Schaffer Corporationp

Full Year Results Presentation June 2011Full Year Results Presentation June 2011

Corporate Objectivep j

“To create long-term shareholder value through the efficient operation and growth of our corethe efficient operation and growth of our core businesses”

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Organisation Chart (Business Segments)g ( g )

SCHAFFER CORPORATION LIMITED

Building Materials Division Property Division Automotive Leather Division

Schaffer Building Products Group

Delta Syndicated JV Property Howe

UrbanStone

Limestone Resources

Company Owned Property

Lumeah

Archistone (including Limestone Blocks, Imported Natural Stone and

Masonry Blocks)

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Urbanstone Central

Tough trading conditions for operating divisions offset by profit on sale of in estment propertsale of investment property

Full Year Ending 30 Jun (A$m) Jun-11 Jun-10 % changeg ( ) change

Revenue 137.8 136.8 1%

EBITDA 17.1 15.1 13%

EBIT (net interest basis) 12.2 10.2 19%

N t fit ft t 4 8 4 5 7%Net profit after tax 4.8 4.5 7%

EPS 0.34 0.32 7%

Return on average capital employed (ROACE) 11% 8%Return on average capital employed (ROACE) 11% 8%

Ordinary dividend (fully franked) $0.20 $0.40

E l di fi l f d ff di f H d M i

Net profit after tax 2.4 3.8 - 36%

Return on average capital employed (ROACE) 7% 7% -1%

Excluding profit on sale of property and one-off costs on divestment of Howe de Mexico:

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g p p y ( )

Net Profit before Tax

8.0

10.0

2.0

4.0

6.0

M's

-4 0

-2.0

0.0

Automotive Leather Building

Materials PropertyCorp./Interest

$M

-8.0

-6.0

-4.0

FY11 FY10

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Cash flow Year Ending 30 Jun (A$m) Jun-11 Jun-10EBITDA 17.1 15.1

Other non-cash items (5.2) (0.9)

Net interest paid (4.5) (4.1)

T id (2 1) (4 6)Tax paid (2.1) (4.6)

Automotive Leather change in trade working capital (7.1) 8.1

Other changes in working capital 1.4 2.2

Total operating cash generated/(utilised) (0.4) 15.8

Debt reduction/(increase) 17.4 7.6

Capital expenditure 4 9 5 0Capital expenditure 4.9 5.0

Divestments (property, plant & equip.) (19.5) (4.0)

Dividends paid 4.3 6.1

Increase (decrease) in cash on deposit (7.5) 1.1

Total cash applied /(sourced) (0.4) 15.8

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Jun-11 Debt PositionDirect Schaffer Net Debt reduced to $3.0m

3 distinct and separate “debt pools”.All amounts in $m's Build. Mat. +

CorporateJV Invest. Properties

Automotive Leather

Total 30 June 2011

Separate loan facilities for each individual JV property investment

Type of Debt :-Bank Debt - recourse 3.3 3.9 - 7.2 Bank Debt - non-recourse - 19.4 - 19.4 Govt. Loans - non-recourse - - 30.7 30.7 Equipment Finance 2.0 - 0.1 2.1 property investment.

Debt associated with the JV properties and

q p5.3$ 23.4$ 30.8$ 59.4$

Interest Type :-Fixed rate 2.0$ 7.6$ 13.8$ 23.4$ Variable rate 3.3$ 15.8$ 17.0$ 36.0$

Automotive Leather division is essentially “non-recourse” against other assets

Maturity Profile :- - FY12 3.9$ 9.2$ 30.7$ 43.8$ - FY13 0.6$ 7.1$ 0.0$ 7.8$

- FY14 0 4$ 7 1$ 0 0$ 7 5$ against other assets within the group.

Automotive Leather

- FY14 0.4$ 7.1$ 0.0$ 7.5$ - FY15 & beyond 0.4$ -$ 0.0$ 0.4$

5.3$ 23.4$ 30.8$ 59.4$

Net Debt Position : negotiations for refinancing the Government Loan from Feb 2012 are well

Net Debt Position :-Gross Debt 5.3$ 23.4$ 30.8$ 59.4$ Cash & bank balances 2.2-$ 0.7-$ 5.0-$ 8.0-$ Net Debt 3.0$ 22.7$ 25.8$ 51.5$

b 13 9$ 25 6$ 21 6$ 61 1$

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Feb 2012 are well advanced

Net Debt Jun-10 13.9$ 25.6$ 21.6$ 61.1$ Reduction during FY11 10.9-$ 2.9-$ 4.2$ 9.6-$

Jun-11 Debt & Assets SummaryMarket value of Group Net Tangible Assets $5.81/share vs. Book Value of $3.50/share

Build. Mat. + Corporate

JV Invest. Properties

Automotive Leather

Total 30 June 2011p p

Net Debt ($m) 3.0$ 22.7$ 25.8$ 51.5$ % debt recourse to SFC 100% 17% 0% 15%Net Assets (Book) ($m) 34.0$ 1.8-$ 22.2$ 54.4$ Net Assets (Market Value) ($m) 47.6$ 17.2$ 22.2$ 86.9$

ki ( k) $ $ $ $

Approximately $46 5m ($32 5m post tax) in unrecognised property value

Asset Backing (NTA -Book) 2.15$ 0.14-$ 1.49$ 3.50$ Asset Backing (NTA -Market Value) 3.11$ 1.21$ 1.49$ 5.81$ LVR (Market Value) 8% 57% 41% 33%

Approximately $46.5m ($32.5m post tax) in unrecognised property value

Group Net Debt reduced by $9.6m (16%) during the year (FY10 – 12% reduction)

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SFC Dividend Yield HistorySFC Dividend Yield HistoryOver $98 million in fully franked dividends paid in the last 10 years

12 0%

Average dividend yield of 8.5% over the past 10 years, fully franked..

8.0%

10.0%

12.0%

ld*

4.0%

6.0%

Div

iden

d Y

iel

0.0%

2.0%

Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

Financial Year ended

* - Yield based on mean average share price for the year

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Automotive Leather

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Automotive Leather Results

A$M Jun-11 Jun-10 % change$ g

Revenue 79.2 81.5 -3%

Segment EBIT 3.2 -0.1 6,112%

Margin 4% 0%

• Revenue down due to withdrawal from low margin (whole hide) market segment in Asia and withdrawal from the loss making market in North America.

• Margins are increased by the withdrawal from the market segments mentioned above.• Hide costs were decreased by the appreciation of the AUD against the USD. However

this is offset by lower selling prices as selling in Euros and USD.• AUD appreciated on average by approximately 26% against the USD and 6% against

the EUR during FY11. Howe is a net importer in USD and a net exporter in EUR.• Result includes approximately $1.5m of one-off costs related to the sale of the North

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pp y $American (Mexico) subsidiary.

Automotive Leather Sales

$70.0

$80.0

$90.0

AsiaAsia)

$50.0

$60.0

$70.0 Asia

Rev

enue

($M

's)

$20.0

$30.0

$40.0

N A iN America

Europe Europe

$-

$10.0

2011 2010Asia $24.8 $35.7

Australia Australia

N America

Europe $42.5 $26.8 N America $7.2 $15.0 Australia $4.7 $4.0

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Automotive Leather StrategyR iti i k H titi i t h k tRepositioning keeps Howe competitive in a tough market

• Europe and Asia (Howe’s market focus) covers 75% of the global market. [Source CSM Worldwide]

• Exit from loss making North American market due to current economic conditions in the US and the high appreciation of the AUD against the USD.t e US a d t e g app ec at o o t e U aga st t e US .

• Focus is on upper end product with potential for higher margin.• High labour intensive cutting operations are based in lower labour-cost countries

(Slovakia and China) to lower Howe’s cost base and provide local sales and service(Slovakia and China) to lower Howe s cost base and provide local sales and service presence.• Slovakia grown to over 400 employees

Chi l 300 l• China grown to nearly 300 employees• New Nissan programs have potential to increase production in China.• Landrover continues to drive growth in Slovakia.g

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A t ti L th Gl b l F t i tAutomotive Leather -Global Footprint

Aachen, Germany

Tokyo,

Shanghai, China

Kosice, Slovakia

yJapan

Melbourne , Australia

Factories

Offices

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Schaffer Building Materialsg

Building Products

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Building Materials Resultsg

Building Materialsg

A$M Jun-11 Jun-10 % change

R 51 8 47 2 10%Revenue 51.8 47.2 10%

Segment EBIT 3.9 7.3 -47%

Margin 8% 15%

• Increase in revenue primarily due to increase in Delta turnover Major contributing• Increase in revenue primarily due to increase in Delta turnover. Major contributing contracts during the year include Fiona Stanley Hospital, Reid Alexander Interchange, Reid/Mirrabooka Bridges, Sino Iron Barge Conveyor, Austrak Turnout Sleepers and Gorgon ProjectsGorgon Projects.

• Reduced margins for Building Products and Delta based on an increasingly competitive environment. Lower demand and increased imports as a result of economic conditions, high exchange rates tight bank credit and reduced consumer spending

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high exchange rates, tight bank credit and reduced consumer spending.

Building Products Strategy (paving, walling & imported d t )products)

Focus on operational efficiency and sales maximisation during tough times• Cost cutting exercises and efficiency improvements have been implemented across theCost cutting exercises and efficiency improvements have been implemented across the

various production sites. This follows the previous rationalisation of manufacturing plants following the acquisitions of Archistone (FY2008) and Limestone Resources (FY2007).( )

• Masonry Block Plant sales have commenced to complement the other ranges of products. FY2012 order book is already double FY2011 sales.

• Significant Natural Stone sales growth is driven by government and commercial• Significant Natural Stone sales growth is driven by government and commercial projects.

• Some import and resale of product is conducted to compete with those taking advantage of the current exchange rate conditionsof the current exchange rate conditions.

• Another concept store is set up for South Australia to further enhance our sales in that region.

• The business awaits improved consumer confidence and spending to bolster sales and further improve operational efficiency at our production facilities. We have strong foundations in place once this happens.

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Building Products Brands and Distributiong• Market leaders• Focus on premium products• Full range of complimentary products• Innovative • National network of 14 Urbanstone Central

Perth

• National network of 14 Urbanstone Central stores/display centres

1993 Jandakot1994 Nedlands2007 Osborne Park2008 Wangara

YangebupMandurah

Brisbane

1998 Hemmant

Mandurah2010 Clarkson

Distribution Network

Sydney

1998 Beverly Hills2008 Willoughby

Adelaide

1999 St Morris

Melbourne

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1999 St Morris2011 Hindmarsh 1994 Cheltenham

2007 Mordiallic

Delta Corporation (pre-cast & pre-stressed concrete)

• Revenue increased in FY11 due to the following major contributing contracts . Fiona Stanley Hospital, Reid Alexander Interchange, Reid/Mirrabooka Bridges, Sino Iron Barge Conveyor, Austrak Turnout Sleepers and Gorgon Projects.

Deltacore floor panels represent the most cost effective method of producing

• Current strong order backlog and includes such contract as Gorgon, Roe and Great Eastern Hwy Interchange, Central Energy

cost effective method of producing suspended flooring currently available.

Plant Room Project QE11, Fiona Stanley Hospital Projects and Curtin University.

Architectural Precast - Noise walls on Reid Hwy and

Al d Rd I t h )

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Alexander Rd Interchange)

Delta Corporation Strategy (pre-cast & pre-stressed t )concrete)

Focus on prestressed and high end architectural to maintain margins• Delta is the market leader in technically engineered innovative precast and prestressedDelta is the market leader in technically engineered, innovative precast and prestressed

concrete products in Western Australia.• Competition increasing in the “simple” precast concrete products, including from

imports for some Resources sector projects leading to margin erosionimports for some Resources sector projects, leading to margin erosion.• Focus remains on prestressed and high end architectural to maintain margins.• Fully automated polishing machine successfully installed and commissioned to address

i d d f hi h lit hit t l t t l ddi fgrowing demand for high quality architectural precast concrete cladding for predominantly institutional buildings.

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Propertyp y

IBM Building, Hay St, West Perth

616 St Kilda Rd, Melbourne

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Hometown, Cannington

Property Resultp y

A$M Jun-10 Jun-10 % change$ Ju 0 Ju 0 % c a ge

Revenue 6.8 7.8 -13%

Segment EBITSegment EBIT (excluding disposals) 3.1 3.9 -19%

Net Rental Margin 46% 50%

Profit on disposals 4.1 0.9

Segment EBIT 7 2 4 8 +51%Segment EBIT 7.2 4.8 +51%

• Revenue and net rental margin decreased due to sale of properties and some increased vacancy.

• Total segment EBIT result boosted by profit on sale of JV interest in 89 St Georges Tce, Perth.

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Valuable portfolio of assets with recurring income & b t ti l li d it l isubstantial unrealised capital gains

Total estimate of $46.5 million of unrealised property value before taxproperty value before tax $27.2 m from JV Portfolio $19.3 m from company owned properties

JV i f li f 5 i l d JV investment portfolio of 5 commercial and retail properties in WA & Victoria, plus an industrial sub-division (Neerabup WA). Mindarie Keys residential sub-division now virtually complete. Schaffer share valued by management at $42.9m - $27.2m above book gvalue.

4 company owned properties, plus one 83% owned property in WA. Primarily owner occupied by Building Materials division. Schaffer share recently independently valued Sc a e s a e ece t y depe de t y va uedat $35.6m - $19.3m above book value.

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Parks Shopping Centre, Bunbury WA

Syndicated JV investment propertiesy p p

P thPerthSFC Interest

IBM Centre, West Perth (1995) 22%Hometown Cannington (1998) 25%Hometown Cannington (1998) 25%Vulcan Rd, Canning Vale (2006) 20%

M lbMelbourneSFC Interest

616 St Kilda Rd (1997) 20%

BunburySFC Interest

Parks S/Centre (1999) 16 7%Parks S/Centre (1999) 16.7%

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Outlook – H1 2011/12• Building Materials

– Production levels and margins at Delta are expected to improve compared to H2 2010/11 th f EBIT i l lik l t b hi htherefore EBIT is also likely to be higher.

– Similarly Building Products is expected to have a better first half for 2011/12 compared to H2 2010/11 and similar to the corresponding period last year. Margins and EBIT are also expected to improveexpected to improve.

• Automotive LeatherCl f N h A i i d Chi h l hid l l d b– Closure of North American operation and China whole hide sales volumes expected to be replaced by increasing European cut programs.

– Sales value is expected to be higher than corresponding period last year.P fit bilit t d t i d t di i i d d t l f– Profitability expected to increase compared to corresponding prior year period due to sale of loss-making Mexican operation, cheaper hides imports due to FX, operational efficiency from higher volume, and higher margin cut sales.

– This business is very sensitive to EURO and USD FX ratesThis business is very sensitive to EURO and USD FX rates• AUD:EUR increases by 1c = approximately $600k decrease in EBIT• AUD:USD increases by 1c = approximately $120k increase in EBIT

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Outlook – H1 2011/12 (continued)( )• Property

– Net rental income from investment properties is expected to be less than corresponding i d l t d t d d t lt f t l i i d i iperiod last year due to reduced rent as a result of property sales in prior year and vacancies in

two properties.

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