Business SummarySpotless Group Holdings Limited (SPO) is an outsourced facility, laundry andlinen services provider; serving to private & government departments acrossAustralia and New Zealand.

Facility Services: : Facility services includes; facility management, catering& food and cleaning services. Facility Management includes propertymanagement, maintenance and mechanical services, grounds management,security and fire services, waste management and the delivery of a range ofother facility services. Catering and Food offers services such as operatingcanteens, dining halls and restaurants, personal meal delivery, specialisedfood preparation and delivery, management of food and beverage facilitiesand event catering services. Cleaning includes general facility cleaning,specialist industrial and sterile cleaning and washroom.

Laundry and Linen Services: SPO provides the rental, cleaning, collection,delivery and stock management of linen, uniform and specialised work wear.The customers of these services include hospitals, aged care facilities, hotelsand corporate customers.

Acquisition: On 27 February 2015, the Consolidated Entity acquired 100%of the share capital of A.E. Smith & Son Proprietary Limited and A.E. SmithService Holdings Pty Ltd (together AE Smith), a leading air-conditioning andmechanical services provider. On 1st July 2015 the SPO has completed theacquisition of Utility Services Group Limited (USG).

Latest ResearchAnother downgrade and debt guided at 3.0x FY17 ND/EBITDA

Backsliding earnings sour the ND/EBITDA metrics and increase risk —FY17e is indeed shaping up to be a year of considerable “reset” for SPOwith 1H17 revenue declining 9% and $391m in post-tax non-cashwrite-downs helping deliver a net loss of $358.1m for the 1H17. Aside fromthe one-offs we consider the underlying performance disappointing vs Citiexpectations and with management

guiding FY17 NPAT to $80-90m and ND/EBITDA rising to 3x on fallingEBITDA, we see no compelling investment rationale presenting for SPOregardless of how cheap it may appear on a highly uncertain earningsoutlook. We assign a High Risk

flag to our rating reflecting a combination of SPO’s highly concentrated (topten shareholders 39% of issued capital) and mainly offshore (93% ofissued capital)

shareholder register and earnings risk following the failure to deliver onsuccessive commitments to the market. Our new TP of $0.79 implies 0%ETR on a 12mth view.

For more information see full research report 02 Mar 2017.

GICS - Commercial Serv/Supp

Spotless Group Holdings Limited

ASX Code: SPO Price: $1.120 12 Mth Target Price: $0.79 Rating: Neutral - High

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Snapshot

DateMarket Cap.Shares on issue12 Month High12 Month Low

27 September 2017$1,235m1,102.2m$1.16$0.70

RatingRating12 Mth Target Price

Capital GainGross Yield

Implied Total Return

Neutral - High Risk$0.79-30.7%5.0%-25.7%

Investment FundamentalsFYE 30 Jun 2016A 2017F 2018F 2019F

Profit $m 131.0 81.0 86.0 94.0Profit (norm)* $m 131.0 81.0 86.0 94.0

EPS* ¢ 12.0 7.0 8.0 9.0EPS Growth % 0.0 -41.7 14.3 12.5P/E* x 9.5 16.3 14.3 12.7P/E Relative % 0.0 0.0 0.0 0.0

DPS ¢ 9.0 3.0 4.0 4.0Yield % 7.9 2.6 3.5 3.5Franking % 0.0 0.0 100.0 100.0* Adjusted for goodwill and unusual itemsSource: Based on Citi estimates

Share Price Chart

Total Return on $10,000 Investment

Profit & Loss ($M)2013A 2014A 2015A 2016A 2017A

Sales Revenue -- 2,620 2,873 3,176 3,006Total Revenue ex. Int. -- 2,621 2,873 3,176 3,006EBITDA -- 252 319 327 265Depreciation & Amort. -- -64 -78 -104 -112Goodwill Amortisation -- -- -- -- --EBIT -- 188 240 223 153Net Interest -- -170 -34 -40 -44Profit Before Tax -- 18 206 183 110Income Tax -- 13 -61 -51 -30Outside Equity Int. -- -- -- -- --Profit after Tax -- 32 145 132 80Significant Items after Tax -- -66 -2 -10 -427Reported Profit after Tax -- -35 143 122 -347Preferred Dividends -- -- -- -- --

Cash Flow ($M)2013A 2014A 2015A 2016A 2017A

Receipts from Customers -- 2,850 3,079 3,563 2,678Funds from Operations -- 128 240 188 235Net Operating Cashflow -- -14 211 142 191Capex -- -77 -122 -156 -93Acquisitions & Investments -- -- -99 -103 -24Sale of Invest. & Subsid. -- 2 8 2 10Net Investing Cashflow -- -74 -214 -245 -95Proceeds from Issues -- 695 -- -- --Dividends Paid -- -148 -49 -99 -70Net Financing Cashflow -- 194 -10 53 -84Net Increase Cash -- 105 -13 -50 11Cash at Beginning -- -- 105 105 54Exchange Rate Adjust. -- 0 0 -0 0Cash at End -- 105 105 54 66

Ratios and Substantial Shareholders2013A 2014A 2015A 2016A 2017A

Profitability RatiosEBITDA Margin % -- 9.62 11.09 10.30 8.81EBIT Margin % -- 7.19 8.36 7.03 5.10Net Profit Margin % -- 1.21 5.05 4.17 2.65Return on Equity % -- 8.79 17.90 16.00 18.92Return on Assets % -- 16.36 8.27 7.17 5.77

Debt/Safety RatiosNet Debt/Equity % 78.47 73.25 69.53 95.47 185.91Interest Cover x -- 1.11 7.07 5.60 3.52

Top 5 Substantial ShareholdersDowner EDI Limited 87.8%Coltrane Master Fund, L.P 10.6%Morgan Stanley and its subsidiaries 8.0%Milsubishi UFJ Financial Group, INC 8.0%

Balance Sheet ($M)2013A 2014A 2015A 2016A 2017A

Cash & Equivalent 98 105 105 54 66Receivables 305 327 391 430 413Inventories 22 23 24 30 32Other Current Assets 10 8 15 19 11Current Assets 440 468 536 533 522Prop. Plant & Equipment 209 219 270 303 281Intangibles 963 968 1,064 1,195 886Other Non-Current Assets 34 22 28 42 85Non-Current Assets 1,356 1,391 1,519 1,708 1,390Total Assets 1,796 1,859 2,055 2,241 1,912Interest Bearing Debt 633 632 669 844 848Other Liabilities 483 508 576 570 643Total Liabilities 1,116 1,140 1,244 1,414 1,491Net Assets 681 719 810 827 421Share Capital 981 993 994 994 994Reserves 3 2 -1 -7 3Retained Earnings -304 -276 -183 -159 -576Outside Equity Int. -- -- -- -- --Total Shareholders Equity 681 719 810 827 421

Current Analyst Recommendations *

* Source: Morningstar. This chart shows the spread of recommendations from thosebroker analyst's in Australia with research coverage of this stock.

Principals & DirectorsPrincipals

Company Secretary Mr Paul Morris

Directors

Professor John Scott Humphrey(Non-Executive Director)Mr Michael James Ferguson(Non-Executive Director)Mr Philip Stuart Garling(Non-Executive Director)Dr Charles (Grant) Grant Thorne(Non-Executive Director)Mr Simon Vincent McKeon(Non-Executive Director)Ms Dana Gaye Nelson(Chief Executive Officer,Managing Director)

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Spotless Group Holdings Limited

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