Up 12% this season and 16% in last 3 months

▪ Forward Commitments (i.e. Sold stock - not yet shipped) – Flat as at 12 April 2018

▪ Uncommitted Inventory (i.e. Unsold stock left to sell) – Down 10% as at 12 April 2018

US 2018 Crop▪ Frost – Significant frost events experienced across US almond growing regions – week of 19-23 Feb 2018 – outcome

uncertain

▪ United States Department of Agriculture Subjective crop estimate is due for release 2nd week in May

Plantings ▪ It is estimated approximately 100,000 acres of new planting will come into production in the US in each of the next 3

years

▪ New plantings down 37% from last year in US

▪ Spain and Portugal looking to expand plantings

Global supply will always be driven by the US

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Tree Nut Pricing

Source: Internal company data

Almond now exceptionally well priced vs other tree nuts – manufacturers shifting to include almond

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Almond Production & Pricing - 30 years

Almonds have demonstrated long term price appreciation across cycles

Source: Almond Board of California. Company Data

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Current estimated Pool Price midpoint US$2.90/lb

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US Production, Shipments, Stock & Price Analysis – 10 years

“With YTD industry shipment growth 12% ahead of last year, and quality issues limiting saleable supply, a tight transition into crop year 2018 can be expected” – Blue Diamond Almonds, 12 April 2018

Source: Almond Board of California

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Source: Almond Board of California. Company Data

Current estimated Pool Price midpoint US$2.90/lb

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Appendices

Agenda

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Select Harvests 2018 Crop & Price Estimate

2018 Harvest has commenced in all states

▪ Harvest is 90% complete, with favourable conditions throughout, harvest should be complete by last week

of April

▪ 80% of the crop delivered to Carina West processing facility, should be completed by mid May

2018 Crop estimate 15,000 tonnes

▪ 20% of crop processed. Crack out and quality consistent with expectations

▪ NSW frost damage greater than forecast, SA & Vic orchard performance better than forecast

2018 Price estimate

▪ Pricing has remained firm supported by strong global demand and uncertainty around US 2018 crop

▪ 45% of the crop has been committed

▪ Inshell orders have commenced shipments to India

▪ We estimate the final pool price to between A$8.10 - A$8.50/kg @0.77 AUD/USD exchange rate

Wemen Farm – October 2015

Demand outlook is positive - US supply uncertain

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2018 Business Update

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Packaged Consumer Business

▪ Brands remain under pressure from Private Label

▪ Secured additional Private label business

▪ Close to signing new distribution contracts in China

▪ Sunsol available on JD.COM since start March

▪ Sam’s Club (Walmart China) extended Sunsol range and secured Private Label contract for almonds

Industrial/Trading Business

▪ Strong demand locally

▪ Supplying increased volume through Parboil

▪ Increasing interest from China as a result of US/China trade dispute and Australian Free Trade Agreement

Projects

▪ Parboil is moving closer to business case assumptions

▪ H2E in final stages of commissioning

People & Environment

▪ Lost Time Frequency Rate down 58% YTD vs LY

▪ Nil environmental incidents

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Branded Presence in Asia

Select Harvests’ branded products are currently distributed across 12 countries in Asia

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Brands China Indonesia Japan Philippines Thailand Malaysia Taiwan PNG Singapore BruneiMiddle

EastNew

Zealand

Lucky Brand ✓ ✓ ✓ ✓

Sunsol ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

NuVitality ✓ ✓ ✓ ✓ ✓ ✓ ✓

Industrial Brands ✓ ✓ ✓ ✓ ✓ ✓ ✓

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Five Ways We Control Our Destiny

Appendix

Appendices

Agenda

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Secure access to diverse water sources:

− River Water− Aquifers

Geographic diversity limits exposure to:

− Weather− Disease spread− Insect infestation

Enables sequential progression of harvest period across regions:

− Better farm equipment utilisation

− Better processing utilisation

− Better labour utilisation

Positions the company to maximise harvest volume & reduce variance.

Building world class properties and a globally competitive low cost business.

Almond Orchards – Our productive foundation

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Geographic diversity reduces crop volume risk

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Select Harvests - Orchard Age Profile

Balanced orchard profile underpins growth and protects market share

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Almond Volume Growth

Year on Year volume growth can assist to offset negative currency and price volatility

2018 Estimate 15,000MT

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Food Division - Brands

• Market leader in the cooking nut category. Value share 38.4 % as at 18 June 2017 (IRI Aztec).• Cooking Nut product range: almonds, walnuts, cashews, hazelnuts, brazil nuts, pine nuts,

pistachios, macadamias, sunflower seeds and pepitas (Snacking product range: portion control packs, Lucky Smart Snax and Lucky Snack Tubs.

• Distribution: major supermarkets and export markets including the Middle East, Indonesia and Papua New Guinea.

• Product range: nuts, dried fruit, legumes and pulses, cereals, grains, seeds, flour, muesli and organic foods.

• Bulk and convenient packs.• Distribution: health food stores and pharmacies nationally.

• Product range: muesli, dried fruit, nuts and snacks.• Distribution: major supermarkets (muesli) and export markets including Hong Kong, Singapore,

Malaysia , Indonesia and the Pacific Rim.

• Product range: muesli, dried fruit, wholefoods, nuts and snacks.• Distribution: Health aisle of major supermarkets and export markets including Hong Kong,

Singapore, Malaysia, Indonesia and the Pacific Rim.

• Product range: almonds and other nuts, dried fruit, seeds, nut pastes and pralines.• Bulk pack.• Products sold to local and overseas food manufacturers, wholesalers, distributors and re-packers.

Source: Company Data and Aztec National Chains Scan data

Our brands help to protect us from the volatility of the commodity cycle

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Project Parboil – Almond Value-Add

Projective Objective: To install an Added Value Almond Processing & Packing Facility at Carina West

Infrastructure designed to comply with:

WQA Manufactured Food Standard Version8 & Woolworths Supplier Excellence Program

&

Coles Food ManufacturingSupplier Requirements

(CFMSR)

Operational Highlights• Integrated Processing Equipment: Blanching, Slivering, Slicing, Dicing,

Dry Roasting, Pasting, Grinding, Pasteurising, Electronic Sorting andIndustrial & Retail Packing

• Climate Controlled Factory, Cool Store Warehousing• Automated Industrial Packing Line with Gas Flushing• Climate Controlled Factory, Cool Store Warehousing• Operational Hours: 8hrs x 5 days x 48 weeks• Operators Employed: 12

Specifications• Building size: 50m x 84m• 1.2m concrete tilt slab perimeter internal/external• Borrell Integrated Blanching & Roasting Line• Nimbus Electronic Sorter with Biometric Signature Identification• Propac Retail Baggers AV 2.2 with Dual Feed system• Pattyn Fully Automated Industrial Packaging Line• Ishida Multi-Head & Check Weighers• Visy Automation Robotic Retail & Industrial Palletizing line• 2mt per hour thru-put

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Adds value to the last 25% of the almond crop

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Project H2E – Hull to Energy

Projective Objective: Install a biomass boiler and steam turbine, fuelled by almond hull and shell and orchard waste and converting it to heat and power.

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Sustainable solution to utilise waste and give Select some protection from energy market cost spiral

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Increasing demand for plant based foods globally

▪ Global consumption of plant protein & almonds continues to grow at 6-8% per annum

Growth platform to service almond demand is secure

▪ A +50% increase in the MT’s of almonds produced over the next 10 years based on current plantings

The business is focused on being globally competitive

▪ Low cost, high quality almond producer with brands to compete in the Asian market

Geographic diverse almond orchard portfolio, in good health

▪ Risk mitigation strategies in place, frost will not affect future years

Almond pricing outlook is firm

▪ 2018 Price estimate A$8.10 to A$8.50/kg (@0.77 AUD/USD exchange rate)

Export focused brands in both the industrial and consumer space

▪ Increased value added profitability thru seasonal cycles

▪ Consumer business growth means investing in new product development and brands

▪ Industrial business growth will leverage the capacity and quality of the Parboil value-add facility

Zero Harm

▪ Number One Priority

Key Take Outs

SHV is well placed to control its destiny

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Appendix

Appendices

Agenda

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Business sensitivities

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Assumption Basis of Assumption Sensitivity – EBIT Impact

Crop Size 15,000 Metric Tonnes

Industry average yields less 5% due to frost damage

1% movement = $1.2M

Crop Price AUD$7.75/kg Current pricing based on assumed quality profile

1% movement = $1.2M

AUD/USD FX Rate 0.77c Current rates plus hedge protection 1c movement = $1.5M

SHV earnings are most sensitive to volume and price

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US Conditions – Climate – California Snowpack & Reservoirs

As at 4 April, the snowpack is 50% of average and 50% of 1 April average

Source: Californian Government Department of Water Resources

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Californian Water Conditions

Conditions can change very quickly

Source: Californian Government Department of Water Resources

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▪ Snowpack – Well Below Average -Significantly different to last year

▪ Snowpack 20% of normal as at 20 Feb 2018 (16 Feb 2017 - 174%) / 16% of average as at 1 April (last year 134%)

▪ Water Storage – Still Above Average - But lower than last year

▪ Storage at 99% of average (120% last year) and 68% of capacity (82% last year)

▪ Ground Water- Slight Improvement

▪ It will not be solved without legislation

▪ Government legislation - In progress

▪ Californian government recognises they need to invest in infrastructure and legislation. It will be slow

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US Conditions – Market – Shipments

Shipments of the US Crop have been growing in excess of supply –

last 6 months +17%, last 3 months +16%, last month +9%

Source: Almond Board of California, March Position Report, 12 April 2018

Monthly US Almond Shipment Reports can be found at this link - http://newsroom.almonds.com/position-reports

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March 2018 Positon Report

Last Year This Year Growth Growth Last Year This Year Growth Growth Last Year This Year Growth Growth

(million lbs) (%) (million lbs) (%) (million lbs) (million lbs) (million lbs) (%)

March 122.0 130.7 8.7 7% 56.2 63.3 7.1 13% 178.2 194.0 15.8 9%

Last 3mth 331.0 400.4 69.4 21% 165.3 177.2 11.9 7% 496.3 577.6 81.3 16%

Last 6mth 748.7 901.9 153.2 20% 326.8 355.2 28.4 9% 1,075.5 1,257.1 181.6 17%

Last 9mth 1,090.8 1,239.8 149.0 14% 494.9 530.4 35.5 7% 1,585.7 1,770.2 184.5 12%

Last 12mth 1,452.8 1,564.9 112.1 8% 652.5 705.0 52.5 8% 2,105.3 2,269.9 164.6 8%

Season 1,003.3 1,143.3 140.1 14% 443.8 472.9 29.1 7% 1,447.1 1,616.2 169.1 12%

US Export Shipments US Domestic Shipments US Total Shipments

http://newsroom.almonds.com/position-reports

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Targeting an Above Average Yield Per Acre @ Maturity

Significant tonnage upside available with a higher yield per acre at maturity

YearHarvest Volume (tonnes) per acre based in 1.2 Tonnes per Acre @

Maturity

Harvest Volume (tonnes) per acre based on 1.3 Tonnes per Acre @

Maturity

1 0.0 0.0

2 0.0 0.0

3 0.3 0.3

4 0.5 0.5

5 0.8 0.8

6 1.0 1.0

7+ 1.2 1.3

Note:

Biannual Nature of Crop

▪ The almond crop is biannual in nature with +/- 10% per annum variation in tonnage possible

Variation between Regions and Farms

▪ Yields are not uniform and vary across both farms and growing regions

Post Economic Maturity Yield

▪ The yield for post economic maturity farms deteriorates as tree age increases

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Industry Associations

• Californian Almond Board www.almondboard.com

Industry Reports

• US Crop Forecasts (Subjective, Objective) http://www.almonds.com/growers/resources/crop-forecasts

• Monthly Almond Position Reports http://www.almonds.com/newsletters/position-reports?from-section=2881

• Almond Almanac http://www.almonds.com/sites/default/files/2016_almond_almanac.pdf

• UC Davis Almond Development Costings http://coststudies.ucdavis.edu/en/current/

Almond Companies

• Blue Diamond Growers www.bluediamond.com

• Blue Diamond Ingredients www.bdingredients.com/category/almond-market-analysis

• Almond Insights www.almondinsights.com

• Derco Foods www.dercofoods.com/en/english-reports/english-almond-reports

• RPAC Almonds www.rpacalmonds.com/marketnews

• Wonderful Pistachios & Almonds www.wonderfulpistachiosandalmonds.com/#ourdifference

• Hilltop Ranch www.hilltopranch.com

• Merlo Farming www.merlofarminggroup.com

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Useful Almond Industry websites

Select Harvests Limited (“SHV”) · • Distribution: Health aisle of major supermarkets and...

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