Scales Corporation sells coldstore operations

Scales Corporation Limited
Head Office: 52 Cashel Street | Christchurch 8013 | New Zealand
Postal: PO Box 1590 | Christchurch 8140 | New Zealand
Phone: +64 3 379 7720
scalescorporation.co.nz





NZX & Media Release

9 May 2018

SCALES CORPORATION SELLS COLDSTORE OPERATIONS FOR $151.4 MILLION

Diversified agribusiness Scales Corporation Limited (NZX:SCL) today announced an agreement to
sell its coldstorage businesses, Polarcold Stores Limited and Whakatu Coldstores Limited (which
were merged on 1 January 2018 under the Polarcold brand). The sale, for consideration of $151.4
million, is to Emergent Cold, a global cold chain company that recently acquired the Swire coldstorage
assets in Australia and Vietnam. The transaction is subject only to OIO approval.

Managing Director Andy Borland says “we are proud to have built a market leading position in the
New Zealand coldstorage industry. We were approached by Emergent Cold who see Polarcold as an
ideal fit within their broader strategy of acquiring and developing a global network of cold chain
businesses. Under the ownership of Emergent Cold, Polarcold will be able to offer its customers
global cold chain solutions, and its employees an opportunity to be part of a global enterprise.”

Neal Rider, CEO of Emergent Cold says “Scales has built the leading cold storage business in New
Zealand through dedicated service to customers, commitment to employees and the highest quality
operations. We are excited to partner with this outstanding management team – we look forward to
supporting the continued growth and expansion of the business, and its customers, throughout New
Zealand and Asia Pacific with Emergent Cold.”

Tim Goodacre, Chairman of Scales Corporation said “as highlighted in our annual results
announcements, Scales is refreshing its strategy, adopting a greater focus on pure agribusinesses
that play well to our strengths. We have identified our strengths as (1) operating fully-vertically
integrated agriculture businesses, (2) participating in businesses with an export focus, and (3) adding
value through connections to the China market.

“In addition to being less aligned with our core strengths, the returns (measured as return on capital
employed) from our Storage activities are also lower relative to our other business divisions and
broader opportunities available to the group.

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“At this stage there is no intention to return capital to shareholders. Rather, the proceeds are
intended to be used to pursue other attractive opportunities in New Zealand agribusiness, both
currently and in the future.” Mr Goodacre said.

Scales was advised by Maher & Associates (lead sale advisor) and Anthony Harper (legal).
Emergent Cold was advised by Russell McVeagh (legal) and Grant Thornton (financial).

Contact
Andy Borland, Managing Director, Scales Corporation Limited, Mob: 021 975 999,
email:
andy.borland@scalescorporation.co.nz

Angelika Torres, EVP Finance, Emergent Cold LLC, Mob: +1 214 212 1150,
email:
angelika.torres@emergentcold.com

About Scales Corporation
Scales Corporation is a diversified agribusiness group. It currently comprises three operating
divisions: Horticulture, Storage & Logistics and Food Ingredients. The company’s diverse spread of
activities gives Scales broad exposure to New Zealand’s agribusiness sector. Scales Corporation
was founded in 1897 as a shipping business by George Herbert Scales. Today it employs more than
700 staff New Zealand wide. Find out more at
www.scalescorporation.co.nz.

About Emergent Cold
Emergent Cold LLC is a multinational cold chain company that provides essential supply chain
services to global food companies and retailers. With operations in Australia and Vietnam today,
Emergent Cold’s strategy is to create a leading global cold chain, frozen and fresh. Led by Neal Rider
and an experienced management team, Emergent Cold is a growing, integrated network of modern
assets, dedicated employees and innovative technology. Find out more at
www.emergentcold.com.

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SCALES CORPORATION LIMITED
SALE OF POLARCOLD
BRIEFING PRESENTATION
9 MAY 2018

May 2018Sale of Polarcold
EXECUTIVE SUMMARY
•Scales has entered into a share sale agreement with Emergent Cold to sell its shares in its
coldstoragebusinesses Polarcoldand WhakatuColdstores(Polarcold) for $151.4m
subject to completion adjustments:
•Multiple of 15.6x FY17 EBIT of $9.7m.
•Transaction is subject only to OIO regulatory approval.
•Transaction proceeds are intended to be retained by Scales and applied to other growth
initiatives being pursued:
We believe there are a number of exciting opportunities in agribusiness now and going forward.
2

TRANSACTION
OVERVIEW
1

May 2018Sale of Polarcold
RATIONALE
•Scales’ refined strategy is about adopting a
greater focus on pure agri-businesses and
businesses / opportunities that play well to our
strengths.
•Polarcold:
Is less aligned to our focus / strengths.
Delivered a lower return (ROCE) relative to:
—Other business divisions in the Group (2017
ROCE from Coldstores11.1% vs rest of
Group 20.3%).
—Other opportunities within the primary
sector.
4
Capital Employed(Dec-17)
Divisional EBIT Contribution 2017
Coldstores
30%
Rest of Group
70%
Coldstores
19%
Rest of Group
81%

May 2018Sale of Polarcold
FINANCIAL IMPACT
5
FY2017Scales todayColdstores
Scales ex.
Coldstores
Revenue399.153.7345.4
Underlying EBITDA62.014.547.5
Underlying EBIT47.89.738.0
Net Cash / Debt (as at 31 Dec)(40.8)110.6
Capital Employed307.587.5220.1
ROCE15.5%11.1%17.3%
Note:
1.Transaction effective from 1 June 2018
2.All earnings post 1 June 2018 accrue to the purchaser
3.Interest to be charged on the purchase price until the sole condition is satisfied

SCALES
STRATEGY
2

May 2018Sale of Polarcold
OUR STRATEGY
•We have refined our group investment / growth strategy, adopting a greater focus on pure agri-businesses.
•We will focus on opportunities that play well to our strengths:
Fully-vertically integrated.
Export-led.
Add value from our Chinese relationships.
•This is an extremely exciting time to be a diversified investor in, and grower of, agribusinesses.
New Zealand stakeholders expect the agriculture sector to embrace environmentally friendly, sustainable and high value
production -making best use of current natural resources and creating long lasting environmental benefits.
This is reflected in recent government announcements covering areas such as climate change and expectations of foreign
investment.
•Successful implementation of the strategy will ultimately result in a meaningful rebalance of our current portfolio of
businesses:
We will look to acquire businesses that play well to our strengths.
We will seek to divest operations that are not well-aligned with our strengths.
7
A greater focus on pure Agri-Business

May 2018Sale of Polarcold
OUR INVESTMENT UNIVERSE
8
Agri-Business encompasses the following primary industries
Agriculture
Fisheries /
Aquaculture
Forestry
Viticulture
Horticulture
Apiculture
Innovative
Processed
Food
Dairy, Meat & Wool, Animal
products, Arable products,
Poultry and eggs
79.2%
of New Zealand’s
merchandise exports
The Primary Sector accounts for:
15%
of employment
10.5%
of GDP

May 2018Sale of Polarcold
APPROACH TO CAPITAL ALLOCATION
9
Scales’ Vision:
To be the foremost investor in, and grower of, New Zealand agribusinesses by leveraging our unique
insights, experience, and access to collaborative synergies.
Our long-term goal:
To generate a long-run average 15% Return on Capital employed across our portfolio.*
*Calculated as Underlying EBIT / Capital Employed, where Underlying EBIT is calculated as Underlying Net Profit plus Net Financing Costs andTax, and Capital Employed is calculated as Non Current
Assets plus Current Assets (excluding any Cash or Cash Equivalent balances) less Current Liabilities (excluding any OverdraftorShort-Term Debt balances).
Strategies to Create Value
As an operator:
•We will support our businesses by investing in
people, culture, and equipment
•We will expand through appropriate investment in
growth
•We will provide operating and financial support
As an investor:
•We will remain patient and disciplined
•We will identify sectors with appropriate vertically-
integrated, scale, and growth characteristics
•We will identify opportunities where we can add
value through our core strengths
•We will remain focused upon our long-term
ROCE objectives