Slide 1: Acquisition of MORSCO and A$560m equity raising
The Reece Group Works Acquisition of MORSCO and for you A$560m equity raising 7 May 2018 The Reece Group - Works for you
Slide 2: Important notice and disclaimer
Important notice and disclaimer Disclaimer The following notice and disclaimer applies to this investor presentation (Presentation) and you are therefore advised to read this carefully before reading or making any other use of this Presentation or any information contained in this Presentation. By a
Slide 3: Important notice and disclaimer
Important notice and disclaimer Not investment advice (cont.) This Presentation has been prepared without taking account of any person’s individual investment objectives, financial situation or particular needs. Before making an investment decision, prospective investors should consider the appropri
Slide 4: Important notice and disclaimer
Important notice and disclaimer Effect of rounding A number of figures, amounts, percentages, estimates, calculations of value and fractions in this Presentation are subject to the effect of rounding. Accordingly, the actual calculation of these figures may differ from the figures set out in this Pr
Slide 5: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 4
Slide 6: Overview of the transaction
Overview of the transaction ∕ Reece has entered into a binding agreement to acquire MORSCO Inc. (“MORSCO”), for ~US$1,440m (A$1,910m1) Acquisition ∕ Reece has been engaged with MORSCO and its vendor global private equity firm Advent International for considerable overview time and entered the bindin
Slide 7: Overview of the transaction
Overview of the transaction ∕ Mid-to-high single digit EPS accretion expected in the first full year of ownership on an NPATA basis 1 Expected ∕ Pro-forma for the acquisition, Reece’s net debt / EBITDA2 as at 31 December 2017 was 2.9x. The acquisition is expected to financial complete in July 2018 i
Slide 8: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 7
Slide 9: MORSCO overview
MORSCO overview / MORSCO is a leading US distributor of plumbing, waterworks and HVAC products Operational Platform Distribution Scale ∕ MORSCO distributes over 125,000 products from 5,000 vendors to more than ∕ Presence in 16 states in the US, with 171 branches and ~2,500 275,000 customers employee
Slide 10: Attractive financial profile
Attractive financial profile / MORSCO has delivered consistent sales and earnings growth Adjusted sales1 (US$m) and growth (%) Adjusted EBITDA1 (US$m) and margin (%) 1,715.9 100.2 95.4 1,631.9 1,510.9 83.9 CY2015 CY2016 CY2017 CY2015 CY2016 CY2017 Pro-forma 2 Growth (%) Margin (%) 8.0% 5.1% 5.6% 5.8
Slide 11: MORSCO – Plumbing overview
MORSCO – Plumbing overview Operational strengths and opportunities Geographic footprint ∕ Scalable business with leading market position in the highest growth US states, focused in the Sun Belt region ∕ Diverse base of over 260,000 active customers, with no Branches: 111 individual customer represen
Slide 12: MORSCO – Waterworks overview
MORSCO – Waterworks overview Operational strengths and opportunities Geographic footprint ∕ Market leading distributor of underground water infrastructure products Branches: 49 ∕ Leading position in majority of served areas Strengths ∕ Diversified product mix and balanced exposure across residential
Slide 13: MORSCO – HVAC overview
MORSCO – HVAC overview Operational strengths and opportunities Geographic footprint ∕ Foundation footprint in five of the top 20 HVAC metropolitan areas in the US Branches: 11 Strengths ∕ Diverse base of over 11,500 active customers, with no individual customer representing > 6% of sales in CY17 ∕ S
Slide 14: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 13
Slide 15: Clear strategic fit with Reece
Clear strategic fit with Reece / Reece objectives Expected impact of MORSCO acquisition 1 Gain exposure to ∕ Establish growth exposure to a large and attractive geographic market with positive thematics attractive markets ∕ Fragmented nature of market provides further consolidation opportunities 2 M
Slide 16: Compelling strategic rationale
Compelling strategic rationale 1 Strategic platform in the growing US Sun Belt region 2 Access to large, growing markets with strong demand drivers 3 Experienced management team with proven track record 4 Ability to leverage operational expertise and relationships 5 Significant opportunity to drive
Slide 17: MORSCO footprint focused on attractive coast-to-coast Sun Belt region
1 MORSCO footprint focused on attractive coast-to-coast Sun Belt region / Unique combination of coast-to-coast scale together with local relationships ∕ Presence in six of the top ten fastest growing US Metropolitan Statistical Areas (“MSAs”)1 ∕ Exposure to Sun Belt states, which are forecast to gen
Slide 18: MORSCO market positioning and growth
2 MORSCO market positioning and growth Plumbing Waterworks HVAC Top five suppliers Top five suppliers Top five suppliers Market size and 31% 58% 22% share (national market) Other Other 42% Other 69% 78% Mkt size: US$32bn Mkt size: US$11bn Mkt size: US$35bn ∕ 55% repair and replace ∕ 40% public infra
Slide 19: Strong momentum in demand drivers for end markets
2 Strong momentum in demand drivers for end markets ∕ US new housing starts (‘000 units) ∕ US repair and remodelling spending (US$bn) Single Family Multi-Family Average 1,801 Long-term average 398 336 383 1978–2017: 1,3791 1,372 1,355 1,270 1,318 365 309 1,110 1,174 1,202 360 345 1,003 356 353 327 9
Slide 20: Experienced management with deep industry experience and a proven track record of driving growth
3 Experienced management with deep industry experience and a proven track record of driving growth / MORSCO brings together a skilled and highly qualified management team / Deep industry experience Chip Hornsby 40 CEO ∕ Strong team with distribution industry expertise, led by Chip Hornsby ∕ Combined
Slide 21: Ability to leverage operational expertise and relationships across Reece and MORSCO
4 Ability to leverage operational expertise and relationships across Reece and MORSCO ∕ The Reece team has built a world-class business with leading EBITDA margins Management’s ∕ Opportunity for the measured implementation of best-in-class operational capability, operational experience leveraging Re
Slide 22: Strong operational alignment between Reece and MORSCO
4 Strong operational alignment between Reece and MORSCO Plumbing Waterworks/Civil HVAC-R ∕ Australia’s largest supplier of ∕ Services civil contractors and ∕ Australia’s largest wholesaler of plumbing and bathroom products plumbers in the water, gas and parts to the refrigeration, air ∕ Pipes & fitt
Slide 23: Significant opportunity to drive future organic and acquisition led growth
5 Significant opportunity to drive future organic and acquisition led growth 1 Organic Growth 2 M&A ∕ Benefit from underlying growth in the market ∕ Disciplined and methodical approach to acquisition assessment ∕ Improve branch operating efficiency through implementing standard operating practices ∕
Slide 24: Creation of a ~A$4.8bn sales plumbing, HVAC-R and waterworks distribution business
Creation of a ~A$4.8bn1 sales plumbing, HVAC-R and waterworks distribution business / MergeCo pro-forma sales (A$m)1 / MergeCo pro-forma EBITDA (A$m)1 Plumbing Waterworks HVAC Australia US ∕ Australia market position 2,276 149 ∕ Number 1 market position 2 757 133 in Australia 2 2,276 1,371 4,827 ∕ U
Slide 25: Approach to the combination will be to leverage both businesses operational expertise
Approach to the combination will be to leverage both businesses operational expertise ∕ Reece will take a long term view and make decisions and investments accordingly ∕ MORSCO represents a strategic platform in the US that is performing well ∕ MORSCO management team to remain in current positions u
Slide 26: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 25
Slide 27: Transaction funding and terms
Transaction funding and terms Purchase price ∕ Total consideration of US$1,440m, equivalent to ~A$1,910m ∕ Acquisition funded by: ∕ A$560m fully underwritten equity raising, comprising:: ∕ A$421m Entitlement Offer ∕ A$139m Placement Funding ∕ US$1,140m 7‐year senior secured term loan B facility whic
Slide 28: Pro-forma balance sheet
Pro-forma balance sheet 31-Dec-17; A$m Reece1 Adjustments Pro-forma MORSCO2 Transaction3 Current assets Cash and cash equivalents 50 - 4 54 Accounts receivable 363 335 - 698 Inventory 495 280 - 775 Other - 31 - 31 Total 908 646 4 1,559 Non current assets Fixed assets 543 88 - 632 Other 37 26 - 63 In
Slide 29: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 28
Slide 30: Reece Group historical financial performance and FY18 guidance
Reece Group historical financial performance and FY18 guidance ∕ Sales (A$m) Record result expected to be delivered for FY18 2,700 ∕ Opened 10 new branches plus the additional branches from the 2,650 Viadux and Heatcraft NZ acquisitions ∕ Continuing to leverage supply chain to deliver market leading
Slide 31: Reece Group strategy
Reece Group strategy / Reece’s growth strategy focuses on initiatives across operational improvement, greenfield development and M&A 1 Operational improvement 2 Network expansion 3 M&A ∕ Culture of great customer service ∕ Strong history of strategic greenfield ∕ Strategic and opportunistic M&A in e
Slide 32: ANZ operations will continue to underpin Reece
ANZ operations will continue to underpin Reece / Reece has multiple organic and acquisition led growth opportunities across Plumbing, HVAC-R and Waterworks / Civil ∕ Australia’s largest supplier of plumbing ∕ Australia’s largest distributor of ∕ Australia’s largest distributor of and bathroom produc
Slide 33: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 32
Slide 34: Transaction funding and terms
Transaction funding and terms Offer ∕ Fully underwritten 1 for 11 pro-rata accelerated non-renounceable entitlement offer to raise A$421m and a fully underwritten structure and A$139m institutional placement, together raising approximately A$560m size ∕ Approximately 60m New Shares to be issued (equ
Slide 35: Equity raising timetable
Equity raising timetable Event Date Trading halt, announcement of the Transaction, Entitlement Offer and Placement. Institutional Entitlement Offer Monday, 7 May 2018 opens Institutional Entitlement Offer closes Tuesday, 8 May 2018 Placement conducted Tuesday, 8 May 2018 Announcement of results of I
Slide 36: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 35
Slide 37: The MORSCO opportunity allows Reece to write the next chapter of its growth story
Strategic The MORSCO platform that aligns with Reece’s core opportunity business allows Reece to The biggest Opportunity write the next to leverage expertise and Plumbing, HVAC and Waterworks chapter of its relationships markets with strong demand growth story Delivers a drivers compelling springboa
Slide 38: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 37
Slide 39: Key risks
Key risks This section discusses some of the key risks associated with an investment in shares in Reece. These risks may affect the future operating and financial performance of Reece and the value of Reece shares. The risks set out below are not listed in order of importance and do not necessarily
Slide 40: A. Acquisition Risks
A. Acquisition Risks Completion risks Completion of the acquisition of MORSCO (the Acquisition) is conditional on certain matters, including satisfaction of certain customary conditions precedent to the Acquisition agreement. With respect to both MORSCO and Reece, these conditions precedent include:
Slide 41: A. Acquisition Risks (cont.)
A. Acquisition Risks (cont.) Completion risks … given, or (ii) (A) all of Reece’s conditions precedent to closing have been satisfied, (B) MORSCO has irrevocably confirmed to Reece in writing that (cont.) it is ready, willing and able to consummate the transactions, (C) Reece has not consummated the
Slide 42: A. Acquisition Risks (cont.)
A. Acquisition Risks (cont.) Warranty & Reece has obtained warranty and indemnity insurance to cover claims for breach of certain warranties and indemnities under the Acquisition indemnity insurance agreement. Reece's primary remedy for breach of warranties and claims under the relevant indemnities
Slide 43: A. Acquisition Risks (cont.)
A. Acquisition Risks (cont.) Debt financing risk Reece has entered into financing arrangements (the Facilities) pursuant to which J.P. Morgan Australia Limited, acting as sole lead arranger and sole bookrunner for the Facilities (in such capacities, the Arranger) will manage the syndication of the F
Slide 44: A. Acquisition Risks (cont.)
A. Acquisition Risks (cont.) Change of control As a result of the Acquisition, customers of MORSCO that are not bound by contract or that have rights to terminate their contracts for convenience risk may elect to terminate their relationship with MORSCO. If any material customers terminate their rel
Slide 45: B. Business Risks
B. Business Risks Competition Reece operates in a business environment which remains highly competitive. This competitive environment can be significantly affected by local market forces, such as new market entrants, and changes in economic conditions and product demand. Any increased competition fr
Slide 46: B. Business Risks (cont.)
B. Business Risks (cont.) Third party suppliers Reece's ability to provide services and products is highly dependent on securing products from third party suppliers. Some of these third party suppliers are key competitors of Reece. The business of Reece would be materially impacted if any of those s
Slide 47: B. Business Risks (cont.)
B. Business Risks (cont.) New technologies / Markets in which Reece competes, including bathroom, plumbing and HVAC-R products and services, may be subject to disruptive change from industry change new technologies. If Reece is not able to develop or access new technologies and anticipate or respond
Slide 48: B. Business Risks (cont.)
B. Business Risks (cont.) Interest rate risk Reece is subject to the risk of rising interest rates associated with borrowing on a floating rate basis. Reece seeks to manage part of its exposure to adverse fluctuations in floating interest rates through interest rate hedging arrangements, including d
Slide 49: C. Offer Risks
C. Offer Risks Risks associated with There are general risks associated with investments in equity capital such as Reece shares. The trading price of Reece shares may fluctuate with an investment in movements in equity capital markets in Australia and internationally. This may result in the market p
Slide 50: C. Offer Risks (cont.)
C. Offer Risks (cont.) Underwriting risk Reece has entered into an underwriting agreement under which J.P. Morgan Australia Limited (the Underwriter) has agreed to fully underwrite the Entitlement Offer, subject to the terms and conditions of the underwriting agreement between the parties (the Under
Slide 51: C. Offer Risks (cont.)
C. Offer Risks (cont.) Underwriting risk (vii) a representation, warranty or undertaking or obligation contained in the Underwriting Agreement on the part of Reece is breached or is or (cont.) becomes misleading or deceptive or not true or correct; (viii) Reece is or is likely to become insolvent; (
Slide 52: Table of Contents
Table of Contents /1 Transaction overview /2 Overview of MORSCO /3 Strategic rationale /4 Transaction funding /5 Reece Group trading update /6 Equity raising structure /7 Summary /8 Key risks /9 International offer restrictions The Reece Group - Works for you 51
Slide 53: International offer restrictions
International offer restrictions This document does not constitute an offer of new ordinary shares (New Shares) of the Company in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares may not be offered or sold, in any c
Slide 54: International offer restrictions (cont.)
International offer restrictions (cont.) Singapore This document and any other materials relating to the New Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document and any other document or materia