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H1 FY2019Results update

Monday 25 February 2019ASX: AHX

H1 FY2019 Interim Results

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DISCLAIMERDISCLAIMER The information presented to you by Apiam Animal Health Limited ACN 604 961 024 (Company) in this presentation and any related documents (together, Materials) has been prepared for information purposes only and is not an offer or invitation to acquire or dispose of shares in the Company, nor shall it be relied on in connection with any investment decision. NO FINANCIAL ADVICE The information contained in the Materials has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Nothing in the Materials constitutes as financial advice. Before making any investment decision, you should consider, with or without the assistance of a financial advisor, whether an investment is appropriate in light of your particular investment needs, objective and financial circumstances.

NO LIABILITY The Company has prepared the Materials based on information available to it at the time of preparation, from sources believed to be reliable and subject to the qualifications in the Materials. To the maximum extent permitted by law, the Company, its related bodies corporate and their respective officers, employees, representatives, agents or advisers accept no responsibility or liability for the contents of the Materials. No representation or warranty, express or implied, is made as to the fairness, accuracy, adequacy, validity, correctness or completeness of the information, opinions and conclusions contained in the Materials. PAST PERFORMANCE Past performance information contained in the Materials is given for illustration purposes only and should not be relied upon as (and is not) an indication of future performance. Actual results could differ materially from those referred to in the Materials. FORWARD LOOKING STATEMENTS The Materials contain certain ‘forward looking statements’. These statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual results, performance or achievement of the Company to be materially different from future results, performance or achievements expressed or implied by those statements.

These statements reflect views only as of the date of the Materials. The actual results of the Company may differ materially from the anticipated results, performance or achievement expressed, projected or implied by these forward looking statements. Subject to any obligations under the Corporations Act, the Company disclaims any obligation to disseminate any updates or revision to any forward looking statement to reflect any change in expectations in relation to those statements or any change in circumstances, events or conditions on which any of those statements are based.

While the Company believes that the expectations reflected in the forward looking statements in the Materials are reasonable, neither the Company nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in the Materials will actually occur and you are cautioned not to place undue reliance on any forward looking statements.

2H1 FY2019 Interim Results

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H1 FY2019REVIEW

3H1 FY2019 Interim Results

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H1 FY2019 Results Snapshot

Notes:1. Underlying EBITDA and NPAT exclude one-off integration, corporate restructuring and acquisition expenses. Tax effected at the NPAT level where applicable

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NPAT (underlying)

$2.0mIn-line with H1 FY18

DPS 0.8 cps

In-line with H1 FY18

Revenue$56.0m

+10.4% vs H1 FY18

EBITDA (underlying) $5.0m

+11.0% vs H1 FY18

Gross Profit$28.5m

+16.4% vs H1 FY18

H1 FY2019 Interim Results

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HighlightsHighlights

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Robust and diversified business model underpinning growth across market cycles and varying industry conditions

Strong top-line revenue growth (+10.4% vs pcp) & ex-acquisition growth (+2.0% vs pcp)

Targeted change in business mix driving gross margin improvement (gross profit +16.4% vs pcp; ex-acquisition gross profit +3.8% vs pcp)

Successfully executing strategic plan to build process and capacity, grow animal numbers and leverage services & products across footprint

Continued cost management focus with limited increase in operatingexpenses (excluding acquisitions and new clinic costs)

New market opportunities on-track to provide complementary counter-seasonal revenue streams

H1 FY2019 Interim Results

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Driving growth in rural veterinary services

42regional & rural clinics

(serviced by 150+ vets)

3,500,000+ pigs provided vet

services and products

2,700,000+ cattle on feed provided

vet services and products

480,000+dairy cows provided

vet services and products

7major contracted

research trials

700,000+semen doses collected at

5 genetic centres

360,000+Apiam lifestyle

magazines distributed

Double digit revenue growth in companion in-

clinic diagnostics and dentals

50+ expert presentations at industry conferences

10+countries where

AHX provided vet services

9peer reviewed

scientific papers published

AHX has a diversified & robust veterinary services model

9 countries that AHX

exported sheep embryos

Statistics as reported for FY2018

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$mH1

FY19AH1

FY18AVariance %

Total revenue 56.0 50.8 5.3 10.4%

Gross profit 28.5 24.5 4.0 16.4%

Employment expenses (16.9) (14.1) (2.8) 19.8%

General expenses (6.6) (5.9) (0.7) 12.3%

Underlying EBITDA 2 5.0 4.5 0.5 11.0%

Depreciation & amortisation (1.5) (1.1) (0.4) 31.9%

Underlying EBIT 2 3.5 3.3 0.1 3.9%

Underlying NPAT 2 2.0 2.0 - -

GM 50.8% 48.2%

Underlying EBITDA margin 8.9% 8.8%

Integration / IT systems expenses (0.2) (0.3) 0.1 (22.1)%

Acquisition / Advisory expenses (0.2) (0.1) (0.1) 69.5%

Restructure costs (0.1) 0.0 (0.1) nm

Revenue• Growth of 10.4% in H1 FY19 vs H1 FY18• Ex-acquisition revenue growth of 2.0%1

Gross margins• Gross profit uplift reflects change in business mix

to higher value transactions• Ex-acquisition gross profit improvement of 3.8%

Operating expenses• Employment expense growth due to acquisitions

& new Epsom clinic• Strong cost containment focus to limit general

expense growth• Underlying expense growth excluding impact of

acquisitions & new clinic start-up costs- employment expense increase + 0.2% vs pcp- general expense increase of +2.5 % vs pcp

• One-off expenses discussed next slide

Depreciation & Amortisation• Increase related to capital investment in systems

over FY2018• Capex to implement enlarged corporate

infrastructure now mostly complete

Strong revenue and gross margin growth

Profit and loss summary – underlying

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Notes:1. Adjusted to exclude contributions from TMVC (Acq. Nov 17), Passionate Vetcare (Mar 18), Gympie & District (Jun 18) 2. Underlying earnings excl. one-off acquisition, integration & restructuring costs (tax effected where applicable at NPAT

level)

H1 FY2019 Interim Results

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$mH1

FY19AH1

FY18AVariance %

Total revenue 56.0 50.8 5.3 10.4%

Gross profit 28.5 24.5 4.0 16.4%

Operating expenses (23.5) (20.0) (3.5) 17.6%

Underlying EBITDA1 5.0 4.5 0.5 11.0%

One-off expenses (0.5) (0.4) (0.1) 30.5%

EBITDA 4.5 4.1 0.4 9.2%

Depreciation & amortisation (1.5) (1.1) (0.4) 31.9%

EBIT 3.0 3.0 0.0 0.5%

Interest (0.6) (0.4) (0.2) 69.0%

Tax (0.7) (0.8) 0.1 (10.7)%

Other (incl. minorities) 2 (0.0) (0.0) 0.0 (15.2)%

NPAT attributable to members 1.6 1.8 (0.1) (7.9)%

Operating Expenses• Reported operating expense growth impacted by

acquisitions & start-up clinic costs• Underlying operating expense growth of 0.9%

vs pcp (excluding acquisitions & Epsom clinic first year costs)

One-off expenses• Small uplift in acquisition / advisory expenses

relating to on-going assessment of potential acquisitions

• Integration / IT systems expense relates to implementation of PMS system- ~ 70% of implementation complete at overall

company level- majority of expense now incurred

Statutory results including one-off expenses

Profit and loss summary – statutory

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Notes:1. Underlying EBITDA excludes one-off acquisition, integration & restructuring expenses2. Includes partner business activities Sth West Equine JV, Apiam Solutions, PETstock JV, Portec

H1 FY2019 Interim Results

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46.1 50.8 56.0

51.955.8

0.0

20.0

40.0

60.0

80.0

100.0

120.0

FY2017 FY2018 FY2019H1 H2

Dairy & mixed animals• Drier conditions continued to impact some operating regions of

dairy segment• Focused expansion of dairy services assisted clients to improve

efficiency• Companion animal segment delivered growth, driven by strong

industry fundamentals in regional and rural areas

Pigs• Higher grain prices impacted profitability of some segments of

industry• Introduction of higher value-add services in H1 FY19 offset

challenges and continued to drive growth

Feedlot• Drier conditions had a positive impact on feedlot sector – with

beef producers finishing off cattle on feed to meet market specifications

• Service expansion over period – training programs, further integration of product logistics and assessment of potential international expansion opportunities

Reported H1 FY19 revenue growth: +10.4%Ex-acquisition H1 FY19 revenue growth: +2.0%

Revenue analysis

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H1 revenue trend (reported) ($m)

Revenue (half on half, reported) ($m)

10.4% growth

H1 FY2019 Interim Results

46.1

50.8

56.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

H1 FY17A H1 FY18A H1 FY19A

$m

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Working Capital

• Working capital management remains a key focus

• Inventory & receivables continue to be managed well, particularly given strong sales performance in December 2018

Borrowings

• Net debt broadly in line with prior period despite continued investment

• Operating leverage ratio of 2.8x as at 31 Dec 2018 (Consistent with 30 June 2018) versus covenant of 4.0x

• Covenant reverts to 3.5x as at 30 June 19

Balance sheet is supportive of future growth

Balance sheet

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$m 31 Dec 2018A 30 Jun 2018A

Cash 1.7 1.4Trade & receivables 16.1 14.7Inventories 10.9 11.3Property, plant & equipment 9.1 9.4Intangibles 65.2 64.5Other 4.5 4.0TOTAL ASSETS 107.4 105.4Borrowings 28.0 27.3Trade & other payables 13.1 12.7Provisions & other 6.3 6.7TOTAL LIABILITIES 47.3 46.7NET ASSETS 60.1 58.7

H1 FY2019 Interim Results

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• Cash flow conversion in H1 FY18 represents one-off initialimpact of improved working capital processes – particularly inventory and receivables terms

• H1 FY19 operating cash flows impacted by timing of revenues vs pcp (ie. higher revenues in December, not received by balance date) – expected to reverse in H2 FY19

• Expect conversion ratio to trend towards 100% over FY19

Cash flow conversion of EBITDA remains strong

Cash flow

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Cashflow Conversion $m H1 FY19A H1 FY18A

Underlying EBITDA 5.0 4.5

Net cash inflow from operating activities 1.9 4.5

Add back:

One-off expense 0.5 0.4

Interest paid 0.6 0.4

Income tax paid 1.1 1.4

Underlying ungeared pre-tax cashflows: 4.1 6.6

Conversion 83% 147%

Statutory cashflows $m H1 FY19A H1 FY18A

Net cash provided by operating activities 1.9 4.5

Acquisition of subsidiary, net of cash (0.3) (1.1)

Purchases of property, plant and equipment (1.0) (2.2)

Purchases of Intangible assets (0.5) (0.4)

Net cash used in investing activities (1.8) (3.7)

Net changes in financing 0.5 (0.2)

Dividends paid to shareholders (0.5) (0.4)

Other 0.1 0.1

Net cash inflow from financing activities 0.1 (0.5)

Net change in cash and cash equivalents 0.2 0.2

• Investment in PP&E slowing as corporate infrastructure investment mostly complete

H1 FY2019 Interim Results

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• Board declares an interim dividend of 0.8 cps, fully franked, payable on 24 April 2019

• Dividend reinvestment plan in place

• Last day to participate in DRP for interim FY19 dividend : 5pm Wednesday 27 March 2019

• DRP pricing period : 5 day AHX VWAP between 28 March 2019 & 3 April 2019

Interim dividend

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FY19 interim dividend

Dividend 0.8 cps

Payout ratio on NPAT 51.8%

Franking 100%

Record date 20 Mar 2019

Payment date 24 Apr 2019

H1 FY2019 Interim Results

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STRATEGY & OUTLOOK

13H1 FY2019 Interim Results

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Phase 3 of Strategic Plan – Leveraging Performance

Three year strategic Objectives

Phase 1: Building the FoundationPhase 2: Gaining EfficienciesPhase 3: Leveraging Performance

FY19 Initiatives

growthOPERATIONS PROCESS &

CAPACITY

ANIMAL NUMBERS

SERVICES & PRODUCTS,

RANGE & MARGINS

X X

14H1 FY2019 Interim Results

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Leveraging performance – H1 FY2019 update

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Services, product range & margins• Chinese consultancy & export agreement delivered first revenues in H1 FY2019

- agreement to provide consultancy services to state-of-the-art sheep genetics centre in China

- initial consulting revenues and on going product & services revenues

- contract term 3-5 years

- increases utilisation of AHX’s NSW based genetic services facility

• Plumbline DNA therapy product clinical trials in progeny pigs on track to be completed end FY2019

- attractive gross margin opportunity

- clear path to market given already approved for use in breeding animals

• Next generation private label products continue to be developed

• US JV revenues commenced; expected to ramp-up following completion of collaboration research trials with major US university and other on applied trials on farm

• Expansion of production animal services on-track

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Leveraging performance – H1 FY19 update

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Animal numbers- Growth in animal numbers on-going through both organic and acquisition

- Acquisitions boosting production and companion animal numbers in targeted regional areas (subject to strict financial performance criteria)

- PETstock JV and “Fur Life Vet” branding successfully supporting growth in companion animal numbers

Operations process & capacity- Bulk of investment complete

- Operating systems, back office functions & supply chain delivering efficiencies

- ~ 70% of company wide Practice Management System (PMS) roll-out complete

- PMS expected to deliver meaningful financial benefits in FY2020

H1 FY2019 Interim Results

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Apiam is well positioned to deliver continued growth

• Diversified operating model supporting revenue growth across different cycles

• New market opportunities now in place and expected to provide further complementary and counter-seasonal revenue streams

- Expansion of product distribution – private label, new products and USA JV

- Genetic exports via Chinese consultancy and export agreement

- Companion animal growth

• Apiam on-track to deliver revenue and earnings growth in FY2019

• H2 FY19 revenue expected to be greater than H1 FY19 and consistent with the trend in H1 / H2 phasing

• Full year gross profit margin expected to be in line with improved H1FY19 result, showing benefits of targeted shift in business mix

• Capital deployed on strategic initiatives over the last 3 years has established the platform for future growth – with that now complete, Apiam’s focus is on delivering material EBITDA and NPAT enhancement going forward

Outlook

17H1 FY2019 Interim Results

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THANK YOU

18H1 FY2019 Interim Results