MCGRATHNICOL ADVISORY

WORKING CAPITAL REPORT

2019 Sector Summary

Increase in average DWC driven by growing inventory levels. Welcome

The length of the average Welcome to the 2019 McGrathNicol Advisory Working Capital Report, prepared by our working capital cycle Cash and Working Capital Centre of Excellence. shortened in 2019. This is the seventh consecutive year that we have released our Working Capital Report. This year we have profiled the working capital performance of ASX listed companies This translated to the across the Agriculture, Building Products, Construction & Engineering, Food & equivalent of c.$1.3 billion Beverage Production, Healthcare Services, Mining & Resources, Mining Services, Retail, in additional cash released and Transport & Logistics sectors. The combined market capitalisation of the 140 companies included in the sample is $726 billion, representing close to two thirds of the from the working capital total for the selected sectors. The information is based on the most recent full-year balances of our sampled results for 2019, compared to 2018 results. companies. There was An increase in activity levels was reported across the sectors covered, with 89% of a mix of results at the sampled companies growing revenues during the year. At the same time our sampled company level with only businesses were able to reduce the average time it took to collect their debtors and reduce inventory holdings. Growing revenue and reducing DSO and DIO is a major ”win” half of the businesses in terms of cash flow. achieving a reduction in Not all businesses that achieved revenue growth were able to achieve EBITDA growth, net working capital. This with increasing competition and higher input costs impacting margins. From a working shows that a material capital perspective, there was a shortening of the average supplier payment cycle competitive advantage in 2019. Decreasing DPO is not surprising in the context of higher activity levels as participants compete to secure materials, labour and equipment to meet customer can be achieved by demand and are willing to accept shorter terms from suppliers. implementing best Overall, there was a release in cash from working capital in 2019 but results were mixed practice. across all sectors and within sectors, highlighting that achieving an improvement in working capital is not only desirable to “keep up” with competitors, it also presents an opportunity for material competitive advantage over much of the market. Across the majority of sectors covered, the gap between the “best” and ”worst” performers was in excess of 100 days. In our view, working capital performance is a primary indicator for assessing the overall health of an organisation. It provides significant insight into the way management teams operate and the strength of their relationships with customers, suppliers and other key stakeholders. It is not surprising then that the most significant improvements in 2019 were achieved by management teams who implemented focused working capital improvement programs. The following pages provide a break down by sector and highlight the stronger performers relative to the prior year. Information about our Cash and Working Capital Centre of Excellence, including contact details, is provided at the end of this report.

Jason Ireland Sean Wiles Partner, McGrathNicol Advisory Partner, McGrathNicol Advisory +61 2 9338 2694 +61 434 144 958 +61 2 9248 9986 +61 437 097 180 [email protected] [email protected] 1 Summary

With close to half of sampled companies Average DSO reduced in seven of the DSO reporting higher DSO, this is an area nine sectors covered and 51% of all that presents as a clear opportunity for sampled companies. 2018 2019 Change material competitive advantage. 40.2 38.3 (1.9)

Average DIO increased in four of the nine sectors covered. In three of these DIO Average DIO across the sample reduced (Food & Beverage Production, Retail slightly however only 46% of the sample and Agriculture), inventory balances 2018 2019 Change reported a reduction. represented more than three months 78.4 78.0 (0.4) of sales.

Average DPO decreased in seven of the nine sectors covered. In two of these In six of the seven sectors where DSO DPO (Healthcare and Mining Services), the was reduced, the benefit was passed supplier payment cycle reduced by more onto suppliers through lower DPO. 2018 2019 Change than a week. 66.4 63.5 (2.9)

In four of the sectors with lower average Average DWC decreased in five of the DWC DWC, there was an improvement in both nine sectors and 50% of all sampled collections and inventory management. companies reported lower net working In all sectors with higher average DWC, 2018 2019 Change capital. 49.8 48.9 (0.9) inventory holdings increased. Industry Sector Findings DWC

Agriculture Highest working capital load of all sectors covered with 60% reporting an increase in average DIO. For half of these companies, the increase was two weeks or more. +2.5

Building Products Largest reduction in average DWC of all sectors covered, driven by lower inventory and shorter collection cycles. Two thirds of the sampled companies that reduced average DSO also reduced average DPO. -7.9

Construction & Engineering Continued trend of higher average DSO, although longer payment cycles (influenced by increased use of “reverse factoring”) resulted in a reduction in average DWC. -5.6

Food & Beverage Production Largest increase in average DWC of all sectors covered, driven by higher inventory. Over a third of companies that increased average DIO also paid their suppliers more quickly. +6.4

Healthcare Services Increase in average DWC driven by a decrease in average DPO. Remains the lowest DWC of all sectors covered with collection cycles shorter than supplier payment cycles for the majority of sampled companies. +1.0

Mining & Resources Continued trend of reducing average DWC driven by reduction in average DIO and DSO. Some variability in both metrics across the sample with a broad range of outcomes. -5.1

Mining Services Shorter collection cycles and reduced inventory holdings used to pay suppliers materially more quickly. All of the sampled companies that reduced average DSO also reduced average DPO. -1.7

Retail Only sector covered that reported an increase in both average DIO and DSO. A third of the sample increased average DIO by more than a week. +3.5

Transport & Logistics Largest reduction in average DSO of all sectors drove lower average DWC. “Funding gap” for more than half of the sample (DSO higher than DPO). -6.0

DSO = Days sales outstanding (debtors) DPO = Days purchases outstanding (creditors) DIO = Days inventory outstanding (inventory held) DWC = Days working capital (net working capital) 3 Sector Summary

The longest average working capital cycle of all sectors in 2019 driven by higher inventory loads. Agriculture

Our sample of Agriculture companies primary producers and other operators comprises a mix of viticulture, face including production yields, aquaculture, livestock and grains seasonality and environmental issues, “The continued farming and processing, and agricultural can be difficult to manage. strength in chemicals businesses. Despite some Of the sample, 60% reported an operating cashflow difficult trading conditions tied to increase in DIO and for half of these weather related events, there was an companies, the increase was two weeks generation supports uplift in activity in 2019 with 70% of the or more. All companies that reported ’s strategic sampled companies reporting higher a higher DIO also reported an increase investment in salmon revenue. However, only half of the in DWC. However, two thirds of these sample was able to achieve EBITDA companies lengthened their supplier biomass and capital growth as rising feed and transport payment cycles (higher DPO) to help infrastructure.” costs and inventory write-downs manage the increased cash held in impacted margins. inventory. There were mixed results in A. D. McCallum, Chairman From a working capital perspective, the management of debtor collections, and M. A. Ryan, Managing the average DWC of the sampled with 60% of sampled companies Director and Chief Executive companies increased by 2.5 days to reducing DSO. Officer 83.6 days in 2019, primarily driven by a Huon Aquaculture Group, Treasury Wine Tassal Group Limited Annual Report 2.8 day increase in DIO (inventory). The Estates and Tassal Group achieved the sector reported the highest DWC of all largest DWC improvements in 2019. sampled sectors in 2019. All three were able to do so by bucking As inventory is the main driver of working the sector trend and reducing DIO. For capital performance for Agriculture , the 16.3 day companies, it presents as the area with decrease in DWC was driven by lower the greatest opportunity for companies DIO, contributing to a notional cash to release cash. However, it also brings release of $128.7 million from working challenges as the external factors that capital.

Agriculture Top 5 DWC improvements - Agriculture Days 2018 2019 Change DSO 56.1 55.3 (0.8)

180 16.3 DIO 119.8 122.6 2.8 172.5 165 157.5 DPO 86.6 86.9 0.3 150 153.9 142.5 1.2 DWC 81.1 83.6 2.5 135 127.5 120 128.1 112.5 105 97.5 90 2.5 82.5 Best & Worst 75 83.6 67.5 s y Days Best Worst Spread 60 0.2 52.5 D a 45 DSO 6.3 116.4 110.1 37.5 43.6 30 22.5 DIO 24.2 293.7 269.5 15 28.0 BUILDING 13.5 7.5 0 DPO 147.4 26.0 (121.4) 7.5 15 22.5 160 (15.6) 13.3 DWC (33.1) 216.2 249.3 30 140 37.5 33.1 120 128.8 (13.5) 45 s 100 52.5 y (4.0) 60 80 94.9 (7.7) (3.4) D a 60 73.6 40 56.9 62.5 Huon Aquaculture Group Limited 20 Huon Aquaculture Treasury- Tassal Group(9.6) Ruralco Peer group Days 2018 2019 Change Group Wine Estates(20) Limited(29.3) Holdings Limited average Limited Limited(40) Limited rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou DSO 36.3 37.4 1.1 DWC at 30 June (or latest available) DIO 27.1 24.2 (2.9) 2018 2019 DPO 105.8 127.0 21.2 DWC (5.1) (33.1) (28.0)

5 Sector Summary

A material reduction in DWC driven by shorter collection cycles (lower DSO) and better inventory management (lower DIO). Building Products

Despite a softening in residential progress and finished goods held means construction activity, continued that there is no single “sector answer” to government funded infrastructure improvement. Instead, a combination of “Cash flow from investment drove growth in the Building direct initiatives to improve supply chain operations increased Products sector, with 80% of our sample efficiencies and better align product reporting an increase in revenue and development with market demands by $20.5 million EBITDA in 2019. The majority of our is required. In 2019, 60% of sampled … supported by sample also reported new acquisitions, companies were able to reduce DIO. improvements to divestments, or both. Half of these companies did so by 20 working capital In terms of working capital performance, days or more which helps to create a average DWC fell by 7.9 days to 75.1 significant competitive advantage for management.” days in 2019. This was driven by a 5.6 day those operators. reduction in DSO coupled with a 7.5 day Of the sample, 60% reduced DSO. Zlatko Todorcevski decrease in DIO. Within that group, two thirds of Chairman the companies also reduced DPO, Adelaide Brighton Limited The sector had the second highest Annual Report working capital load (DWC) of all suggesting that the benefit of faster sampled sectors, driven by large collections was passed on (at least in inventory holdings that reflect the part) to suppliers. This follows a similar nature of activities undertaken trend to the prior year. by market participants (including Reliance Worldwide Corporation, CSR wholesale, retail and project work). and achieved the most Customers also typically require quick material improvements of the sampled access to product. That said, those companies in terms of DWC reduction. participants supplying into projects do Fletcher Building delivered a 10.4 day have some leverage by requiring prompt reduction in DWC driven by the improved payment for continuity of supply. collection of its debtors. It reported Effective inventory management is the lower DSO in four of its five materials and distribution divisions in 2019 (relative to key differentiator in the Building Products Building Products sector. The mix of raw materials, work in the prior year). Days 2018 2019 Change DSO 57.4 51.8 (5.6) Top 5 DWC improvements - Building Products DIO 99.3 91.8 (7.5)

31.5 DPO 59.2 55.5 (3.7) 160 DWC 83.0 75.1 (7.9) 140

120 128.4 Best & Worst

100 Days Best Worst Spread 7.9 DSO 34.9 73.5 38.6

s 10.4 y 80 16.9

D a 9.0 DIO 48.5 144.5 96.0 72.4 5.2 75.1 60 DPO 92.4 31.0 (61.4) 59.5 62.3 55.5 BUILDING DWC 43.9 128.4 84.5 40

160 (15.6) 20 140 120 128.8 (13.5) Reliance Worldwide Corporation Limited

s 100 y (4.0) 0 80 94.9 (7.7) (3.4) Days 2018 2019 Change D a 60 73.6 56.9 62.5 40 DSO 92.8 73.5 (19.3) Reliance CR20- Fletcher Building(9.6) Wagners Adelaide Peer group Worldwide Limited(20) Limited(29.3) Holding Company Brighton average DIO 163.5 131.0 (32.5) Corporation Limited (40)oetryrc orctec ameot Limited are roueer rouLimited roumte mtemteutremte c aerae DPO 49.3 36.1 (13.2) DWC at 30 June (or latest available) DWC 159.9 128.4 (31.5) 2018 2019 7 Sector Summary

Despite higher DSO, longer supplier payment cycles drove a reduction in average DWC. Construction & Engineering

The government-led uptick in average DPO for the sample, so much infrastructure construction contributed so that, on average, the sample does to 90% of the sample of Construction & not show a “funding gap” - DPO is now “The Group has Engineering companies reporting higher higher than DSO. A contributing factor maintained its strict revenue in 2019. However, only 70% to this has been the increased use of of the sample also achieved EBITDA “reverse factoring” and other supply focus on managing growth. chain financing encouraged by larger working capital The average DWC of our sampled businesses to their suppliers to offset and generating extended payment terms. companies fell by 5.6 days to 32.8 days in sustainable cash- 2019, with 50% of the sample showing For our sample, we also noted a general improvement. This was driven by an trend over recent years of DSO drifting backed profits.” average 12.4 day lengthening of the upward due to developers and end- supplier payment cycle (to 87.6 days) clients becoming more demanding in Operating and Financial Review and lower inventory holdings (DIO down examining and approving claims. This CIMIC Group Limited 1.9 days to 22.3 days). means that there is increasing pressure Annual Report In our past reports, this sector was on the sector to look for continued characterised by relatively long process improvement initiatives collection cycles (DSO) and shorter (coupled with the above financing creditor payment timeframes (DPO) strategies) to keep billing and collection creating a “structural funding gap”. cycles as short as possible. In 2019, 60% of sampled companies SRG Global was the biggest improver in reported a “funding gap” and two thirds 2019, with a 35.8 day decrease in DWC experienced an increase in the size of driven by reductions in DIO and DSO of the gap from the prior year. However, 26.7 days and 22.1 days, respectively a number of companies were able (that allowed the business to pay its to extend the length of their supplier suppliers nearly a week more quickly payment cycle. Notably, half of the than the previous year). This unlocked a sample did so by two weeks or more. notional $23.3 million in additional cash This resulted in a material increase in from working capital. Construction & Engineering Days 2018 2019 Change DSO 71.7 77.7 6.0 Top 5 DWC improvements - Construction & Engineering DIO 24.2 22.3 (1.9) DPO 75.2 87.6 12.4

120 DWC 38.4 32.8 (5.6) 35.8 12.0

94.1 80 4.5 63.7 5.6 Best & Worst 40 57.0 s

y BUILDING Days Best Worst Spread 5.6 32.8 D a 0 DSO 50.2 141.8 91.6 160 (15.6) 140 4.4 40 120 128.8 (13.5) DIO - 159.6 159.6 s 60.4100 y (4.0) 80 94.9 (7.7) (3.4) DPO 270.1 30.7 (239.4) D a 73.6 80 20.760 62.5 40 56.9 DWC (60.4) 94.1 154.5 20- (9.6) RG Global CMC Group(20) Engenco(29.3) Downer ED ervice tream Peer group Limited Limited(40) Limited Limited Limited average rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou SRG Global Limited DWC at 30 June (or latest available) 2018 2019 Days 2018 2019 Change DSO 110.0 87.9 (22.1) DIO 46.1 19.4 (26.7) DPO 73.1 67.4 (5.7) DWC 99.5 63.7 (35.8)

9 Sector Summary

Increase in average DWC driven by growing inventory levels and shorter supplier payment cycles. Food & Beverage Production

Our sample of Food & Beverage The combination of these factors Production companies reported increased the cash tied up in working an average increase in revenue of capital by 6.4 days to 64.2 days in 2019. “Cash realisation 11% during 2019. All aside from one This reversed the trend over the last two from continuing company achieved top-line growth, years of net working capital reductions which was largely driven by higher for this sample of companies. The operations was offshore sales (particularly into the Asian higher DWC in 2019 was primarily higher than the market) for dairy and other products. driven by a 10.1 day increase in average comparative However, an increasingly competitive DIO, with 69% of companies holding environment and higher direct costs inventory for longer. In addition, close period...due to the impacted margins with only 46% of to two thirds of the sample paid their reduction in working sampled companies delivering EBITDA suppliers more quickly in 2019, resulting growth in 2019. in average DPO decreasing by 2.5 days. capital in the year.” International expansion and Over a third of the companies sampled Operating and Financial Review competition create a number of experienced both an increase in DIO and a decrease in DPO, exacerbating the Coca-Cola Amatil Limited challenges for managing working capital Annual Report as companies diversify product offerings working capital “strain” in a sector that is and supply chains become more already recognised for requiring a higher complex. Food & Beverage Production level of working capital investment than companies are also typically required to other sectors. manage a range of logistical functions Despite the increase in average DWC including manufacturing, packaging across our sample, many companies and distribution. A common theme for showed improvement in 2019 (some operators in the sector in 2019 has been considerable) including Keytone Dairy, a focus on supply chain management and Coca-Cola Amatil. through direct sourcing of inputs, and Coca-Cola Amatil reported a 10.2 day entering into longer-term supply and reduction in DWC, resulting in a notional partnership arrangements to secure cash release of over $130 million from supply and reduce price volatility. working capital. Food & Beverage Production Days 2018 2019 Change DSO 44.3 42.9 (1.4) Top 5 DWC improvements - Food & Beverage Production DIO 85.2 95.3 10.1 DPO 68.0 65.5 (2.5)

100 DWC 57.8 64.2 6.4

10.2 80 14.9 6.4 Best & Worst 60 67.9 6.8 64.2 Days Best Worst Spread s

y 49.9 40 45.5 DSO 1.3 82.9 81.6 D a 15.1 BUILDING DIO 5.4 193.4 188.0 20 6.2 DPO 113.3 35.8 (77.5) 160 (15.6) 3.4 0 140 DWC (25.3) 176.8 202.1 120 128.8 (13.5) 1.2 s 100 y (4.0) 20 80 94.9 (7.7) (3.4) D a 60 73.6 40 56.9 62.5 eytone Dairy Bega Cheese20- Coca-Cola(9.6) ynlait Milk Dominos Pizza Peer group Keytone Dairy Corporation Limited Corporation Limited(20) Amatil(29.3) Limited Enterprises average Days 2018 2019 Change Limited (40) Limited Limited rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou DSO 15.7 24.9 9.2 DWC at 30 June (or latest available) 2018 2019 DIO 44.9 48.5 3.6 DPO 36.0 77.8 41.8 DWC 21.3 6.2 (15.1)

11 Sector Summary

The lowest DWC of all sector samples despite an increase in average DWC during the year. Healthcare Services

Amid changing market conditions Notwithstanding the above, collection influenced by regulatory reform and terms are typically shorter than supplier the impending Aged Care Royal payment terms for Healthcare Services “Its strong balance Commission, our sample of Healthcare companies. The gap between the two sheet, derived from Services companies achieved average cycles was 68.9 days (on average), and revenue growth of 12% during 2019. all but one of the sampled companies consistent cash Approximately 85% of the sampled benefited from this gap. A number generation, has companies reported top-line growth, of companies also held little or no provided confidence driven by a mix of acquisitions and new inventory. for investors in the clinic and facility openings. However, only Monash IVF Group was the biggest 54% of the sample was able to achieve improver in 2019 with a 4.6 day long-term health of EBITDA growth. reduction in DWC, by reducing DSO the Company.” The average DWC for our sampled by 1.2 days and extending supplier companies was 9.9 days in 2019 payments (increasing DPO) by 13.6 Mark Smith highlighting that Healthcare Services days. This assisted the business to Chairman companies are relatively “light” in terms reduce its debt by c.$9 million during Australian Pharmaceutical of working capital burden. In 2019, the the year. Whilst this sector reported Industries Limited average DWC increased by 1.0 day, the lowest DWC, the range between Annual Report driven by an 8.1 day decrease in DPO, the highest and lowest was over with 69% of the sample paying suppliers 42 days suggesting opportunity more quickly. Notably, of the companies for improvement for some sector that reduced DSO (or shortened their participants. collection cycles), 67% passed the benefit onto their suppliers in part or in full by paying them more quickly.

Top 5 DWC improvements - Healthcare Services Healthcare Services

40 Days 2018 2019 Change 0.5 0.1 DSO 21.1 21.0 (0.1) s

y 20 27.1 4.6 BUILDING 24.9 1.0 D a 2.6 DIO 21.6 22.4 0.8 2.0 5.7 1.3 9.9 0 160 (15.6) DPO 98.0 89.9 (8.1) 140 120 128.8 (13.5) 5.6 DWC 8.9 9.9 1.0 20 s 100 y (4.0) 80 94.9 (7.7) (3.4) D a 73.6 60 62.5 Monash F 1300 miles40 National 56.9onic Australian Peer group 20 Group Limited- eterinary(9.6) Care Healthcare Pharmaceutical average Best & Worst Limited (20) Ltd (29.3) Limited ndustries (40) Limited rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou Days Best Worst Spread DWC at 30 June (or latest available) DSO 2.6 59.3 56.7 2018 2019 DIO - 54.9 54.9 DPO 166.6 9.7 (156.9) DWC (5.6) 36.7 42.3

Monash IVF Group Limited Days 2018 2019 Change DSO 7.8 6.6 (1.2) DIO 34.6 35.2 0.6 DPO 25.2 38.8 13.6 DWC 10.3 5.7 (4.6)

13 Sector Summary

Decrease in average DWC driven by lower inventory levels (DIO) and shorter collection cycles (DSO). Mining & Resources

In 2019, 91% of our sampled Mining part) to their suppliers by paying more & Resources companies delivered quickly. Across the sample, average an increase in revenue, largely fuelled DPO fell by 5.6 days. “Our strength is by stronger iron ore and gold prices. Inventory holdings typically soak up demonstrated by our Notably, only 66% of the sample was the most working capital in the mining solid cash flow.” able to translate this into EBITDA industry. However, the buoyant market growth with a number of participants conditions allowed 63% of the sample to Michelle Li, Chairperson referencing softer prices for copper and reduce inventory holdings and increase liquefied natural gas, adverse weather and Honglin Zhao, Chief the throughput of production to sales Executive Officer events and production outages as key in 2019. As a result, average DIO fell by Grange Resources Limited reasons for lower earnings. 6.1 days. Interestingly, the average DIO Annual Report The average DWC for the sample for the ten largest companies in the decreased by 5.1 days to 35.7 days sector (contributing 90% of combined in 2019. This was driven by a 4.7 day revenue) actually increased by 3.0 days. reduction in average DSO, with 53% of This highlights the differences in the the sample shortening their collection production profile of these companies cycles. Growing revenue and reducing when compared to the smaller DSO is a major “win” in terms of cash operators and their ability to stockpile flow. However, the variability in DSO and some inventory whilst still delivering the fact that nearly half of the sample sales growth. collected more slowly in 2019 reinforces Oz Minerals, Grange Resources and the importance of billing and debtors Stanmore Coal achieved the biggest management as part of any plan to DWC improvements in 2019, unlocking manage working capital. Of the sampled a combined total of $214.6 million in companies that were able to reduce cash from working capital. DSO, 71% passed this on (at least in

Top 5 DWC improvements - Mining & Resources Mining & Resources Days 2018 2019 Change

120 DSO 31.8 27.1 (4.7) 44.4 38.4 DIO 71.7 65.6 (6.1) 100 DPO 58.6 53.0 (5.6) 80 22.5 DWC 40.8 35.7 (5.1)

s 71.7 y 60 66.2 D a 28.8 5.1 BUILDING 53.6 Best & Worst 40 36.2 Days Best Worst Spread 160 (15.6) 35.7 20 140 120 128.8 (13.5) DSO - 120.5 120.5

s 100 17.7 y 0.5 (4.0) 0 80 94.9 (7.7) (3.4) DIO 21.7 158.4 136.7 D a 60 73.6 40 56.9 62.5 DPO 134.2 3.5 (130.7) z Minerals Grange20- tanmore(9.6) Westgold ndependence Peer group Limited Resources(20) Coal (29.3) Resources Group average DWC 0.5 134.4 133.9 Limited(40) Limited Limited NL rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou DWC at 30 June (or latest available) 2018 2019 Oz Minerals Limited Days 2018 2019 Change DSO 50.5 23.2 (27.3) DIO 163.4 158.4 (5.0) DPO 58.6 83.1 24.5 DWC 110.6 66.2 (44.4)

15 Sector Summary

Shorter collection cycles (lower DSO) and reduced inventory holdings (lower DIO) used to pay suppliers more quickly (lower DPO). Mining Services

The Mining Services sector benefited equipment, materials and contracted from a ramp up in mining production labour to meet customer demand buoyed by strong commodities prices and are willing to accept shorter terms “...we now have in 2019, which drove demand for rental from their suppliers. Equally, debtors strong earnings assets and ancillary services. This management is an area that requires resulted in all of our sampled companies close attention for companies operating and cash flows reporting an increase in revenue and in this sector, particularly the conversion through prudent 80% delivering EBITDA growth in 2019. of work to billings (and ultimately cash). balance sheet Whilst the broader sample showed Across our sample, BlueScope Steel, management...” a reduction in average DWC in 2019 Emeco Holdings, Boart Longyear and (by 1.7 days to 51.2 days) only half of reported John Bevan the companies covered achieved the the largest improvements in DWC Chairman reduction, highlighting a wide range of in 2019. Sims Metal Management BlueScope Steel Limited outcomes in the sector. reported a c.$90 million cash release Annual Report The relatively small movement in from working capital. This was average DWC was underpinned by driven by a reduction in inventory relatively large movements across all holdings and lower debtors attributed three metrics. On average, companies to a global initiative to maximise collected more quickly (DSO reduced by collections during the second half of 4.9 days) and reduced inventory (DIO) by the year. 2.2 days. However, those improvements The sector has experienced material were mostly offset by a 12.1 day fluctuations in fortunes over the past reduction in DPO as suppliers were paid eight years. Successful operators more quickly. are those with working capital (and Decreasing DPO is not surprising in the therefore cash flow) management high context of sector growth during 2019 on their agenda. as participants compete to secure Mining Services Top 5 DWC improvements - Mining Services Days 2018 2019 Change DSO 56.4 51.5 (4.9) DIO 67.5 65.3 (2.2) 120 9.4 DPO 83.1 71.0 (12.1) 100 104.5 DWC 52.9 51.2 (1.7)

80

11.4 60 9.6 1.7 Best & Worst Days Best Worst Spread s BUILDING 51.2 y 40 46.5 46.0 9.1 3.8

D a DSO 15.2 96.3 81.1 160 (15.6) 20 140 28.6 DIO 9.1 161.3 152.2 120 128.8 (13.5) 21.5

s 100 y (4.0) DPO 201.6 20.4 (181.2) 0 80 94.9 (7.7) (3.4) D a 60 73.6 40 56.9 62.5 DWC (22.6) 104.5 127.1 Bluecope Emeco20- Boart(9.6) ims Metal NRW Peer group teel Holdings(20) Longyear(29.3) Management Holdings average Limited Limited(40)oetryrc Limitedorctec ameot Limited are roueer rouLimited roumte mtemteutremte c aerae BlueScope Steel Limited DWC at 30 June (or latest available) Days 2018 2019 Change 2018 2019 DSO 40.7 32.0 (8.7) DIO 106.1 99.6 (6.5) DPO 76.3 75.3 (1.0) DWC 57.9 46.5 (11.4)

17 Sector Summary

Lengthening of the working capital cycle driven by an increase in inventory (DIO). Retail

Our sample of Retail companies increased by 2.7 days to 126.1 days (or delivered average revenue growth of over four months of inventory holdings), 9% in 2019, with 85% reporting an suggesting that retailers are still trying to “Maintaining increase. Growth within the subset of adjust to changing purchasing behaviour appropriate supermarket/food retailers was more and distribution models. Of particular modest. The uptick in revenues did not note was that more than a third of the inventory levels translate to a blanket improvement in sampled retailers reported an increase in to fulfil customer EBITDA, with one in four of the sampled DIO of more than a week. needs continues to companies experiencing a contraction This is the second consecutive year be a key focus of the in earnings. This suggests that there that the length of the payment continues to be pressure on margins cycle shortened, with average DPO business.” and a limited ability for some retailers to decreasing by 1.6 days to 49.1 days. pass on cost increases to consumers in Average DSO was relatively stable, with Ian Cornell a highly competitive environment. a reported increase of 0.6 days to 22.3 Chairman The investment in working capital also days. Baby Bunting Group Limited Annual Report increased in 2019, with the average The mix of participants and business DWC of the sampled retailers increasing models in the sector is broad, producing by 3.5 days to 58.4 days. Of the sample, a wide spread of working capital cycles. 55% reported an increase in DWC and Notably, the two major food retailers over 66% of those companies took on reported negative DWC. The biggest more debt, at least in part, to manage improver in 2019 was PWR Holdings, the extra working capital load. which reported a 13.9 day reduction For most retailers, inventory remains in DWC. It was one of four retailers in the biggest driver of working capital our sample to report an improvement performance. Across the sample, DIO across all three metrics.

Top 5 DWC improvements - Retail Retail Days 2018 2019 Change 120 12.6 DSO 21.7 22.3 0.6 100 DIO 123.4 126.1 2.7 98.5 2.7 DPO 50.7 49.1 (1.6) 80 13.6 83.0 13.9 DWC 54.9 58.4 3.5 s 3.5 y 60 D a 60.6 7.5 58.4 53.0 BUILDING 40 37.6 Best & Worst 160 (15.6) 20 140 Days Best Worst Spread 120 128.8 (13.5)

s 100 y (4.0) DSO 0.1 117.3 117.2 0 80 94.9 (7.7) (3.4) D a 60 73.6 40 56.9 62.5 DIO 16.8 302.7 285.9 20 PWR Automotive- MotorCycle(9.6) Baby Bunting Autosports Peer group DPO 98.9 7.2 (91.7) Holdings Holdings(20) Group Holdings(29.3) Group Group average Limited Limited(40) Limited Limited Limited rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou DWC (5.0) 145.9 150.9 DWC at 30 June (or latest available) 2018 2019 PWR Holdings Limited Days 2018 2019 Change DSO 28.5 26.2 (2.3) DIO 249.3 188.5 (60.8) DPO 48.6 62.4 13.8 DWC 66.9 53.0 (13.9)

19 Sector Summary

Large reduction in DWC driven by shorter average collection cycles (lower DSO). Transport & Logistics

Our sample of Transport & Logistics the size of the gap through better companies reported an average debtor collection efficiency. Given growth in revenue of 13% in 2019 as that the sector is typically defined by “Continuing to drive activity levels increased on the back suppliers (fuel, subcontracted labour, growth in earnings of favourable trading conditions for warehousing) that are inflexible on customers in the Mining & Resources, terms, the ability to tightly manage and cash flow will Food & Beverage Production and debtor collections is critical for Transport further enhance Construction & Engineering sectors. & Logistics companies in managing cash shareholder returns.” Whilst a number of operators delivered flow and avoiding liquidity pressures. improvements in network efficiency, On the payments side, average DPO Vik Bansal only 78% of the sample reported decreased by 2.4 days. Of the sampled Chief Executive Officer and EBITDA growth as rising fuel costs companies that reduced DSO, 60% also Managing Director and other cost pressures dampened paid their suppliers more quickly in 2019. Waste Management margins. Inventory loads remained relatively Limited Average DWC decreased by 6.0 days stable (and relatively low). Annual Report to 42.7 days in 2019, with two thirds of Brambles, MMA Offshore and Auckland the sample reducing their net working International Airport achieved the capital load. This was driven by a 7.2 biggest DWC improvements in 2019. day reduction in DSO. Notably, it was Whilst still carrying a higher working the second consecutive year that capital load than a number of its peers, our sample of Transport & Logistics MMA Offshore was able to reduce the operators were able to shorten length of its net working capital cycle by collection cycles. Of the companies that over three weeks, equating to a release reduced DSO, 80% were able to do so by of approximately $16 million in cash. more than two weeks. Note: airlines were excluded from our Whilst 55% of the sample reported sample due to the contrasting nature a structural ”funding gap” (meaning of their working capital cycles (often companies paid their suppliers on negative) and the size and scale of their Transport & Logistics shorter terms than they collected from operations (which disproportionately Days 2018 2019 Change their customers), all aside from two of skew the sample set). these companies were able to reduce DSO 69.8 62.6 (7.2) DIO 12.4 11.6 (0.8) DPO 61.7 59.3 (2.4) Top 5 DWC improvements - Transport & Logistics DWC 48.7 42.7 (6.0)

100 24.6 Best & Worst 80 Days Best Worst Spread

60 28.7 69.3 13.2 DSO 5.2 121.3 116.1 6.0 DIO - 39.1 39.1 40 4.9 s 44.2 42.7 y DPO 102.1 13.1 (89.0)

D a BUILDING 20 26.3 17.7 28.9 DWC (0.3) 106.5 106.8 160 (15.6) 0 140 120 128.8 (13.5) 0.3 s 100 y (4.0) 20 80 94.9 (7.7) (3.4) D a 60 73.6 40 56.9 62.5 Days 2018 2019 Change Brambles MMA Offshore20- Auckland Cleanaway Waste ube Peer group (9.6) DSO 93.1 54.9 (38.2) Limited Limited(20) International(29.3) Management Holdings average (40) Airport Limited Limited Limited rouomteetry rcmte orctecmte ameutreot amter ce rouaeere r aerou DIO 7.4 7.0 (0.4) DWC at 30 June (or latest available) DPO 64.6 49.5 (15.1) 2018 2019 DWC 55.0 26.3 (28.7)

21 Basis of Preparation

Data used in this publication has been Peer group sample GICS groups included sourced from the S&P Capital IQ platform. Agriculture Food products Beverages Peer group classification Chemicals Distributors The Agriculture, Building Products, Construction & Engineering, Food Building Products Construction materials & Beverage Production, Healthcare Building products Services, Mining & Resources, Mining Trading companies and distributors Services, Retail and Transport & Logistics peer group samples underpinning this Construction & Engineering Construction and engineering report have been selected according Commercial services and supplies to the Global Industry Classification Machinery Standard (“GICS”) listed in the table Energy equipment and services opposite. Semiconductors and semiconductor equipment Accounting periods Food & Beverage Production Food products Financial information in this publication Personal products draws from the most recently published Chemicals full year accounts as at 15 October 2019 (i.e. the most recently published full year Beverages financial information prior to this date Hotels, restaurants and leisure has been used). Prior year comparable figures may differ from our 2018 report Healthcare Services Healthcare providers and services for companies in the sample that Mining & Resources Metals and mining adjusted their 2018 accounts following Oil, gas and consumable fuels the release of our report or restated them when presenting current year Mining Services Metals and mining results. Adjustments may occur if there Trading companies and distributors has been a change in accounting policy. Construction and engineering Chemicals

Retail Specialty retail Commercial services and supplies Auto components Electronic equipment, instruments and components Distributors Household durables Food and staples retailing Multiline retail Internet and direct marketing retail

Transport & Logistics Road and rail Transportation infrastructure Commercial services and supplies Consumer finance Air freight and logistics Energy equipment and services

The full peer group samples are included on pages 25 - 29. Basis of Preparation

Source data Days purchases outstanding Days Inventory Outstanding This publication contains high level Creditors include GST, whilst cost of sales (“DIO”) financial information sourced from the do not. To the extent that a company DIO is the number of days’ worth of S&P Capital IQ database of the latest acquires inventory or input services in purchases represented by the inventory available published financial statements (or another jurisdiction that balances at the relevant calculation date. of ASX listed entities for the 2019 levies a consumption tax), results will vary. The calculation used in this publication is: financial year. The information contained To the extent that a company has more herein is based on sources we believe or less labour included in its cost of sales, nventory reliable, but we do not guarantee its results will vary. D x 365 Cost of ales accuracy, and it should be understood In addition, to the extent that there to be general information only. The has been an accounting adjustment A low DIO metric is desirable and indicates information is not intended to be taken that has affected a company’s sales, a relatively high turnover of inventory. as advice with respect to any specific purchases, debtors, inventory or organisation or situation and cannot be creditors, this has not been isolated in Days Working Capital (“DWC”) relied upon as such. the analysis and may be reflected as a DWC is a relative measure of total McGrathNicol accepts no responsibility change in working capital. working capital tied up in a company for errors or omissions in financial relative to sales. The calculation used in information underpinning this publication, Calculation methodology this publication is: nor the loss of any person arising from use of or reliance on information herein. The working capital metrics referred Debtors + nventory All readers of this publication must make to in this report have been calculated, - Creditors their own enquiries or obtain professional as follows: DWC x 365 advice in relation to any issue or matter ales referred to in this publication. Days Sales Outstanding (“DSO”) A low DWC metric is favourable as it DSO is the number of days’ worth of indicates a low level of working capital sales represented by the outstanding Limitations relative to the size of the business. debtors at the relevant calculation date. McGrathNicol acknowledges that at the The calculation used in this publication is: level of detail applied, the analysis has limitations, some of which are noted Debtors below. For this reason, the analysis D x 365 focuses on performance relative to the ales prior period, rather than in absolute terms against peers. A low DSO metric is desirable and indicates that it takes a relatively low number of days for a company to Days sales outstanding collect debtors. Debtors include GST, whilst sales do not. To the extent that a company makes Days Purchases Outstanding more or less of its sales in Australia (“DPO”) (or another jurisdiction that levies a consumption tax), results will vary. DPO is the number of days’ worth of purchases represented by the outstanding creditors at the relevant Days inventory outstanding calculation date. The calculation used To the extent that a company has more in this publication is: or less labour included in its cost of sales, Creditors results will vary. DP x 365 Cost of ales

A low DPO metric indicates that it takes fewer days for a company to pay its trade creditors. A high DPO is desirable from a cash flow and working capital management perspective, but can be an indicator of tight liquidity and the cause of strained supplier relationships.

23 Cash & Working Capital Centre of Excellence

Cash is the lifeblood of business. The capacity to turn sales into cash faster reduces the cost of running a business and provides a material competitive advantage. State contacts Our Cash and Working Capital Centre of Excellence is focused on increasing cash flow for our clients by using our Cash Flow Optimisation System to forecast, track, save and generate cash. Jason Ireland +61 2 9338 2694 [email protected] Cash Flow Optimisation System Sean Wiles +61 2 9248 9986 [email protected]

Brisbane Insightful analytics and benchmarking Staff training and coaching Anthony Connelly +61 7 3333 9806 [email protected] Graham Newton +61 7 3333 9875 [email protected] Tools and techniques to increase Tailored and flexible forecasting and visibility and accountability over variance analysis Canberra cash flow Shane O’Keeffe +61 2 6222 1420 [email protected]

Melbourne Matthew Caddy +61 3 9038 3157 Dashboard reporting Clear policies and procedures [email protected] templates to clarify responsibility and Rob Smith drive improvement +61 3 9038 3166 [email protected]

Perth Rob Brauer +61 8 6363 7603 Staff incentive plans linked Planning for growth [email protected] to cash flow, not just profit Rob Kirman +61 8 6363 7685 Our Cash and Working Capital Health Check can help you determine which parts of [email protected] our Cash Flow Optimisation System will best benefit you and calculate the “size of the prize” available for your business.

Report authors Contributors Jason Ireland Ali Abdo Damien Pasfield Sean Wiles Paddy Hayes Adam Ryan Adam Blogg Isabella Horne Rhyan Stephens Grace Chessman Sharan Kandola Sarah Wright Stefan Maricic Michael May Yvonne Young Chloe Miller Findings

Agriculture DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change Australian Vintage Limited 65.2 60.3 (4.9) 279.1 293.7 14.6 74.9 77.8 2.9 214.9 216.2 1.3 82.2 94.5 12.3 45.5 52.0 6.5 91.9 94.2 2.3 45.6 61.5 15.9 GrainCorp Limited 28.8 36.3 7.5 58.4 86.7 28.3 19.5 26.0 6.5 59.6 85.9 26.3 Huon Aquaculture Group Limited 36.3 37.4 1.1 27.1 24.2 (2.9) 105.8 127.0 21.2 (5.1) (33.1) (28.0) Inghams Group Limited 27.7 26.2 (1.5) 27.5 29.7 2.2 46.5 43.7 (2.8) 12.2 14.7 2.5 Nufarm Limited 116.7 116.4 (0.3) 183.7 163.4 (20.3) 169.4 147.4 (22.0) 126.9 128.1 1.2 Ruralco Holdings Limited 72.2 69.3 (2.9) 39.2 42.8 3.6 74.4 74.1 (0.3) 43.4 43.6 0.2 Seafarms Group Limited 55.8 37.7 (18.1) 190.1 246.6 56.5 99.6 103.5 3.9 143.5 178.2 34.7 Tassal Group Limited 7.6 6.3 (1.3) 90.1 61.6 (28.5) 103.2 98.1 (5.1) 0.2 (13.3) (13.5) Treasury Wine Estates Limited 68.4 68.8 0.4 257.4 225.0 (32.4) 80.3 77.3 (3.0) 170.2 153.9 (16.3) Peer group average 56.1 55.3 (0.8) 119.8 122.6 2.8 86.6 86.9 0.3 81.1 83.6 2.5

Building Products DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change Adelaide Brighton Limited 54.0 45.8 (8.2) 48.0 48.5 0.5 40.1 36.6 (3.5) 60.7 55.5 (5.2) Limited 56.3 53.3 (3.0) 60.5 64.9 4.4 74.2 79.0 4.8 47.3 43.9 (3.4) 47.4 51.2 3.8 147.6 144.5 (3.1) 74.2 75.0 0.8 97.0 98.4 1.4 CSR Limited 45.2 37.5 (7.7) 114.4 84.8 (29.6) 67.6 53.4 (14.2) 76.4 59.5 (16.9) Fletcher Building Limited 61.2 47.0 (14.2) 86.6 81.2 (5.4) 59.6 46.1 (13.5) 82.8 72.4 (10.4) GWA Group Limited 62.4 67.1 4.7 125.0 128.1 3.1 82.2 92.4 10.2 86.8 87.5 0.7 plc 34.5 34.9 0.4 70.5 69.1 (1.4) 30.8 31.0 0.2 60.1 60.4 0.3 Reece Limited 52.8 53.5 0.7 109.6 88.8 (20.8) 58.2 48.9 (9.3) 87.3 82.3 (5.0) Reliance Worldwide Corporation Limited 92.8 73.5 (19.3) 163.5 131.0 (32.5) 49.3 36.1 (13.2) 159.9 128.4 (31.5) Wagners Holding Company Limited 67.1 54.3 (12.8) 66.9 77.0 10.1 56.1 56.6 0.5 71.3 62.3 (9.0) Peer group average 57.4 51.8 (5.6) 99.3 91.8 (7.5) 59.2 55.5 (3.7) 83.0 75.1 (7.9)

Construction & Engineering DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change CIMIC Group Limited 83.3 73.6 (9.7) 11.3 14.9 3.6 253.7 270.1 16.4 (39.7) (60.4) (20.7) Decmil Group Limited 77.5 76.7 (0.8) - - - 40.1 37.5 (2.6) 41.6 42.6 1.0 Downer EDI Limited 62.3 55.5 (6.8) 16.4 17.6 1.2 139.2 139.2 - 1.2 (4.4) (5.6) Engenco Limited 55.1 50.2 (4.9) 161.9 159.6 (2.3) 57.0 67.9 10.9 106.1 94.1 (12.0) Johns Lyng Group Limited 44.9 56.8 11.9 1.0 1.1 0.1 57.4 69.2 11.8 0.3 2.5 2.2 Monadelphous Group Limited 44.9 61.4 16.5 - 1.2 1.2 15.8 30.7 14.9 30.5 34.5 4.0 Service Stream Limited 71.5 75.5 4.0 3.1 6.9 3.8 20.2 37.6 17.4 61.5 57.0 (4.5) Southern Cross Electrical Engineering 79.1 97.2 18.1 2.6 2.5 (0.1) 31.1 48.7 17.6 54.0 56.7 2.7 Limited SRG Global Limited 110.0 87.9 (22.1) 46.1 19.4 (26.7) 73.1 67.4 (5.7) 99.5 63.7 (35.8) WorleyParsons Limited 88.6 141.8 53.2 - - - 64.8 108.1 43.3 28.9 41.8 12.9 Peer group average 71.7 77.7 6.0 24.2 22.3 (1.9) 75.2 87.6 12.4 38.4 32.8 (5.6)

25 Findings

Food & Beverage Production DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change Bega Cheese Limited 51.7 22.9 (28.8) 79.0 88.8 9.8 67.8 60.3 (7.5) 60.4 45.5 (14.9) Bellamys Australia Limited 48.5 56.6 8.1 149.5 193.4 43.9 87.4 112.1 24.7 90.2 111.9 21.7 Limited 88.5 82.7 (5.8) 157.3 178.6 21.3 149.4 113.3 (36.1) 91.7 110.1 18.4 Bubs Australia Limited 61.6 69.1 7.5 144.2 150.5 6.3 101.4 42.9 (58.5) 100.2 155.5 55.3 Clover Corporation Limited 80.6 82.9 2.3 161.4 191.5 30.1 48.8 55.1 6.3 160.5 176.8 16.3 Coca-Cola Amatil Limited 71.6 65.7 (5.9) 85.2 77.1 (8.1) 74.6 73.5 (1.1) 78.1 67.9 (10.2) Limited 1.3 1.3 - 6.0 5.4 (0.6) 62.0 61.5 (0.5) (25.3) (25.3) - Domino's Pizza Enterprises Limited 23.2 21.4 (1.8) 10.4 10.9 0.5 41.8 46.5 4.7 2.2 (1.2) (3.4) Freedom Foods Group Limited 54.7 58.5 3.8 111.4 122.5 11.1 67.3 58.9 (8.4) 87.9 106.3 18.4 Keytone Dairy Corporation Limited 15.7 24.9 9.2 44.9 48.5 3.6 36.0 77.8 41.8 21.3 6.2 (15.1) Ridley Corporation Limited 38.2 39.4 1.2 33.0 32.9 (0.1) 67.0 62.3 (4.7) 6.7 12.1 5.4 Synlait Milk Limited 19.3 20.4 1.1 74.5 71.8 (2.7) 28.3 35.8 7.5 56.7 49.9 (6.8) Limited 21.1 12.5 (8.6) 51.1 67.0 15.9 52.7 52.0 (0.7) 20.4 19.3 (1.1) Peer group average 44.3 42.9 (1.4) 85.2 95.3 10.1 68.0 65.5 (2.5) 57.8 64.2 6.4

Healthcare Services DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change 1300 Smiles Limited 23.4 16.7 (6.7) 1.6 1.8 0.2 180.1 153.8 (26.3) 3.9 1.3 (2.6) Australian Pharmaceutical Industries 61.3 59.3 (2.0) 40.9 40.9 - 82.3 80.1 (2.2) 24.8 24.9 0.1 Limited Capitol Health Limited 3.8 4.4 0.6 - - - 21.7 9.7 (12.0) 0.3 3.0 2.7 Estia Health Limited 6.0 4.0 (2.0) - - - 119.2 91.0 (28.2) (5.1) (4.0) 1.1 Integral Diagnostics Limited 13.1 15.2 2.1 14.6 13.7 (0.9) 186.4 166.6 (19.8) 5.2 8.4 3.2 Japara Healthcare Limited 6.6 9.2 2.6 - - - 113.1 97.4 (15.7) (3.4) 0.8 4.2 Monash IVF Group Limited 7.8 6.6 (1.2) 34.6 35.2 0.6 25.2 38.8 13.6 10.3 5.7 (4.6) National Veterinary Care Ltd 5.9 6.4 0.5 51.8 54.9 3.1 93.4 105.8 12.4 (3.6) (5.6) (2.0) Limited 45.9 50.2 4.3 47.3 48.6 1.3 132.7 145.1 12.4 26.0 28.5 2.5 Regis Healthcare Limited 2.6 2.6 - 9.8 13.0 3.2 135.9 109.0 (26.9) (4.8) (3.0) 1.8 Limited 49.1 50.4 1.3 33.6 33.8 0.2 50.4 48.6 (1.8) 33.4 36.7 3.3 Limited 34.2 33.6 (0.6) 42.4 43.9 1.5 82.3 84.2 1.9 27.6 27.1 (0.5) Virtus Health Limited 14.6 13.9 (0.7) 3.7 5.8 2.1 51.1 38.9 (12.2) 1.3 4.6 3.3 Peer group average 21.1 21.0 (0.1) 21.6 22.4 0.8 98.0 89.9 (8.1) 8.9 9.9 1.0 Findings

Mining & Resources DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change Base Resources Limited 31.0 65.0 34.0 60.3 54.2 (6.1) 36.2 32.4 (3.8) 45.6 78.7 33.1 Limited 78.8 50.0 (28.8) 44.5 30.1 (14.4) 138.3 98.1 (40.2) 21.5 10.5 (11.0) BHP Group Limited 26.2 28.5 2.3 47.3 47.3 - 75.0 82.7 7.7 7.5 4.8 (2.7) Coronado Global Resources Inc 45.3 38.7 (6.6) 13.1 26.7 13.6 15.2 12.0 (3.2) 43.9 48.5 4.6 Limited 16.9 20.8 3.9 84.6 83.7 (0.9) 48.8 50.5 1.7 43.4 45.8 2.4 Limited 6.4 33.8 27.4 36.7 55.1 18.4 20.1 22.5 2.4 18.2 50.5 32.3 Grange Resources Limited 44.3 31.4 (12.9) 133.0 92.8 (40.2) 39.0 30.8 (8.2) 110.1 71.7 (38.4) Independence Group NL 44.1 22.2 (21.9) 107.3 87.4 (19.9) 18.8 3.5 (15.3) 76.1 53.6 (22.5) Corporation Limited 12.1 12.9 0.8 74.5 78.0 3.5 50.5 49.5 (1.0) 28.3 34.3 6.0 New Hope Corporation Limited 62.0 50.9 (11.1) 42.5 49.1 6.6 54.8 55.4 0.6 56.1 47.5 (8.6) Limited 7.9 13.2 5.3 74.0 79.4 5.4 55.4 61.2 5.8 22.1 26.0 3.9 Northern Star Resources Limited 11.8 17.6 5.8 49.1 37.7 (11.4) 31.8 19.9 (11.9) 23.0 31.6 8.6 OceanaGold Corporation 21.3 9.9 (11.4) 131.2 112.2 (19.0) 162.9 118.8 (44.1) 9.3 6.9 (2.4) OM Holdings Limited 33.6 21.9 (11.7) 118.4 84.2 (34.2) 62.5 29.7 (32.8) 77.7 63.7 (14.0) Oz Minerals Limited 50.5 23.2 (27.3) 163.4 158.4 (5.0) 58.6 83.1 24.5 110.6 66.2 (44.4) Perseus Mining Limited 21.1 7.2 (13.9) 189.5 134.4 (55.1) 148.9 71.5 (77.4) 46.9 49.9 3.0 Ramelius Resources Limited 3.6 7.0 3.4 75.2 48.5 (26.7) 9.2 11.1 1.9 58.1 39.7 (18.4) Regis Resources Limited 12.7 - (12.7) 46.1 50.9 4.8 22.4 26.1 3.7 26.2 15.3 (10.9) Limited 31.4 28.6 (2.8) 47.0 46.4 (0.6) 44.3 43.7 (0.6) 33.2 30.4 (2.8) Sandfire Resources NL 8.8 9.4 0.6 84.2 107.1 22.9 95.6 134.2 38.6 5.9 2.4 (3.5) 51.8 52.0 0.2 42.2 45.1 2.9 65.9 78.8 12.9 34.1 30.5 (3.6) Saracen Mineral Holdings Limited 0.9 0.2 (0.7) 63.9 66.7 2.8 54.0 65.7 11.7 6.6 0.8 (5.8) Silver Lake Resources Limited 3.0 5.4 2.4 44.8 66.6 21.8 42.7 52.4 9.7 4.8 18.3 13.5 Limited 39.9 44.6 4.7 97.4 109.2 11.8 81.7 91.5 9.8 46.9 52.3 5.4 Limited 6.2 7.3 1.1 78.9 75.9 (3.0) 48.1 62.5 14.4 19.8 13.9 (5.9) Stanmore Coal Limited 39.3 18.8 (20.5) 49.1 45.4 (3.7) 52.6 76.4 23.8 36.7 0.5 (36.2) Group Limited 30.6 25.4 (5.2) 43.3 34.2 (9.1) 71.1 64.9 (6.2) 14.3 5.1 (9.2) Westgold Resources Limited 17.0 2.3 (14.7) 73.3 39.6 (33.7) 46.3 24.3 (22.0) 46.5 17.7 (28.8) Whitehaven Coal Limited 15.8 22.8 7.0 48.5 48.1 (0.4) 18.4 20.4 2.0 28.3 35.4 7.1 Ltd 37.3 33.9 (3.4) 32.6 21.7 (10.9) 41.5 29.7 (11.8) 32.6 30.0 (2.6) Yancoal Australia Ltd 92.3 41.5 (50.8) 38.0 36.3 (1.7) 123.4 68.0 (55.4) 45.0 26.7 (18.3) Zimplats Holdings Limited 112.8 120.5 7.7 59.8 45.3 (14.5) 40.6 25.8 (14.8) 125.5 134.4 8.9 Peer group average 31.8 27.1 (4.7) 71.7 65.6 (6.1) 58.6 53.0 (5.6) 40.8 35.7 (5.1)

27 Findings

Mining Services DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change BlueScope Steel Limited 40.7 32.0 (8.7) 106.1 99.6 (6.5) 76.3 75.3 (1.0) 57.9 46.5 (11.4) Boart Longyear Limited 60.1 51.1 (9.0) 101.3 94.5 (6.8) 38.0 30.1 (7.9) 113.9 104.5 (9.4) Emeco Holdings Limited 81.5 63.6 (17.9) 8.8 10.5 1.7 57.5 47.8 (9.7) 55.6 46.0 (9.6) Imdex Limited 78.5 77.9 (0.6) 154.7 161.3 6.6 102.9 98.2 (4.7) 97.3 99.6 2.3 Limited 35.5 29.5 (6.0) 82.5 95.5 13.0 221.6 201.6 (20.0) (33.4) (22.6) 10.8 MACA Limited 80.9 96.3 15.4 7.8 9.1 1.3 30.7 39.1 8.4 58.8 67.1 8.3 Macmahon Holdings Limited 63.4 56.1 (7.3) 46.5 35.7 (10.8) 75.6 45.1 (30.5) 49.9 52.1 2.2 NRW Holdings Limited 62.5 51.8 (10.7) 47.6 37.0 (10.6) 166.9 119.7 (47.2) 32.4 28.6 (3.8) Limited 40.4 41.3 0.9 83.5 82.5 (1.0) 37.3 32.3 (5.0) 65.5 68.6 3.1 Sims Metal Management Limited 20.0 15.2 (4.8) 36.5 27.5 (9.0) 24.4 20.4 (4.0) 30.6 21.5 (9.1) Peer group average 56.4 51.5 (4.9) 67.5 65.3 (2.2) 83.1 71.0 (12.1) 52.9 51.2 (1.7)

Retail DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change A.P. Eagers Limited 14.6 13.9 (0.7) 71.2 74.1 2.9 6.2 7.2 1.0 68.2 69.2 1.0 Accent Group Limited 8.6 12.2 3.6 117.8 141.4 23.6 47.5 61.4 13.9 39.2 46.3 7.1 Adairs Limited 0.9 2.0 1.1 97.9 106.0 8.1 41.4 48.2 6.8 23.4 26.7 3.3 AMA Group Limited 25.0 17.4 (7.6) 48.5 57.2 8.7 88.0 69.4 (18.6) 7.8 12.2 4.4 ARB Corporation Limited 47.2 47.5 0.3 206.8 226.1 19.3 43.6 34.1 (9.5) 121.3 135.0 13.7 Audinate Group Limited 32.3 34.1 1.8 89.2 90.8 1.6 87.5 56.5 (31.0) 32.7 42.9 10.2 Automotive Holdings Group Limited 22.1 16.7 (5.4) 81.4 76.4 (5.0) 13.7 22.4 8.7 74.2 60.6 (13.6) Autosports Group Limited 21.2 21.1 (0.1) 90.3 89.2 (1.1) 13.7 15.2 1.5 85.7 83.0 (2.7) Baby Bunting Group Limited 0.6 0.1 (0.5) 112.9 103.9 (9.0) 46.3 46.3 - 45.1 37.6 (7.5) Bapcor Limited 37.8 38.5 0.7 157.2 172.8 15.6 80.0 75.5 (4.5) 79.5 90.2 10.7 Beacon Lighting Group Limited 14.8 17.4 2.6 281.7 283.0 1.3 27.1 27.1 - 102.1 109.5 7.4 Limited 57.3 72.9 15.6 87.8 113.8 26.0 74.5 91.6 17.1 65.8 87.2 21.4 City Chic Collective Limited 8.8 10.3 1.5 106.7 112.9 6.2 46.9 62.0 15.1 33.3 31.8 (1.5) Limited 2.7 2.1 (0.6) 41.7 24.5 (17.2) 50.9 33.2 (17.7) (4.3) (4.6) (0.3) GUD Holdings Limited 89.0 89.8 0.8 159.2 179.1 19.9 75.0 70.4 (4.6) 131.5 145.4 13.9 Holdings Limited 119.4 117.3 (2.1) 95.0 95.7 0.7 63.1 53.5 (9.6) 140.7 145.9 5.2 JB Hi-Fi Limited 3.0 3.3 0.3 60.4 58.1 (2.3) 39.5 37.4 (2.1) 19.4 19.6 0.2 Kathmandu Holdings Limited 6.1 6.4 0.3 224.5 210.3 (14.2) 48.1 52.2 4.1 70.6 68.2 (2.4) Kogan.com Limited 2.4 4.0 1.6 55.2 79.5 24.3 35.8 34.0 (1.8) 18.0 40.2 22.2 Lovisa Holdings Limited 1.6 4.6 3.0 125.8 170.0 44.2 43.8 68.2 24.4 18.0 24.5 6.5 McPherson's Limited 46.8 50.9 4.1 125.2 120.4 (4.8) 53.2 57.2 4.0 85.2 84.3 (0.9) Limited 40.0 38.9 (1.1) 24.7 25.0 0.3 62.3 63.1 0.8 6.3 4.7 (1.6) Michael Hill International Limited 13.5 15.8 2.3 336.0 302.7 (33.3) 43.2 34.9 (8.3) 119.7 117.6 (2.1) MotorCycle Holdings Limited 8.7 9.5 0.8 148.5 131.9 (16.6) 12.6 11.8 (0.8) 111.1 98.5 (12.6) Myer Holdings Limited 0.5 1.2 0.7 96.5 94.8 (1.7) 50.0 51.2 1.2 27.3 26.0 (1.3) Nick Scali Limited 0.6 0.4 (0.2) 141.1 138.1 (3.0) 45.2 41.1 (4.1) 36.4 36.3 (0.1) Noni B Limited 5.2 2.3 (2.9) 125.1 159.2 34.1 111.5 69.3 (42.2) 10.2 42.1 31.9 Premier Investments Limited 6.7 6.6 (0.1) 131.0 129.0 (2.0) 35.6 26.6 (9.0) 42.5 45.6 3.1 PWR Holdings Limited 28.5 26.2 (2.3) 249.3 188.5 (60.8) 48.6 62.4 13.8 66.9 53.0 (13.9) Limited 1.3 2.1 0.8 140.7 137.4 (3.3) 65.9 67.4 1.5 42.5 40.5 (2.0) Supply Network Limited 41.8 40.3 (1.5) 191.2 215.6 24.4 97.6 98.9 1.3 96.5 108.6 12.1 Vita Group Limited 7.8 9.8 2.0 14.7 16.8 2.1 27.2 27.3 0.1 (0.9) 2.5 3.4 Woolworths Group Limited 0.8 0.7 (0.1) 38.4 36.7 (1.7) 46.7 44.8 (1.9) (5.0) (5.0) - Peer group average 21.7 22.3 0.6 123.4 126.1 2.7 50.7 49.1 (1.6) 54.9 58.4 3.5 Findings

Transport & Logistics DSO DIO DPO DWC Company name 2018 2019 Change 2018 2019 Change 2018 2019 Change 2018 2019 Change A2B Australia Limited 116.0 121.3 5.3 31.1 24.0 (7.1) 65.3 80.8 15.5 106.8 106.5 (0.3) Auckland International Airport Limited 22.0 5.2 (16.8) 1.1 - (1.1) 39.9 44.1 4.2 17.4 (0.3) (17.7) Bingo Industries Limited 57.2 69.1 11.9 18.1 16.0 (2.1) 88.2 79.2 (9.0) 30.8 41.6 10.8 Brambles Limited 93.1 54.9 (38.2) 7.4 7.0 (0.4) 64.6 49.5 (15.1) 55.0 26.3 (28.7) Cleanaway Waste Management Limited 77.0 60.7 (16.3) 12.0 8.5 (3.5) 64.3 52.5 (11.8) 57.4 44.2 (13.2) Eclipx Group Limited 54.2 63.7 9.5 33.2 39.1 5.9 61.8 44.6 (17.2) 41.1 61.1 20.0 K&S Corporation Limited 43.6 43.2 (0.4) 4.5 4.3 (0.2) 79.0 67.8 (11.2) 2.1 7.0 4.9 MMA Offshore Limited 100.1 79.4 (20.7) 2.9 3.0 0.1 8.9 13.1 4.2 93.9 69.3 (24.6) Limited 64.6 66.2 1.6 1.5 2.6 1.1 83.2 102.1 18.9 33.8 28.9 (4.9) Peer group average 69.8 62.6 (7.2) 12.4 11.6 (0.8) 61.7 59.3 (2.4) 48.7 42.7 (6.0)

29 mcgrathnicol.com/advisory