WORKING CAPITAL REPORT 2018

MCGRATHNICOL ADVISORY

Welcome

The average working capital Welcome to the 2018 McGrathNicol Advisory Working Capital Report, prepared cycle lengthened in FY18. This by our Cash and Working Capital Centre of Excellence. translated to the equivalent This is the sixth consecutive year that we have released our Working Capital of c.$691 million in additional Report, profiling the working capital performance of a sample of ASX listed companies across the Building Products, Construction & Engineering, cash held in working capital Food & Beverage, Healthcare Services, Media, Mining & Resources, Retail, balances. This is the second Telecommunications and Transport & Distribution sectors. The combined consecutive year we have market capitalisation of the 146 companies in the sample is $878 billion, representing 75% of the total for the selected sectors. The information is based seen a net increase in overall on the most recent full-year results for 2018, compared to 2017 results. metrics. As was the case Overall, the amount of cash tied up in working capital increased in 2018 last year, the majority of compared to 2017 due to an increase in the average time that it took companies businesses actually delivered to turnover inventory across the majority of profiled sectors. This was partly a reduction in net working offset by marginal improvements in supplier and debtor management. There were, however, varying results across companies within sectors and four of the capital, showing a material nine sectors covered showed a net release of cash from working capital. competitive advantage can In our view, working capital performance is a primary indicator for assessing be achieved by implementing the overall health of an organisation. It provides significant insight into the best practice. 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 2018 were achieved by management teams who implemented focussed working capital improvement programs. The following pages provide a breakdown 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 Partner, McGrathNicol Advisory +61 2 9338 2694 +61 434 144 958 [email protected]

Sean Wiles Partner, McGrathNicol Advisory +61 2 9248 9986 +61 437 097 180 [email protected]

1 Summary Overall increase driven by higher inventory days. The Construction & Engineering and Telecommunications sectors saw the largest improvements while the Building Products and Transport & Distribution sectors recorded the largest increase in average DWC. Average Days Working Capital (DWC) in 2018 was 48.7 days, a 0.5 customer collection cycles. The Construction & Engineering day increase from 2017 meaning c.$691 million in additional cash sector managed the largest reduction in DSO (5.1 days), which was tied up in working capital for our sampled companies. translated to a c.$1.6 billion release in cash from debtors. A number of sectors experienced stronger market conditions Overall, Construction & Engineering showed the most significant in 2018, notably Construction & Engineering, Building Products, improvement in average DWC in 2018 achieving a 4.6 day and Mining & Resources. These sectors benefited from a mix of reduction, driven by faster customer collections and lower increased investment in residential and infrastructure projects inventory (DIO down 4.2 days), partially offset by shorter supplier and higher commodity prices. As a result, 84% of all sampled payment cycles (DPO down by 5.5 days). companies grew revenue during the year, although only 64% Interestingly, three of the nine sectors (Construction & were able to translate this into EBITDA growth as increasing Engineering, Media and Transport & Distribution) experienced competition, higher energy and other input costs put pressure a structural “funding gap” where companies pay their suppliers on margins. Of those companies sampled that were able to grow more quickly than they receive payment from their customers. EBITDA during the year, 58% experienced longer cash conversion This gap nearly doubled for the Transport & Distribution sector cycles – the result of increased inventory holdings and some due to the compounding impact of longer customer collection trade-off between revenue and customer / supplier terms for cycles and shorter supplier payment cycles in 2018. some management teams. Results were mixed across all sectors and within sectors, Inventory was the key driver of longer working capital cycles in highlighting that achieving an improvement in working capital is 2018, with average Days Inventory Outstanding (DIO) increasing not only desirable to “keep up” with competitors, it also presents by 1.3 days to 64.1 days. DIO increased in six of the nine sectors an opportunity for material competitive advantage over much and the Food & Beverage sector experienced the highest DIO of the market. For some sectors this opportunity was even increase of all sectors covered. more marked with the gap between the “best” and “worst” Management teams were able to partially offset the impact of performers in excess of 100 days. Of the profiled companies that higher inventory by collecting debtors 1.1 days faster and paying reduced their DWC, there was a reported focus on driving better suppliers 0.3 days slower on average in 2018. Average Days Sales processes which demonstrates that sustainable improvement Outstanding (DSO) was 43.8 days, while average Days Purchases requires focus and a concerted program of change. Outstanding (DPO) was 55.4 days. The average DSO reduced in seven of the nine sectors covered and 55% of all sampled companies were able to shorten their

Average DWC by sector

100 2.6 95.9 80 3.8 (4.6) 60 s 63.3 60.7 6.4 y (0.7) 0.8 BUILDING 2.3 0.5 D a 50.6 40 44.7 46.8 48.7 160 (15.6) 40.9 140 (4.3) 20 120 128.8 (13.5) (2.9)100 (4.0)

s 94.9 y 80 (7.7) (3.4) 12.2 D a 606.4 73.6 0 62.5 40 56.9 20 Building Construction & Food & Healthcare Media(9.6) Mining & Retail Telecommunications Transport Full Products Engineering Beverage ervices Resources & Distribution sample

DWC at 30 June (or latest available) 2017 2018

Summary sample Days 2017 2018 Change DSO = Days sales outstanding (debtors) DSO 44.9 43.8 (1.1) DIO = Days inventory outstanding (inventory held) DIO 62.8 64.1 1.3 DPO = Days purchases outstanding (creditors) DWC = Days working capital (net working capital) DPO 55.1 55.4 0.3 DWC 48.2 48.7 0.5 For details of the basis of preparation and calculations, see pages 22 - 23. 3 Building Products An increase in DWC driven by shorter supplier payment cycles (DPO), with average inventory and debtor metrics remaining stable. The Buildings Products sector from their suppliers. Looking behind the “We also have a very experienced high activity levels in numbers we note 55% of the sample 2018 driven by the continued growth experienced increases in inventory days strong balance sheet in construction along the eastern (DIO) which may be an early indicator which provides us the seaboard. Of the companies in our of oversupply and / or softening sample, 91% reported an increase in demand from the larger construction financial flexibility to revenue, although only 64% were able companies (particularly those involved harness this growth to convert this into higher EBITDA. in the residential market). The ongoing This was in part due to lower margin challenge for the sector is to maintain potential.” work on some government-funded good inventory management through infrastructure projects. a combination of direct initiatives to Tim Salt In terms of working capital improve supply chain efficiencies and to Managing Director GWA Group Limited performance, the average DWC of better align product development and ASX Media Release, 16 August 2018 our sampled companies increased by purchasing with market demand. 3.8 days to 63.3 days in 2018. This was The most material improvements driven by shorter supplier payment were achieved by and GWA cycles (DPO 6.0 days lower). Inventory Group. These companies managed levels (DIO) and customer collection to improve DWC by 10.2 days and 6.9 cycles (DSO) remained relatively stable, days, respectively. Boral’s success was although we note some significant the result of revenue growth without variances in performance at the a material increase in its debtors and individual company level. inventory (resulting in lower DSO Decreasing DPO is not surprising in the and DIO). This was also attributed context of sector growth during 2018 to successfully bedding down the as participants competed to secure Headwaters acquisition (which provided sufficient raw materials to meet demand a significant increase in scale). and were willing to accept shorter terms

Top 5 DWC improvements - Building Products

Building Products 100 (6.9) Days 2017 2018 Change 80 86.8 DSO 53.7 53.1 (0.6) 1.4 (1.9) 3.8 DIO 87.6 88.1 0.5 60 (10.2) 69.2 63.3 61.5 DPO 81.3 75.3 (6.0) 40 47.2

s DWC 59.5 63.3 3.8 y D a 20 BUILDING (3.6) 0 160 (15.6) Best & Worst 140 120 128.8 (13.5) Days Best Worst Spread

(20) s 100 y (4.0) 80 94.9(33.1) (7.7) (3.4) DSO 35.3 67.1 31.8 D a 73.6 60 62.5 (40) 40 56.9 DIO 49.4 139.2 89.8 20- (9.6) Boral GWA Group(20) (29.3) Adelaide Brighton CR Peer group DPO 205.5 30.8 (174.7) Limited Limited(40) Limited Limited Limited average DWC (33.1) 101.7 134.8 DWC at 30 June (or latest available) 2017 2018

Boral Limited Days 2017 2018 Change DSO 77.9 56.0 (21.9) DIO 78.6 58.5 (20.1) DPO 109.3 71.7 (37.6) DWC 57.4 47.2 (10.2)

5 Construction & Engineering Reduced working capital, a result of shorter collection cycles (lower DSO) and better inventory management (lower DIO) offset somewhat by paying suppliers more quickly (lower DPO). The Construction & Engineering sector cycle that is materially shorter than the “Both periods produced continued to benefit from increased customer collection cycle (a structural activity levels in 2018, with 81% of the “funding gap”). The challenge to reduce greater OCFBIT than sampled companies experiencing this gap will only increase if residential EBITDA due to the growth in both revenue and EBITDA. construction slows (as has been recently We have also seen some market reported) and proposed changes to favourable impact of non- consolidation during the year, with a the Security of Payment Act (SOP Act) cash items in the P&L and number of companies growing revenue are made, which are likely to further via acquisitions. shorten supplier payment cycles (to year-on-year reductions The average DWC of our sampled subcontractors). This reinforces the in working capital.” companies fell by 4.6 days to 60.7 days in need for efficient contracting, billing and collection processes or market 2018, with 56% of the sample showing Brett Gallagher and Leigh Mackender participants may come under liquidity improvements. The DWC reduction was Service Stream Limited driven by an average 5.1 day shortening pressure. 2018 Preliminary Financial Report of the debtor cycles (lower DSO) and Across our sample, RCR Tomlinson more efficient inventory management experienced the greatest improvement (DIO reduced by 4.2 days). However, only in 2018, achieving a reduction in 50% of the sample was able to improve DWC of 48.8 days that was driven by DSO. This suggests that there is further improved collections (DSO down by room for improvement in an area that 30.8 days). Downer EDI was another requires close attention for companies strong performer, unlocking $765 million operating in this sector, particularly the in additional cash by improving DWC management of WIP and its conversion by 23.2 days. This demonstrates the to billings (and ultimately cash). 94% of benefit of maintaining a commitment to the sample reduced inventory in 2018 collections in periods of revenue growth. releasing $326 million in cash. At the other end of the sample, Ausdrill The combined benefit of DSO and DIO recorded the largest increase in DWC improvements was partially offset by a (15.2 days) due to a higher working reduction in average DPO of 5.5 days, capital load required to service new as companies utilised additional cash projects in Africa. to pay suppliers faster. This sector is characterised by a supplier payment Construction & Engineering Days 2017 2018 Change DSO 81.1 76.0 (5.1) Top 5 DWC improvements - Construction & Engineering DIO 33.5 29.3 (4.2) DPO 58.8 53.3 (5.5) 200 DWC 65.3 60.7 (4.6) (11.2) 150 148.8

s (48.8) BUILDING Best & Worst y 100 (20.4) (14.5)

D a (23.2) 160 (15.6) (4.6) 140 Days Best Worst Spread 50 120 128.8 (13.5) 62.7 s 10054.2 56.0 60.7 DSO 63.0 100.0 37.0 49.2 y (4.0) 80 94.9 (7.7) (3.4) 0 D a 60 73.6 DIO - 135.8 135.8 40 56.9 62.5 20 (9.6) DPO 228.8 15.0 (213.8) RCR Downer- EDI Monadelphous ervice tream AJ Lucas Peer group Tomlinson Limited(20) Group Limited(29.3) Limited Group Limited average DWC (34.8) 149.1 183.9 Limited (40) DWC at 30 June (or latest available) 2017 2018 Downer EDI Limited Days 2017 2018 Change DSO 88.8 66.5 (22.3) DIO 17.2 9.2 (8.0) DPO 30.1 23.1 (7.0) DWC 77.4 54.2 (23.2)

7 Food & Beverage Increase in average DWC driven by growing inventory levels. Despite challenging trading conditions that Food & Beverage companies “Our focus on influenced by volatile global commodity are typically required to manage a markets, weather and rising energy range of logistical functions (including effective and efficient costs, 82% of our sampled companies manufacturing, packaging and management of working achieved EBITDA growth in 2018. distribution) and seasonal / market While earnings grew, the cash tied factors that impact their supply chains capital resources drives up in working capital also increased. and working capital loads. An example of strong cash generation The average DWC across the sample this within our sample is Select Harvests increased by 2.6 days to 95.9 days in (97.5 day increase in DIO), which held particularly across 2018. This was primarily driven by an additional tonnages of inventory to take our and New 11.7 day increase in DIO, with two thirds advantage of favourable commodity of companies in our sample holding prices and to provide product for its new Zealand franchises.” inventory for longer. DSO and DPO almond processing facility. remained relatively stable. We note Despite the increase in average DWC Operating & Financial Review that 67% of companies that were able across our sample, there were some Coca-Cola Amatil Limited 2018 Annual Report to shorten collection cycles (DSO) companies that showed considerable also reduced DWC, showing a clear improvement in 2018. Bellamy’s Australia correlation between good customer / recorded the largest reduction in DWC debtor management and better overall of 56.0 days, reversing an increase working capital performance across in DWC in 2017. This was achieved the sector. through executing a turnaround plan Inventory management remains that delivered top-line growth alongside the main driver of working capital better customer and supply terms performance for Food & Beverage and lower inventory levels. The a2 companies. Consistent with the prior Milk Company also recorded a 19.6 year, the sector reported the highest day reduction in its DWC, the second DIO and highest DWC of all sampled consecutive year of strong performance. sectors in 2018. It is important to note

Top 5 DWC improvements - Food & Beverage Food & Beverage

200 Days 2017 2018 Change (56.0) DSO 56.3 55.0 (1.3) 150 DIO 106.1 117.8 11.7

s (18.8) 2.6 y DPO 61.3 68.3 7.0 100 BUILDING D a 96.5 89.1 (3.5) 95.9 DWC 93.3 95.9 2.6 (19.6)160 (15.6) 50 140 (12.1) 52.1 120 128.8 (13.5)

s 100 8.7 y 25.1 (4.0) 0 80 94.9 (7.7) (3.4) D a 73.6 60 62.5 Best & Worst Bellamy’s The a240 Milk Freedom 56.9 Ridley Coca-Cola Peer group 20 (9.6) Australia Company- Foods Group Corporation Amatil average Days Best Worst Spread Limited Limited(20) Limited(29.3) Limited Limited (40) DSO 15.3 91.4 76.1 DWC at 30 June (or latest available) DIO 28.1 257.4 229.3 2017 2018 DPO 149.4 16.2 (133.2) DWC 8.7 278.4 269.7

Bellamy’s Australia Limited Days 2017 2018 Change DSO 56.7 54.8 (1.9) DIO 208.0 153.6 (54.4) DPO 67.7 89.8 22.1 DWC 152.5 96.5 (56.0)

9 Healthcare Services The lowest DWC of all sectors sampled, with customer collection cycles shorter than supplier payment cycles for the majority of companies in our sample. Our sample of Healthcare Services companies typically hold less than a “During the year, most companies comprises a mix of medical week’s worth of net working capital at service suppliers, clinical specialists any one time. The result was driven by of the Group’s free and imaging and diagnostics providers. a decrease in DSO of 2.5 days (to 20.4 cashflow from operations There was a considerable uplift in days) and an increase in DPO of 4.6 days activity across the sector in 2018, (to 47.9 days). Three quarters of the was redeployed to with 92% of the sampled companies sample shortened their collection cycles fund business growth recording revenue growth. However, and close to half of the sample actually only 58% of the sample was able to carried negative working capital in 2018. in line with the Group’s achieve EBITDA growth. The biggest improvers in 2018 were investment strategy.” Healthcare Service providers typically Capitol Health, Japara Healthcare have shorter collection cycles than and National Veterinary Care (NVL), National Veterinary Care Limited supplier payment cycles. In 2018, the with DWC reductions of 11.2 days, 9.1 Annual Report 2018 gap between the two cycles was (on days and 8.0 days, respectively. The average) 27.5 days and all but one of the net benefit to Capitol Health was an sampled companies benefited from this additional $3.6 million in cash released gap. A number of the companies also from working capital, primarily as a result held little or no inventory. This working of a 19.0 day reduction in DSO. NVL capital profile is important given the high achieved a DWC reduction of 8.0 days as capex requirements for many sector a result of a reduction in DSO of 4.6 days, participants. A “tight” working capital DIO of 1.8 days and an increase in DPO cycle can help fund those requirements. of 3.1 days. The additional cash flow The average DWC for our sampled generated has reportedly been used to companies was 6.4 days in 2018, which advance NVL’s key growth strategies, was 2.9 days lower than the prior year. including the acquisition of new sites. This suggests that Healthcare Services

Top 5 DWC improvements - Healthcare Services

15 (11.2) Healthcare Services (9.1) 10 (2.9) Days 2017 2018 Change (8.0) DSO 22.9 20.4 (2.5) 5 6.4 DIO 10.3 11.2 0.9 1.7 (6.1) (3.3) s

y 0 2.1 (2.1) DPO 43.3 47.9 4.6 D a (2.9) (5) BUILDING DWC 9.3 6.4 (2.9)

160 (15.6) (10) 140 (11.9) 120 128.8 (13.5)

s 100 y (4.0) Best & Worst (15) 80 94.9 (7.7) (3.4) D a 60 73.6 Days Best Worst Spread 40 56.9 62.5 Capitol Japara National Integral Estia Peer group 20 (9.6) Health Healthcare- Veterinary Diagnostics Health average DSO 2.7 48.7 46.0 Limited Limited(20) Care Limited(29.3) Limited Limited (40) DIO - 47.3 47.3 DWC at 30 June (or latest available) DPO 135.9 5.2 (130.7) 2017 2018 DWC (11.9) 37.2 49.1

Capitol Health Limited Days 2017 2018 Change DSO 24.2 5.2 (19.0) DIO - - - DPO 15.5 5.2 (10.3) DWC 12.9 1.7 (11.2)

11 Media Lower inventory and marginally better collection and payment metrics drove a reduction in DWC. After consecutive periods of significant This requires Media companies to “Balance sheet restructuring costs and weaker market focus on customer management conditions contributing to revenue and and collections. To this end, 62% of strengthened with earnings contraction, our sampled Media the sampled companies achieved reduction in debt, lower companies reported combined revenue a reduction in DSO during the year. and EBITDA growth of 8% and 22%, However, we note the spread between financing costs and respectively in 2018. the best and worst performers was 55.1 strong cash conversion.” The transition from print and other days, which highlights the potential for further improvement and a competitive traditional forms of media to digital Grant Blackley advantage for those companies able to and online mediums also resulted in CEO and Managing Director an improvement in working capital achieve shorter collection periods. Southern Cross Media Group Limited performance, with average DWC Of the sample, APN Outdoor FY18 Investor Presentation contracting by 0.7 days to 44.7 days Group delivered the most material in 2018. improvement with a 10.9 day reduction A key driver of the DWC reduction was in DWC in 2018, driven by a 14.8 day lower inventory days (DIO). While most of increase in DPO. We note that even with our sample held minimal or no inventory, this improvement, APN paid its suppliers those that did managed (on average) to (on average) 10.6 days faster than the reduce holdings. sample average and 40 days faster than it collected cash from its customers, The Media sector reports a structural which suggests that there may be “funding gap” where average days further improvement potential. to collect from customers (DSO) is longer than average days to pay suppliers (DPO).

Top 5 DWC improvements - Media

80 (10.9) (6.5) 70 Media

60 63.9 (7.7) 64.5 Days 2017 2018 Change DSO 64.5 63.9 (0.6) 50 (0.7) 49.3 DIO 7.1 6.5 (0.6) 40 44.7 DPO 38.6 38.7 0.1

s (4.5)

y DWC 45.4 44.7 (0.7) 30 D a

20 25.7 Best & Worst 10 Days Best Worst Spread (5.4) 0 DSO 24.9 80.0 55.1 BUILDING DIO - 32.5 32.5 (10) 160 (15.6) (12.5) 140 120 128.8 (13.5) DPO 67.3 7.1 (60.2)

s 100 (20) y (4.0) 80 94.9 (7.7) (3.4) DWC (12.5) 75.3 87.8 D a 73.6 60 62.5 APN Outdoor IVE Group40 outhern 56.9KY Network Fairfax Peer group 20 (9.6) Group Limited Limited- Cross Media Television Media average (20) Group Limited(29.3) Limited Limited (40) APN Outdoor Group Limited DWC at 30 June (or latest available) Days 2017 2018 Change 2017 2018 DSO 76.3 68.1 (8.2) DIO 4.5 4.0 (0.5) DPO 13.3 28.1 14.8 DWC 74.8 63.9 (10.9)

13 Mining & Resources Increase in DWC driven by small number of large players. Improved market prices for metals, coal were the better performers, with 43% “While we have good and oil contributed to a strong year for of the companies (representing a the Mining & Resources sector, with 93% combined market cap of 76% of the visibility of our customer of sampled companies reporting an sample) reducing DSO by three or collections, focused increase in revenues in 2018. However, more days. only 79% of the sample was able to Average DIO remained flat in 2018, efforts at half year and convert this into higher EBITDA, with with a 0.3 day increase to 75.7 days. year end have helped us tightening margins largely a function of However, inventory remains a key rising energy and raw material costs. driver of working capital performance free up cash to reduce Overall, the sample reported an increase for Mining & Resources companies. debt and invest in new in average DWC of 2.3 days to 40.9 Inventory balances increased for 57% of days in 2018. However, this was heavily the sample during 2018 as production projects.” influenced by four companies (14% ramped up on the back of improving of the sample) that reported DWC market conditions. Of the 16 companies Kevin Balloch increases of 25.0 days or more, which that recorded an increase in DIO, 56% Chief Financial Officer Base Resources Limited more than offset the DWC reductions managed to extend supplier payments achieved by 57% of the sample. While to at least partially offset their additional the average movements in DSO, DIO inventory loads. and DPO were relatively benign, there Base Resources achieved the biggest were some large individual swings across DWC improvement in 2018. While the sample. still carrying higher working capital The sector maintained its relatively levels than a number of its peers, short customer collection cycles in Base Resources was able to release 2018 with an average DSO of 32.9 $18.1 million in cash from its working days, representing an improvement capital by increasing the frequency of of 1.5 days from the prior year. Of shipments and customer invoicing. This the companies in our sample, 57% helped compress the debtors cycle. reported reductions in DSO. Of note Management also focussed on running was the 109.6 day spread between the down inventory stockpiles at overseas best and worst performers, highlighting mines to free up cash. This resulted in the challenges in converting growing an overall improvement in DWC of revenue into cash. The larger miners 33.3 days. Mining & Resources Days 2017 2018 Change DSO 34.4 32.9 (1.5) Top 5 DWC improvements - Mining & Resources DIO 75.4 75.7 0.3 DPO 58.5 56.4 (2.1) 140 (7.1) DWC 38.6 40.9 2.3 (33.3) 120 125.5

(22.8) 100 Best & Worst Days Best Worst Spread 80 85.6 s DSO 3.2 112.8 109.6 y 75.2 D a 60 DIO 7.8 491.3 483.5 BUILDING 2.3 DPO 192.0 9.2 (182.8) 40 (5.9) (5.3) 40.9 DWC 1.5 125.5 124.0 160 (15.6) 20 140 29.5 27.7 120 128.8 (13.5)

s 100 y (4.0) 0 80 94.9 (7.7) (3.4) D a 60- 73.6 40 56.9 62.5 Base Resources Limited Base Independence20 Zimplats Regis New Hope Peer group Resources Group NL Holdings(9.6) Resources Corporation average Days 2017 2018 Change Limited (20) Limited(29.3) Limited Limited (40) DSO 99.0 71.1 (27.9)

DWC at 30 June (or latest available) DIO 64.9 60.3 (4.6) 2017 2018 DPO 33.9 36.2 2.3 DWC 118.9 85.6 (33.3)

15 Retail Lengthening of the working capital cycle driven by an increase in inventory (DIO). While 91% of sampled retailers managed supply chain / distribution models for “Improved working to grow revenue at a faster pace than online, with investment in these areas industry benchmarks and delivered continuing to be significant for many capital management has average revenue growth of 4.6%, companies. The companies that are resulted in a strong cash many retailers struggled to deliver the getting it right are seeing this translate same growth in EBITDA. This suggests into material improvements in DIO. balance at 30 June 2018 some revenue was achieved through Suppliers were paid 0.8 days slower of over $12m with nil net discounting and a limited ability to pass in 2018 (higher DPO), which helped on rising costs to consumers in a highly to offset the impacts of increasing debt.” competitive environment. DIO. Of the retailers that experienced The average DWC of the sampled slower stock turnover, 81% extended PWR Holdings Limited companies increased marginally payment cycles to suppliers (by 7.7 Annual Report FY18 by 0.8 days (to 46.8 days) in 2018. days on average). This was primarily driven by a slower The mix of participants and business turnover of inventory. models in the retail sector is broad, As inventory is the biggest driver of the producing a wide range of DSO (from cash conversion cycle, this remains an 1.3 days to 132.7 days). We believe area with the greatest opportunity for this remains an area of potential retailers to release cash. However, it also improvement in the sector. presents the greatest challenge due Of the sampled companies, 31% to changes in the industry such as the were able to achieve DSO and DIO ongoing shift online (with online sales improvements, however only two growth in 2018 the highest it has been companies were able to deliver in the past five years) and an increase improvements across all three metrics. in consumers’ expectations as to the Of these, PWR Holdings achieved the availability of stock. highest working capital improvement in The average DIO increased by 2.1 days 2018 with a DWC reduction of 12.3 days (to 103.7 days), with 25% of the retailers that was the result of a 4.5 day reduction sampled reporting an average increase in DSO, 14.7 day improvement in DIO in inventory of 10 days or more. This and 5.6 day lengthening of payment suggests that retailers continue to cycles (DPO). Retail struggle to optimise their range and Days 2017 2018 Change DSO 22.0 22.2 0.2 Top 5 DWC improvements - Retail DIO 101.6 103.7 2.1 DPO 47.7 48.5 0.8

140 (11.1) DWC 46.0 46.8 0.8

120 122.0 Best & Worst 100 (9.9) Days Best Worst Spread (12.3) 80 (8.0) DSO 1.3 132.7 131.4 s 83.2 y

D a DIO - 336.0 336.0 60 66.9 68.7 0.8 DPO 113.1 6.2 (106.9) 40 BUILDING 46.8 DWC (25.3) 153.9 179.2 160 (15.6) 140 20 (5.9) 120 128.8 (13.5)

s 100 1.9 y (4.0) 0 80 94.9 (7.7) (3.4) D a 60 73.6 PWR Holdings Limited 40 56.9 62.5 PWR Michael Hill Bapcor Vita Group Peer group 20 (9.6) Days 2017 2018 Change Holdings International- Limited Limited Limited average Limited Limited(20) (29.3) (40) DSO 33.0 28.5 (4.5) DWC at 30 June (or latest available) DIO 264.0 249.3 (14.7) 2017 2018 DPO 43.0 48.6 5.6 DWC 79.2 66.9 (12.3)

17 Telecommunications Reduced DWC driven by a material increase in DPO and moderate improvements across debtor and inventory cycles (DSO and DIO). Our sample of Telecommunications a material cash flow impact. By way of “Strong operating companies reported average revenue example, the 1.9 day decrease in average growth of 2% in 2018, with all companies DSO equated to a combined cash cash flows (89% of reporting an increase. However, this did release of $467.7 million for our sample, Underlying EBITDA) not translate to a blanket improvement largely driven by improvements in cash in earnings, with 56% of the sample conversion on large infrastructure generated as a result of experiencing a contraction in earnings. projects. A third of our sample carried improved working capital Notably, the performance of the negative working capital in 2018, which sample was heavily influenced by highlights that the working capital discipline.” Corporation (Telstra), which experienced burden is often carried by the suppliers a period of flat revenue growth and to this sector. Speedcast International Limited declining EBITDA. While experiencing some operational Half year results, 30 June 2018 The Telecommunications sector challenges that impacted its 2018 benefits from a relatively short working results, Telstra reported an improvement capital cycle (DWC), which averaged in its working capital performance 12.2 days in 2018. Across our sample, and was a top performer amongst the average payment cycle (DPO) was the selected sample. The decrease 28.0 days longer than the collection in DWC of 12.9 days was driven by a cycle (DSO). In addition, a number of 16.9 day reduction in DIO, attributed sampled companies had little or no to an increase in progress billings for inventory (average DIO of 12.6 days) due commercial works. Telstra was also to the service-based nature of business able to reduce its DSO (down 6.4 days) models for those companies. and increase its DPO (up 28.5 days). In 2018, DWC reduced by 4.3 days, Another strong performer was amaysim the result of a 1.9 day decrease in Australia which achieved a reduction in average DSO (to 44.3 days), a 1.7 DWC of 9.2 days in 2018. This was largely day reduction in average DIO (to driven by shortening its collection cycle 12.6 days) and a 10.0 day increase in (DSO) by 9.0 days. The net cash benefit average DPO (to 72.3 days). to amaysim and Telstra from these improvements was $14.6 million and Given the scale of some market $919.3 million, respectively. participants, incremental improvements Telecommunications in working capital performance result in Days 2017 2018 Change DSO 46.2 44.3 (1.9) Top 5 DWC improvements - Telecommunications DIO 14.3 12.6 (1.7) DPO 62.3 72.3 10.0 DWC 16.5 12.2 (4.3) 80 (12.9)

60 59.9 Best & Worst 40 (9.2) Days Best Worst Spread s y 20 (4.3) DSO 9.0 92.8 83.8 D a 16.1 (8.6) (7.2) (3.5) 12.2 DIO - 82.3 82.3 0 BUILDING (14.1) (10.5) DPO 179.9 13.5 (166.4) (23.4) (20) 160 (15.6) 140 DWC (23.4) 59.9 83.3 120 128.8 (13.5)

s 100 (40) y (4.0) 80 94.9 (7.7) (3.4) D a 60 73.6 Telstra amaysim40 Macquarie 56.9peedcast 62.5TPG Telecom Peer group Corporation Australia20 Telecom(9.6) International Limited average - Telstra Corporation Limited Limited Limited(20) Group Limited(29.3) Limited (40) Days 2017 2018 Change DWC at 30 June (or latest a vailable) DSO 76.9 70.5 (6.4) 2017 2018 DIO 99.2 82.3 (16.9) DPO 131.6 160.1 28.5 DWC 72.8 59.9 (12.9)

19 Transport & Distribution Continued trend of deteriorating working capital metrics due to higher DSO and lower DPO. Transport & Distribution companies Given that key suppliers to this sector “Improved working experienced increased levels of activity are often inflexible on payment terms in 2018 on the back of favourable (particularly for fuel, warehousing and capital management trading conditions for its customers subcontracted labour), Transport & across the Group across the Mining & Resources, Food Distribution companies must ensure & Beverage and Construction & tight controls around debtors and resulting in a US$87.5 Engineering sectors, with 63% of our collections in order to manage cash flow million increase in cash sample reporting revenue growth and and avoid liquidity pressures. 75% reporting EBITDA growth. Brambles was the only company in our flow, which included However, this improved trading sample that managed to shorten its approximately US$30.0 performance did not translate into working capital cycle. The improvement better working capital outcomes, was achieved through a combination of million of timing with the average DWC for our sample lower DSO (down 1.9 days) and higher benefits.” increasing by 6.4 days to 50.6 days in DPO (up 5.8 days). This translates to 2018 and all but one company in the unlocking c.$90 million in additional sample reporting a deterioration in cash from working capital. At the 2018 Annual Report DWC. The main drivers were longer other end of the sample, Steamships customer collection cycles (DSO up Trading Company and Bingo Industries by 5.0 days to 69.2 days) and shorter reported DWC increases of 23.1 and supplier payment cycles (DPO down 10.1 days, respectively. Both of these 3.8 days to 49.1 days). Inventory loads sector participants experienced material remained relatively stable. increases in DSO. Notably, 88% of the sample reported Note: airlines were excluded from our a structural “funding gap” in 2018 sample due to the contrasting nature (meaning companies typically paid of their working capital cycles (often their suppliers on shorter terms than negative) and the size and scale of their they collected from their customers). operations (which disproportionately This “funding gap” widened for c. 75% skew the sample set). of our sampled companies in 2018.

Top 5 DWC improvements - Transport & Distribution Transport & Distribution Days 2017 2018 Change

120 DSO 64.2 69.2 5.0 6.5 DIO 18.8 19.2 0.4 100 106.1 DPO 52.9 49.1 (3.8)

80 DWC 44.2 50.6 6.4 s y 60 (5.7)

D a 6.1 6.4 51.4 2.0 50.6 Best & Worst 40 BUILDING 47.1 0.6 36.7 Days Best Worst Spread 160 (15.6) 20 14024.9 DSO 28.9 112.2 83.3 120 128.8 (13.5)

s 100 y (4.0) DIO 0.6 100.2 99.6 0 80 94.9 (7.7) (3.4) D a 60 73.6 56.9 62.5 Brambles Auckland40 ube Holdings MMA Offshore Peer group DPO 81.7 8.9 (72.8) 20 (9.6) Limited International- Limited Holdings Limited average DWC 14.4 106.1 91.7 Airport Limited(20) (29.3) Limited (40) DWC at 30 June (or latest available) 2017 2018 Brambles Limited Days 2017 2018 Change DSO 82.8 80.9 (1.9) DIO 6.0 5.8 (0.2) DPO 44.8 50.6 5.8 DWC 57.1 51.4 (5.7)

21 Basis of preparation

Data used in this survey has been Peer group sample GICS groups included sourced from the S&P Capital IQ platform. Building Products Construction materials Chemicals Peer group classification Building products The Building Products, Construction Trading companies and distributors & Engineering, Food & Beverage, Construction & Engineering Construction and engineering Healthcare Services, Media, Mining & Resources, Retail, Telecommunications Commercial services and supplies and Transport & Distribution peer group Energy equipment and services samples underpinning this report have been selected according to the Global Food & Beverage Food products Industry Classification Standard (“GICS”) Personal products listed in the table opposite. Beverages

Healthcare Services Healthcare providers and services Accounting periods Media Interactive media and services Financial information in this survey draws on the most recently published full year Media accounts as at 26 October 2018 (i.e. Mining & Resources Metals and mining the most recently published full year financial information prior to this date Oil, gas and consumable fuels has been used). Prior year comparable Retail Specialty retail figures may differ from our 2017 report for companies in the sample that Auto components adjusted their 2017 accounts following Distributors the release of our report or restated Household durables them when presenting current year results. Adjustments may occur if there Hotels, restaurants and leisure has been a change in accounting policy. Multiline retail Internet and direct marketing retail Food and staples retailing

Telecommunications Wireless telecommunication services Commercial services and supplies Diversified telecommunication services

Transport & Distribution Transportation infrastructure Road and rail Commercial services and supplies Air freight and logistics Marine Industrial conglomerates

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, while 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 Australia (or another jurisdiction that balances at the relevant calculation date. of ASX listed entities for the 2018 levies a consumption tax), results will vary. The calculation used in this survey is: financial year. The information contained In addition, to the extent that there herein is based on sources we believe has been an accounting adjustment Inventory reliable, but we do not guarantee its that has affected a company’s sales, DIO x 365 accuracy, and it should be understood purchases, debtors, inventory or Cost of ales to be general information only. The creditors, this has not been isolated in information is not intended to be taken the analysis and may be reflected as a A low DIO metric is desirable and indicates as advice with respect to any specific change in working capital. a relatively high turnover of inventory. organisation or situation and cannot be relied upon as such. Calculation methodology Days Working Capital (“DWC”) McGrathNicol accepts no responsibility DWC is a relative measure of total for errors or omissions in financial The working capital metrics referred working capital tied up in a company information underpinning this publication, to in this report have been calculated, relative to sales. The calculation used in nor the loss of any person arising from as follows: this survey is: use of or reliance on information herein. All readers of this publication must make Days Sales Outstanding (“DSO”) their own enquiries or obtain professional Debtors + Inventory DSO is the number of days’ worth of advice in relation to any issue or matter - Creditors sales represented by the outstanding referred to in this publication. DWC x 365 debtors at the relevant calculation date. ales The calculation used in this survey is: Limitations A low DWC metric is favourable as it McGrathNicol acknowledges that at the Debtors indicates a low level of working capital level of detail applied, the analysis has DO x 365 relative to the size of the business. limitations, some of which are noted ales below. For this reason, the analysis focusses on performance relative to the A low DSO metric is desirable and prior period, rather than in absolute terms indicates that it takes a relatively low against peers. number of days for a company to collect debtors. Days sales outstanding Days Purchases Outstanding Debtors include GST, while sales do not. (“DPO”) To the extent that a company makes more or less of its sales in Australia DPO is the number of days’ worth (or another jurisdiction that levies a of purchases represented by the consumption tax), results will vary. outstanding creditors at the relevant calculation date. The calculation used in this survey is: Days inventory outstanding To the extent that a company has more Creditors or less labour included in its cost of sales, DPO x 365 results will vary. 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 State contacts faster reduces the cost of running a business and provides a material competitive advantage. Our Cash and Working Capital Centre of Excellence is focussed on Jason Ireland +61 2 9338 2694 increasing cash flow for our clients by using our Cash Flow Optimisation [email protected] System to forecast, track, save and generate cash. Sean Wiles +61 2 9248 9986 Cash Flow Optimisation System [email protected] Brisbane Anthony Connelly +61 7 3333 9806 [email protected] Insightful analytics and Staff training and benchmarking coaching Graham Newton +61 7 3333 9875 [email protected]

Canberra Shane O’Keeffe Tools and techniques to Tailored and flexible +61 2 6222 1420 increase visibility and forecasting and variance [email protected] accountability over cash flow analysis Melbourne Matthew Caddy +61 3 9038 3157 [email protected] Rob Smith +61 3 9038 3166 Dashboard reporting Clear policies and procedures [email protected] templates to clarify responsibility and drive improvement Perth Rob Brauer +61 8 6363 7603 [email protected] Rob Kirman +61 8 6363 7685 Staff incentive plans linked Planning for growth [email protected] to cash flow, not just profit

Our Cash and Working Capital Health Check can help you determine which parts of 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 Joshua Crick Sean Wiles Adam Cutler Pelin Dundar Ben Ryan Lauren Gordon Emmanuel Hart Adam Blogg Isabella Horne Stuart Johnstone Grace Chessman Ciaran Mannion Michael May Stefan Maricic Damien Pasfield Scott Rogers Alexander Woolcott Findings

Building Products DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change Adelaide Brighton Limited 52.2 54.9 2.7 54.1 50.7 (3.4) 39.5 42.4 2.9 63.4 61.5 (1.9) Boral Limited 77.9 56.0 (21.9) 78.6 58.5 (20.1) 109.3 71.7 (37.6) 57.4 47.2 (10.2) 57.8 54.3 (3.5) 128.0 139.2 11.2 72.0 70.0 (2.0) 94.9 101.7 6.8 CSR Limited 46.3 42.4 (3.9) 86.1 97.8 11.7 53.7 57.8 4.1 67.8 69.2 1.4 DuluxGroup Limited 54.5 56.8 2.3 112.3 114.1 1.8 106.9 109.7 2.8 56.7 58.6 1.9 Limited 59.8 65.6 5.8 82.4 81.9 (0.5) 49.6 50.3 0.7 85.4 91.6 6.2 GWA Group Limited 68.6 59.6 (9.0) 131.7 121.2 (10.5) 87.9 73.6 (14.3) 93.7 86.8 (6.9) Incitec Pivot Limited 28.2 35.3 7.1 83.6 76.5 (7.1) 193.6 205.5 11.9 (29.5) (33.1) (3.6) plc 39.0 36.9 (2.1) 59.4 70.5 11.1 31.7 30.8 (0.9) 56.9 62.5 5.6 Reece Limited 54.2 55.7 1.5 103.0 109.6 6.6 79.8 75.0 (4.8) 69.7 78.9 9.2 Wagners Holding Company Limited 52.1 67.1 15.0 44.0 49.4 5.4 70.5 41.4 (29.1) 38.4 71.2 32.8 Peer group average 53.7 53.1 (0.6) 87.6 88.1 0.5 81.3 75.3 (6.0) 59.5 63.3 3.8

Construction & Engineering DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change AJ Lucas Group Limited 68.5 63.0 (5.5) 149.5 135.8 (13.7) 60.4 38.2 (22.2) 160.0 148.8 (11.2) Ausdrill Limited 73.8 86.6 12.8 120.9 118.9 (2.0) 40.2 33.5 (6.7) 133.9 149.1 15.2 Boart Longyear Limited 63.8 65.9 2.1 108.8 101.7 (7.1) 36.3 38.2 1.9 126.3 119.7 (6.6) Cardno Limited 67.5 70.1 2.6 31.2 26.1 (5.1) 45.8 41.8 (4.0) 53.5 55.6 2.1 CIMIC Group Limited 108.9 88.2 (20.7) 11.5 10.2 (1.3) 259.1 228.8 (30.3) (44.7) (34.8) 9.9 Decmil Group Limited 61.8 77.5 15.7 - - - 36.7 40.1 3.4 29.1 41.6 12.5 Downer EDI Limited 88.8 66.5 (22.3) 17.2 9.2 (8.0) 30.1 23.1 (7.0) 77.4 54.2 (23.2) Global Construction Services Limited 74.1 75.0 0.9 42.2 32.2 (10.0) 86.5 77.8 (8.7) 56.0 48.6 (7.4) Johns Lyng Group Limited 81.1 71.5 (9.6) 1.4 1.0 (0.4) 67.4 57.4 (10.0) 28.3 26.9 (1.4) Lycopodium Limited 64.4 73.0 8.6 0.6 2.0 1.4 20.3 15.0 (5.3) 47.7 62.9 15.2 Monadelphous Group Limited 92.2 70.5 (21.7) - - - 17.6 15.8 (1.8) 76.4 56.0 (20.4) NRW Holdings Limited 56.2 64.3 8.1 38.5 23.5 (15.0) 67.4 82.6 15.2 43.2 34.2 (9.0) RCR Tomlinson Limited 120.3 89.5 (30.8) 4.4 2.7 (1.7) 28.1 43.6 15.5 98.0 49.2 (48.8) Service Stream Limited 87.2 72.8 (14.4) 5.0 3.1 (1.9) 22.7 20.2 (2.5) 77.2 62.7 (14.5) Southern Cross Electrical Engineering 100.8 82.0 (18.8) 4.8 2.6 (2.2) 64.0 31.1 (32.9) 48.7 56.9 8.2 Limited WorleyParsons Limited 88.6 100.0 11.4 - - - 57.7 64.8 7.1 33.9 40.3 6.4 Peer group average 81.1 76.0 (5.1) 33.5 29.3 (4.2) 58.8 53.3 (5.5) 65.3 60.7 (4.6)

25 Findings

Food & Beverage DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change Australian Agricultural Company 10.7 15.3 4.6 215.7 230.7 15.0 13.9 16.2 2.3 238.7 278.4 39.7 Limited Limited 50.0 53.1 3.1 57.6 72.9 15.3 46.2 57.0 10.8 59.9 65.9 6.0 Bellamy's Australia Limited 56.7 54.8 (1.9) 208.0 153.6 (54.4) 67.7 89.8 22.1 152.5 96.5 (56.0) Limited 87.3 91.4 4.1 126.9 157.3 30.4 113.4 149.4 36.0 93.2 94.6 1.4 Bubs Australia Limited 85.8 86.6 0.8 116.9 144.2 27.3 66.2 101.4 35.2 125.4 125.2 (0.2) Capilano Honey Limited 65.5 65.1 (0.4) 176.1 195.3 19.2 64.8 50.1 (14.7) 142.0 165.5 23.5 Coca-Cola Amatil Limited 66.3 64.5 (1.8) 49.8 50.0 0.2 67.0 69.9 2.9 55.6 52.1 (3.5) Holdings Limited 35.1 40.0 4.9 67.4 78.9 11.5 56.2 74.4 18.2 39.4 41.5 2.1 90.4 87.4 (3.0) 43.9 44.8 0.9 91.5 90.5 (1.0) 52.5 51.2 (1.3) Freedom Foods Group Limited 80.1 55.8 (24.3) 114.9 111.4 (3.5) 78.7 67.3 (11.4) 107.9 89.1 (18.8) GrainCorp Limited 36.7 34.4 (2.3) 52.8 56.8 4.0 19.9 19.0 (0.9) 64.0 65.2 1.2 Inghams Group Limited 27.3 31.7 4.4 29.3 28.1 (1.2) 43.2 48.0 4.8 16.1 15.8 (0.3) Ridley Corporation Limited 48.6 40.2 (8.4) 39.1 33.0 (6.1) 69.4 67.0 (2.4) 20.8 8.7 (12.1) Select Harvests Limited 62.6 82.0 19.4 153.1 250.6 97.5 14.3 28.0 13.7 183.2 253.6 70.4 Group Limited 18.6 19.5 0.9 94.9 87.1 (7.8) 121.0 99.8 (21.2) 5.9 12.7 6.8 Limited 48.4 25.9 (22.5) 36.3 51.1 14.8 43.6 52.7 9.1 44.7 25.1 (19.6) Limited 87.6 86.7 (0.9) 220.6 257.4 36.8 65.0 80.3 15.3 183.8 188.6 4.8 Peer group average 56.3 55.0 (1.3) 106.1 117.8 11.7 61.3 68.3 7.0 93.3 95.9 2.6

Healthcare Services DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change 1300SMILES Limited 20.3 23.2 2.9 0.4 0.3 (0.1) 36.9 35.2 (1.7) 0.3 3.9 3.6 Capitol Health Limited 24.2 5.2 (19.0) - - - 15.5 5.2 (10.3) 12.9 1.7 (11.2) Estia Health Limited 7.2 6.9 (0.3) - - - 8.9 12.8 3.9 0.4 (2.9) (3.3) Limited 25.9 25.6 (0.3) 9.8 9.3 (0.5) 50.9 45.6 (5.3) (7.0) (3.8) 3.2 Integral Diagnostics Limited 10.4 10.8 0.4 1.3 1.1 (0.2) 26.6 37.4 10.8 (5.8) (11.9) (6.1) Japara Healthcare Limited 17.5 12.1 (5.4) - - - 8.5 12.9 4.4 11.2 2.1 (9.1) National Veterinary Care Limited 10.4 5.8 (4.6) 20.8 19.0 (1.8) 27.4 30.5 3.1 5.9 (2.1) (8.0) Limited 49.2 45.8 (3.4) 41.3 47.3 6.0 135.8 132.7 (3.1) 27.5 26.0 (1.5) Regis Healthcare Limited 3.8 2.7 (1.1) 7.3 9.8 2.5 94.3 135.9 41.6 (2.6) (4.9) (2.3) Limited 44.9 48.7 3.8 28.8 33.6 4.8 46.9 54.0 7.1 28.0 29.7 1.7 Limited 46.4 43.8 (2.6) 10.2 10.4 0.2 22.9 20.2 (2.7) 37.9 37.2 (0.7) Virtus Health Limited 14.7 14.7 - 3.6 4.1 0.5 45.5 52.6 7.1 3.0 1.4 (1.6) Peer group average 22.9 20.4 (2.5) 10.3 11.2 0.9 43.3 47.9 4.6 9.3 6.4 (2.9) Findings

Media DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change APN Outdoor Group Limited 76.3 68.1 (8.2) 4.5 4.0 (0.5) 13.3 28.1 14.8 74.8 63.9 (10.9) Fairfax Media Limited 60.0 57.5 (2.5) 6.4 3.6 (2.8) 42.3 41.8 (0.5) 30.2 25.7 (4.5) IVE Group Limited 69.3 61.7 (7.6) 46.5 32.5 (14.0) 63.3 48.8 (14.5) 57.0 49.3 (7.7) Macquarie Media Limited 79.2 80.0 0.8 - - - 8.5 7.1 (1.4) 73.6 75.3 1.7 News Corporation 57.2 65.2 8.0 16.8 28.0 11.2 17.9 45.0 27.1 56.6 55.9 (0.7) Co. Holdings 80.3 74.2 (6.1) 6.1 4.5 (1.6) 40.6 41.1 0.5 49.3 46.1 (3.2) Limited NZME Limited 48.0 51.7 3.7 2.6 2.3 (0.3) 64.7 57.4 (7.3) 0.1 9.0 8.9 oOh!media Limited 86.2 78.1 (8.1) 1.1 1.2 0.1 14.2 7.1 (7.1) 78.7 74.9 (3.8) QMS Media Limited 66.3 64.3 (2.0) 3.0 2.8 (0.2) 63.9 64.2 0.3 34.7 32.1 (2.6) REA Group Limited 51.2 68.5 17.3 - - - 36.8 14.7 (22.1) 43.2 64.5 21.3 Limited 61.1 64.4 3.3 5.5 5.1 (0.4) 47.0 43.7 (3.3) 27.7 32.9 5.2 SKY Network Television Limited 25.9 24.9 (1.0) - - - 57.9 67.3 9.4 (7.1) (12.5) (5.4) Southern Cross Media Group Limited 77.1 71.6 (5.5) - - - 32.0 36.8 4.8 71.0 64.5 (6.5) Peer group average 64.5 63.9 (0.6) 7.1 6.5 (0.6) 38.6 38.7 0.1 45.4 44.7 (0.7)

Mining & Resources DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change AngloGold Ashanti Limited 15.2 13.4 (1.8) 75.5 69.7 (5.8) 42.8 36.5 (6.3) 41.2 40.6 (0.6) Atlas Iron Limited 4.4 12.9 8.5 8.8 14.2 5.4 6.2 25.1 18.9 6.8 1.5 (5.3) Base Resources Limited 99.0 71.1 (27.9) 64.9 60.3 (4.6) 33.9 36.2 2.3 118.9 85.6 (33.3) BHP Billiton Limited 30.3 26.6 (3.7) 46.3 46.4 0.1 69.9 73.7 3.8 11.5 8.2 (3.3) BlueScope Steel Limited 46.1 46.1 - 102.3 106.1 3.8 85.2 76.3 (8.9) 55.6 63.3 7.7 Limited 14.8 15.6 0.8 87.8 84.6 (3.2) 32.5 30.3 (2.2) 57.7 55.8 (1.9) Limited 6.1 10.5 4.4 43.9 36.7 (7.2) 17.5 20.1 2.6 21.4 22.4 1.0 Independence Group NL 48.9 43.2 (5.7) 135.5 107.3 (28.2) 13.7 18.8 5.1 98.0 75.2 (22.8) Corporation Limited 8.5 12.1 3.6 56.4 74.5 18.1 68.8 50.5 (18.3) (3.2) 28.3 31.5 MACA Limited 90.4 85.8 (4.6) 10.6 7.8 (2.8) 38.8 30.7 (8.1) 64.6 63.7 (0.9) Macmahon Holdings Limited 66.7 80.7 14.0 64.8 42.3 (22.5) 57.2 68.8 11.6 70.5 67.2 (3.3) New Hope Corporation Limited 34.2 33.7 (0.5) 47.8 42.5 (5.3) 50.0 54.7 4.7 33.0 27.7 (5.3) Limited 12.0 8.0 (4.0) 79.9 74.9 (5.0) 65.4 56.1 (9.3) 22.6 22.2 (0.4) Northern Star Resources Limited 9.9 11.1 1.2 38.6 49.1 10.5 33.1 31.8 (1.3) 13.4 22.3 8.9 OceanaGold Corporation 18.6 21.3 2.7 87.5 131.2 43.7 168.1 162.9 (5.2) (18.9) 9.3 28.2 OZ Minerals Limited 34.2 54.3 20.1 561.6 491.3 (70.3) 212.0 176.1 (35.9) 88.7 114.4 25.7 Ramelius Resources Limited 3.5 3.6 0.1 63.3 75.2 11.9 10.8 9.2 (1.6) 48.3 58.1 9.8 Regis Resources Limited 20.3 16.1 (4.2) 42.7 46.1 3.4 18.4 22.4 4.0 35.4 29.5 (5.9) Limited 35.6 30.0 (5.6) 40.0 47.0 7.0 39.2 44.3 5.1 36.2 31.8 (4.4) Sandfire Resources NL 11.4 8.4 (3.0) 67.1 84.2 17.1 89.7 95.6 5.9 5.0 5.6 0.6 Saracen Mineral Holdings Limited 5.5 6.7 1.2 40.5 63.9 23.4 48.3 54.0 5.7 - 12.5 12.5 Limited 28.9 24.8 (4.1) 33.3 36.5 3.2 22.2 24.4 2.2 38.5 35.4 (3.1) Limited 37.6 39.3 1.7 48.5 50.3 1.8 52.8 47.2 (5.6) 34.2 41.9 7.7 Limited 3.3 3.2 (0.1) 69.9 78.9 9.0 44.7 48.1 3.4 14.6 16.7 2.1 Westgold Resources Limited 10.5 19.6 9.1 60.3 54.7 (5.6) 57.4 34.5 (22.9) 13.2 41.5 28.3 Whitehaven Coal Limited 23.2 15.7 (7.5) 50.1 45.1 (5.0) 32.8 17.1 (15.7) 30.2 28.2 (2.0) Yancoal Australia Ltd 127.1 95.3 (31.8) 31.6 38.0 6.4 197.4 192.0 (5.4) 10.9 10.2 (0.7) Zimplats Holdings Limited 115.8 112.8 (3.0) 51.9 59.8 7.9 29.2 40.6 11.4 132.6 125.5 (7.1) Peer group average 34.4 32.9 (1.5) 75.4 75.7 0.3 58.5 56.4 (2.1) 38.6 40.9 2.3

27 Findings

Retail DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change A.P. Eagers Limited 15.4 15.2 (0.2) 72.8 71.2 (1.6) 6.7 6.2 (0.5) 69.4 68.8 (0.6) Accent Group Limited 11.4 9.5 (1.9) 142.4 117.8 (24.6) 71.2 47.5 (23.7) 43.5 40.1 (3.4) Adairs Limited 1.0 1.3 0.3 111.3 97.9 (13.4) 59.2 44.9 (14.3) 22.2 22.4 0.2 AMA Group Limited 33.4 32.2 (1.2) 42.7 48.5 5.8 82.7 88.0 5.3 16.2 15.0 (1.2) ARB Corporation Limited 48.7 47.9 (0.8) 188.7 210.6 21.9 46.5 44.4 (2.1) 112.2 121.4 9.2 Automotive Holdings Group Limited 21.3 23.5 2.2 70.6 81.4 10.8 10.8 13.7 2.9 66.9 75.6 8.7 Autosports Group Limited 16.5 22.5 6.0 71.5 90.3 18.8 12.8 13.7 0.9 66.0 87.0 21.0 Baby Bunting Group Limited 12.5 13.4 0.9 95.6 98.5 2.9 44.6 46.6 2.0 46.1 48.0 1.9 Bapcor Limited 47.1 41.5 (5.6) 172.8 157.2 (15.6) 88.5 80.0 (8.5) 93.1 83.2 (9.9) Beacon Lighting Group Limited 16.3 16.8 0.5 256.1 281.7 25.6 41.8 27.1 (14.7) 94.0 103.5 9.5 Breville Group Limited 63.6 60.2 (3.4) 104.9 86.6 (18.3) 85.3 73.5 (11.8) 76.7 68.7 (8.0) Limited 1.4 1.3 (0.1) 6.2 6.0 (0.2) 58.4 62.0 3.6 (23.4) (25.3) (1.9) Domino's Pizza Enterprises Limited 30.9 33.7 2.8 11.0 10.4 (0.6) 37.0 41.8 4.8 13.1 12.5 (0.6) Greencross Limited 5.2 6.3 1.1 97.6 93.2 (4.4) 53.0 56.6 3.6 25.0 22.3 (2.7) Holdings Limited 127.6 132.7 5.1 93.3 95.0 1.7 54.0 63.1 9.1 154.1 153.9 (0.2) JB Hi-Fi Limited 12.6 10.9 (1.7) 71.4 60.4 (11.0) 48.2 39.5 (8.7) 30.7 27.4 (3.3) Kogan.Com Limited 2.6 4.4 1.8 61.0 55.2 (5.8) 32.5 35.8 3.3 26.0 20.1 (5.9) Lovisa Holdings Limited 2.1 1.7 (0.4) 126.3 125.8 (0.5) 44.0 43.8 (0.2) 19.6 18.1 (1.5) Limited 36.9 37.3 0.4 21.5 21.7 0.2 43.2 45.1 1.9 17.1 16.0 (1.1) Michael Hill International Limited 16.6 16.1 (0.5) 371.9 336.0 (35.9) 50.4 43.2 (7.2) 133.1 122.0 (11.1) MotorCycle Holdings Limited 4.4 8.2 3.8 95.4 148.6 53.2 11.6 12.6 1.0 66.0 104.8 38.8 Myer Holdings Limited 2.4 1.8 (0.6) 95.6 96.5 0.9 46.7 50.0 3.3 28.7 26.9 (1.8) Nick Scali Limited 0.3 2.7 2.4 122.0 141.1 19.1 31.8 45.2 13.4 34.2 38.5 4.3 Noni B Limited 4.4 5.2 0.8 91.8 126.9 35.1 76.5 113.1 36.6 10.1 10.2 0.1 Premier Investments Limited 7.9 6.6 (1.3) 127.4 131.0 3.6 35.6 35.6 - 41.5 42.2 0.7 PWR Holdings Limited 33.0 28.5 (4.5) 264.0 249.3 (14.7) 43.0 48.6 5.6 79.2 66.9 (12.3) Ruralco Holdings Limited 73.0 78.6 5.6 31.6 39.1 7.5 71.8 74.4 2.6 39.4 49.8 10.4 Limited 2.9 2.4 (0.5) 128.8 140.7 11.9 48.0 65.9 17.9 47.5 43.6 (3.9) Group Limited 25.5 25.4 (0.1) - - - 64.3 63.0 (1.3) 9.9 9.4 (0.5) Vita Group Limited 14.4 10.6 (3.8) 14.1 14.7 0.6 24.5 27.2 2.7 7.8 1.9 (5.9) Limited 9.2 9.0 (0.2) 52.9 47.6 (5.3) 53.6 51.8 (1.8) 8.7 6.2 (2.5) Woolworths Group Limited 2.7 2.7 - 39.3 38.4 (0.9) 48.5 48.2 (0.3) (3.8) (4.2) (0.4) Peer group average 22.0 22.2 0.2 101.6 103.7 2.1 47.7 48.5 0.8 46.0 46.8 0.8 Findings

Telecommunications DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change amaysim Australia Limited 49.0 40.0 (9.0) - - - 30.5 29.5 (1.0) 25.3 16.1 (9.2) BSA Limited 72.5 68.0 (4.5) 1.8 1.1 (0.7) 34.7 27.2 (7.5) 43.1 44.6 1.5 35.1 36.1 1.0 - - - 80.9 97.8 16.9 4.9 3.3 (1.6) Macquarie Telecom Group Limited 10.9 9.0 (1.9) - - - 38.4 50.7 12.3 (14.8) (23.4) (8.6) Limited 26.6 26.2 (0.4) 13.6 11.5 (2.1) 39.2 40.6 1.4 8.7 6.1 (2.6) Speedcast International Limited 91.1 92.8 1.7 12.8 16.9 4.1 141.8 179.9 38.1 (6.9) (14.1) (7.2) Telstra Corporation Limited 76.9 70.5 (6.4) 99.2 82.3 (16.9) 131.6 160.1 28.5 72.8 59.9 (12.9) TPG Telecom Limited 19.3 18.9 (0.4) 1.6 1.2 (0.4) 46.4 51.0 4.6 (7.0) (10.5) (3.5) Limited 34.8 37.2 2.4 - - - 17.6 13.5 (4.1) 22.7 27.9 5.2 Peer group average 46.2 44.3 (1.9) 14.3 12.6 (1.7) 62.3 72.3 10.0 16.5 12.2 (4.3)

Transport & Distribution DSO DIO DPO DWC Company name 2017 2018 Change 2017 2018 Change 2017 2018 Change 2017 2018 Change Auckland International Airport Limited 27.4 28.9 1.5 0.3 0.6 0.3 18.6 22.3 3.7 24.3 24.9 0.6 Aurizon Holdings Limited 59.8 62.3 2.5 25.3 27.8 2.5 62.1 58.3 (3.8) 41.0 47.1 6.1 Bingo Industries Limited 54.0 62.3 8.3 8.6 10.8 2.2 54.7 52.7 (2.0) 25.9 36.0 10.1 Brambles Limited 82.8 80.9 (1.9) 6.0 5.8 (0.2) 44.8 50.6 5.8 57.1 51.4 (5.7) K&S Corporation Limited 42.8 55.4 12.6 4.2 4.5 0.3 71.1 77.4 6.3 5.7 14.4 8.7 MMA Offshore Limited 107.5 112.2 4.7 4.6 2.9 (1.7) 11.8 8.9 (2.9) 99.6 106.1 6.5 Limited 72.3 67.5 (4.8) 0.7 0.7 - 49.6 41.1 (8.5) 34.7 36.7 2.0 Steamships Trading Company Limited 67.0 83.7 16.7 100.9 100.2 (0.7) 110.3 81.7 (28.6) 65.1 88.2 23.1 Peer group average 64.2 69.2 5.0 18.8 19.2 0.4 52.9 49.1 (3.8) 44.2 50.6 6.4

29 mcgrathnicol.com/advisory